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

    [[Page 211]]

                           15. BUDGET REFORM PROPOSALS

      The budget process should be transparent, accountable, and orderly.
    The current budget process needs reforms to achieve these goals. No one
    change can fix the budget process, and process alone cannot address
    important fiscal issues. Nevertheless, process changes can be a key
    factor in the effort to control spending. Starting with A Blueprint for
    New Beginnings and continuing with subsequent budgets, this
    Administration has consistently proposed changes to the budget process,
    as well as an extension with changes to key provisions of the Budget
    Enforcement Act (BEA) of 1990, as amended, that are designed to improve
    budget decisions and outcomes. This chapter updates the Administration's
    previous proposals and describes additional reforms proposed by the
    Administration.

              Controlling Entitlements and Other Mandatory Spending

       Mandatory Spending Control.--The Administration proposes to require
    that all legislation that changes mandatory spending, in total, does not
    increase the deficit. The five-year impact of any proposals affecting
    mandatory spending would continue to be scored. Legislation that
    increases the current year and the budget year deficit would trigger a
    sequester of direct spending programs. The proposal does not apply to
    changes in taxes and does not permit mandatory spending increases to be
    offset by tax increases. This proposal effectively applies a pay-as-you-
    go requirement to mandatory spending. Table 15-1 displays the
    President's mandatory spending proposals that would be subject to this
    requirement.

                                                        Table 15-1.  MANDATORY PROPOSALS SUBJECT TO PAYGO
                                                            (Cost/Savings (-) in millions of dollars)
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                     Proposals                                      2007       2008       2009       2010       2011       2012     2007-12
    --------------------------------------------------------------------------------------------------------------------------------------------------------

    Medicare...................................................................  .........     -4,696     -9,113    -13,077    -17,463    -21,695    -66,044
    Outlay Effects of Tax Proposals \1\........................................  .........       -388       -297      4,021      4,100      4,086     11,522
    Medicaid/State Children's Health Insurance Program.........................         35       -330       -870     -1,765     -1,790     -2,005     -6,725
    User Fee Proposals.........................................................  .........       -774     -1,021     -1,178     -1,187     -1,315     -5,476
    Pension Benefit Guaranty Corporation Reform................................  .........  .........     -1,390     -1,387     -1,400     -1,295     -5,472
    ANWR Leasing...............................................................  .........  .........     -3,502         -2       -503         -3     -4,010
    Federal Student Aid Proposals..............................................  .........     -3,652       -356        -69        365        769     -2,943
    Farm Bill Reauthorization..................................................  .........        500        500        500        500        500      2,500
    Social Services Block Grant................................................  .........  .........       -425       -495       -500       -500     -1,920
    Unemployment Insurance Integrity Proposal \1\..............................  .........  .........       -484       -494       -351       -355     -1,684
    Other Proposals............................................................       -125     -1,215       -602       -687       -715       -895     -4,238
                                                                                ----------------------------------------------------------------------------
      Total....................................................................        -90    -10,555    -17,560    -14,633    -18,944    -22,708    -84,490

        Total, 2007 and 2008...................................................  .........    -10,645  .........  .........  .........  .........  .........
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ Affects both receipts and outlays. Only the outlay effect is shown here. For receipt effects, see Table S-6 in the Budget volume.

    Note: a more detailed list of the Administration's mandatory proposals can be found in Table S-5 of the Budget volume.

       Long-term Unfunded Obligations.--The Administration proposes new
    measures to address 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 program's own dedicated financing or by general revenues. The
    Administration's proposed measures are designed to begin addressing
    these challenges.
      In the Medicare Modernization Act (MMA) of 2003, Congress provided for
    a more comprehensive review of the Medicare program's finances and
    required the Medicare trustees to issue a warning when general revenue
    Medicare funding is projected to exceed 45 percent of Medicare's total
    expenditures. The President's Budget proposes to build on this reform by
    requiring an automatic reduction in the rate of Medicare growth if the
    MMA threshold is exceeded. If a warning was issued and action was not
    taken over the next six years to keep this threshold from being
    exceeded, the reduction would begin as a four-tenths of a percent
    reduction to all payments to providers in the year the threshold is
    exceeded, and would grow by four-tenths of a percent every year the
    shortfall continued to occur. This provision is designed to encourage
    the President and the Congress to reach agreement on reforms to slow
    Medicare spending and bring it back into line with the threshold
    established by the MMA.
      Social Security's Disability Insurance (DI) program provides
    disability insurance coverage and benefits to

    [[Page 212]]

    America's workers. Outlays for the DI program have grown as a percentage
    of all Federal budget outlays from roughly 2.1 percent in 1989 to an
    estimated 3.6 percent in 2007. The Budget projects DI outlays will
    continue to increase as a percentage of the Federal budget, along with
    escalating annual cash deficits. The President's Budget proposes a new
    Funding Warning to highlight the escalating and persistent fiscal
    problems facing DI. If SSA's actuaries project a negative DI cash flow
    that is more than 10 percent of program cost for four consecutive years
    in the upcoming 10 years, the Board of Trustees will issue the warning
    in the annual Trustees Report. Issuance of a DI Funding Warning would
    require the President to propose legislation to respond to the warning
    within 15 days after the date of the next Budget submission; the
    Congress would then consider this legislation. The analysis of DI's
    budgetary impact will safeguard an important source of disability
    insurance while promoting sound fiscal policy.
      In addition to this Medicare-specific control mechanism and DI Funding
    Warning, the President's Budget proposes to establish a broader
    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 that 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. Under
    these requirements, the Administration would report on any enacted
    legislation in the past year that worsens the unfunded obligations of
    the specified programs
       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 initiate 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.
      Controlling these costs is integral to the Administration's commitment
    to reducing the deficit and enforcing fiscal discipline. Toward that
    end, the Director of the Office of Management and Budget issued on May
    23, 2005 a memorandum to all Executive Branch agencies implementing a
    budget-neutrality requirement on agency administrative actions affecting
    mandatory spending. Discretionary administrative actions in entitlement
    programs, including regulations, program memoranda, demonstrations,
    guidance to States or contractors, and other similar changes to
    entitlement programs are generally required to be fully offset. This
    effectively establishes a pay-as-you-go requirement for discretionary
    administrative actions involving mandatory spending programs. Exceptions
    to this requirement are only provided in extraordinary or compelling
    circumstances.

                                     Table 15-2.  DISCRETIONARY CAPS AND ADJUSTMENTS
                                            (Amounts in billions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                          2007 \1\    2008      2009      2010      2011      2012
    ----------------------------------------------------------------------------------------------------------------
    Proposed Discretionary Spending Categories:

      Defense Category (Function 050):
        Budget authority................................     455.8     501.9     531.4        NA        NA        NA
        Outlays.........................................     536.2     479.0     546.2        NA        NA        NA

      Nondefense Category:
        Budget authority................................     417.0     427.0     432.0        NA        NA        NA
        Outlays.........................................     466.6     459.4     454.5        NA        NA        NA

      Discretionary Category:
        Budget authority................................        NA        NA        NA     978.9     991.9   1,006.2
        Outlays.........................................        NA        NA        NA   1,028.6   1,041.7   1,043.7

        Proposed Cap Adjustments:
          SSA Continuing Disability Reviews:
            Budget authority............................        NA     0.213     0.453     0.485        NA        NA
            Outlays.....................................        NA     0.213     0.453     0.485        NA        NA
          IRS Tax Enforcement:
            Budget authority............................        NA     0.440     0.619     0.826        NA        NA
            Outlays.....................................        NA     0.414     0.583     0.778        NA        NA
          Health Care Fraud and Abuse Control:
            Budget authority............................        NA     0.183     0.198     0.211        NA        NA
            Outlays.....................................        NA     0.183     0.198     0.211        NA        NA
          Unemployment Insurance Improper Payments:
            Budget authority............................        NA     0.040     0.040     0.040        NA        NA
            Outlays.....................................        NA     0.034     0.040     0.040        NA        NA

      Subtotal, Nondefense Category with Adjustments:
        Budget authority................................     417.0     427.9     433.3        NA        NA        NA
        Outlays.........................................     466.6     460.2     455.8        NA        NA        NA

      Highway Category:
        Outlays.........................................      33.8      37.6      39.4        NA        NA        NA

      Mass Transit Category: \2\
        Outlays.........................................       7.5       8.7       9.8        NA        NA        NA

    Total, All Discretionary Categories:
      Budget authority..................................     872.8     929.8     964.7     980.4     991.9   1,006.2
      Outlays...........................................   1,044.1     985.6   1,051.2   1,030.1   1,041.7   1,043.7

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

    Memorandum: 2007 Enacted Emergencies
      Budget authority..................................      72.0  ........  ........  ........  ........  ........
    ----------------------------------------------------------------------------------------------------------------
    \1\ The discretionary budget authority total is equal to the 302(a) allocation provided in a separate deeming
      provision in both the House and the Senate, excluding emergencies enacted for the Global War on Terror and for
      border security in the Department of Defense and Department of Homeland Security Appropriations Acts (P.L. 109-
      289 and P.L. 109-295, respectively). The House included a deeming provision in section 2 of the special rule,
      H. Res. 818, on the Department of Interior, Environment, and Related Agencies Appropriations Act for 2007. The
      Senate included a deeming provision in section 7035 of P.L. 109-234, the Emergency Supplemental Appropriations
      Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006.
    \2\ Includes outlays from discretionary budget authority.

                       Controlling Discretionary Spending

       Discretionary Caps.--The Administration proposes to set limits for
    2007 through 2012 on net discretionary budget authority and outlays
    equal to the levels proposed in the 2008 Budget. Legislation that
    exceeds the discretionary caps would trigger a sequester of non-exempt
    discretionary programs. Table 15-2 displays the total levels of
    discretionary budget authority and outlays proposed for 2007 through
    2012. This approach would put in place a budget framework for the next
    five years that ensures constrained, but reasonable growth in
    discretionary programs. For 2007 through 2009, separate defense
    (Function 050) and nondefense categories would be enforced. For 2010-
    2012, there would be a single cap for all discretionary spending.
      These discretionary levels do not reflect the Administration's
    proposal to replace aviation taxes that are currently recorded as
    governmental receipts with FAA user fees that would be recorded as
    offsetting collections. This budget-neutral reclassification lowers
    receipts and net budget authority by an identical amount and does not
    affect gross discretionary budget authority levels. If this proposal is
    enacted, the Administration would adjust discretionary spending levels
    downward for FY 2009-2012 by the amount of the proposal. In addition, a
    separate category for transportation outlays financed by dedicated
    revenues would be established for 2007 through 2009 at levels consistent
    with those enacted in the Safe, Accountable, Flexible, Efficient,
    Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The
    Administration would support expanding the defense category to include
    all security programs and a corresponding change to create a non-
    security category to ensure resources are devoted to security programs
    and are not diverted for other purposes.
       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 80 percent of improper payments are
    overpayments. The Administration has made the elimination of improper
    payments a major focus. Federal agencies have aggressively reviewed
    Federal

    [[Page 213]]

    programs to evaluate the risk of improper payments and have developed
    measures to assess the extent of improper payments. Processes and
    internal control improvements have been initiated to enhance the
    accuracy and integrity of payments and to report the results of these
    efforts, pursuant to the Improper Payments Information Act of 2002 (P.L.
    107-300).
      The results of the agencies' assessments have been aggregated into a
    Government-wide report entitled Improving the Accuracy and Integrity of
    Federal Payments. (The report can be found at www.whitehouse.gov/omb/
    financial/fia--improper.html.) In 2006, the agencies reported a total of
    $40.5 billion in improper payments. This represents a 2.87 percent
    improper payment rate. Nearly 70 percent of those improper payments are
    in four programs: Medicare, Earned Income Tax Credit, Old-Age,
    Survivors, and Disability Insurance, and Unemployment Insurance. This
    program integrity cap adjustment initiative also captures IRS efforts to
    improve tax compliance. While not technically improper payments, the
    challenges of tax compliance are similar to those of the improper
    payments programs.
      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 for continuing disability
    reviews (CDRs) and redeterminations of eligibility in the Social
    Security Administration (SSA), Internal Revenue Service (IRS) tax
    enforcement, the

    [[Page 214]]

    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 errors 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 and Supplemental Security Income programs and an
    increase in enforcement efforts in EITC. The Administration's proposed
    adjustments for program integrity activities will total $876 million in
    budget authority in 2008 and $1,310 million in budget authority in 2009
    and $1,562 million in budget authority in 2010.

                                 Table 15-3.  PROGRAM INTEGRITY BASE AND CAP ADJUSTMENTS
                                        (Budget authority in millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                                       2007
                                            2005       2006   ----------------------    2008       2009       2010
                                           Actual     Actual    Request    CR rate    Proposed   Proposed   Proposed
    ----------------------------------------------------------------------------------------------------------------
    SSA Continuing Disability Reviews:
      Enforcement Base \1\.............        311        224        289        141        264        264        264
      Cap Adjustments:
        BA.............................         NA         NA        201         NA        213        453        485
        Outlays........................         NA         NA        201         NA        213        453        485

    IRS Tax Enforcement:
      Enforcement Base \2\.............      6,446      6,378      6,824      6,788      6,788      6,788      6,788
      Cap Adjustments:
        BA.............................         NA        446        137         NA        440        619        826
        Outlays........................         NA        415        129         NA        414        583        778

    Health Care Fraud and Abuse Control
     Program:
      Enforcement Base (Mandatory).....      1,075      1,212      1,075      1,137      1,156      1,178      1,200
      Cap Adjustments:
        BA.............................         NA         NA        118         NA        183        198        211
        Outlays........................         NA         NA        118         NA        183        198        211

    Unemployment Insurance Improper
     Payments:
      Enforcement Base.................         10         10         10         10         10         10         10
      Cap Adjustments:
        BA.............................         NA         NA         40         NA         40         40         40
        Outlays........................         NA         NA         34         NA         34         40         40

    Total:
      Enforcement Base.................      7,842      7,824      8,198      8,063      8,218      8,240      8,262
      Cap Adjustments:
        BA.............................         NA        446        496         NA        876      1,310      1,562
        Outlays........................         NA        415        482         NA        844      1,274      1,514
    ----------------------------------------------------------------------------------------------------------------
    \1\ The proposed 2008 base and cap adjustment would include both CDRs and redeterminations, whereas the 2005,
      2006 and 2007 numbers reflect only CDRs, as previous cap adjustments were for CDRs only. In 2008, the base is
      $161 million for CDRs and $103 million for redeterminations, and the cap adjustment is $163 million for CDRs
      and $50 million for redeterminations. In 2009, the cap adjustment is $346 million for CDRs and $107 million
      for redeterminations. In 2010, the cap adjustment is $368 million for CDRs and $117 million for
      redeterminations. In 2009 and 2010 the split for the base is the same as in 2008.
    \2\ The enforcement base for the 2007 Request is equal to the 2006 enacted enforcement base of $6,378 million
      plus the 2006 enacted cap adjustment of $446 million.

      For the Social Security Administration, the $213 million cap
    adjustment would allow SSA to conduct an additional 200,000 Continuing
    Disability Reviews (CDRs) and an additional 500,000 SSI redeterminations
    of eligibility in 2008. As a result of these efforts, SSA would recoup
    over $1.8 billion in savings over a ten-year period, with additional
    savings after the ten-year period, as estimated by SSA's Office of the
    Actuary. The savings from one year of program integrity activities are
    realized over multiple years because some CDRs identify that the
    beneficiary has medically improved and is capable of working, which may
    mean that they are no longer eligible to receive Disability Insurance
    (DI) or Supplemental Security Income (SSI) benefits. This may also
    result in savings in Medicare and Medicaid, since eligibility for these
    programs is linked to DI and SSI. Overpayments of SSI benefits
    identified by a redetermination are not always recovered in the same
    year that the redetermination is conducted.
      The return on investment (ROI) for CDRs is approximately 10 to 1 in
    lifetime program savings, and approximately 8 to 1 over the first ten
    years. The ROI for redeterminations is approximately 7 to 1.
    Redeterminations focus on an individual's eligibility for the means
    tested SSI program and generally result in a revision to the
    individual's benefit level. However, the schedule of savings resulting
    from redeterminations will be different for the base and the cap
    adjustment. This is due to the fact that redeterminations of eligibility
    can uncover underpayment errors as well as overpay

    [[Page 215]]

    ment errors. SSI recipients are more likely to initiate a
    redetermination of eligibility if they believe there is an underpayment
    error, and these recipient-initiated redeterminations are included in
    the base. In addition, corrections for underpayment errors are realized
    more quickly than corrections for overpayment errors.

                                                                Table 15-4.  DIRECT SAVINGS ESTIMATED FROM 2008 PROGRAM INTEGRITY FUNDING
                                                                                (Budget authority in millions of dollars)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     2008                                                    Direct Savings Estimates
                                                                   Program  ------------------------------------------------------------------------------------------------------------------------
                                                                  Integrity
                                                                    Funding     2008       2009       2010       2011       2012       2013       2014       2015       2016       2017      Total
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    SSA Continuing Disability Reviews \1\
      Enforcement Base..........................................       264        578       -608       -414       -250       -206       -200       -185       -169       -162       -142     -1,758
      Cap Adjustment............................................       213        -31       -439       -288       -188       -164       -158       -148       -137       -130       -118     -1,801

    IRS Tax Enforcement \2\
      Enforcement Base..........................................     6,788    -50,900   .........  .........  .........  .........  .........  .........  .........  .........  .........   -50,900
      Cap Adjustment \3\........................................       440        -51       -194        -43        -14         -7         -4         -2         -1         -1   .........      -317

    Health Care Fraud and Abuse Control Program
      Cap Adjustments \4\.......................................       183       -330   .........  .........  .........  .........  .........  .........  .........  .........  .........      -330

    Unemployment Insurance Improper Payments \5\
      Enforcement Base..........................................        10        -50   .........  .........  .........  .........  .........  .........  .........  .........  .........       -50
      Cap Adjustments...........................................        40       -145        -60   .........  .........  .........  .........  .........  .........  .........  .........      -205
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\ This is based on SSA's Office of the Actuary estimates of savings from CDRs and redeterminations. In the first year, the enforcement base shows a positive outlay. This is due to the fact
      that redeterminations of eligibility can uncover underpayment errors as well as overpayment errors. SSI recipients are more likely to initiate a redetermination if they believe there is an
      underpayment, and SSA completes these beneficiary-initiated redeterminations in the enforcement base. In addition, corrections for underpayments are realized more quickly than corrections
      for overpayment. The cap adjustment does not show an outlay in the first year because SSA would target their cap adjustment redetermination dollars to cases where an overpayment is
      suspected.
    \2\ Savings for IRS are revenue increases rather than spending reductions. They are shown as negatives for consistency in presentation. At the base level they are shown as constant for
      simplicity.
    \3\ The Internal Revenue Service (IRS) cap adjustment funds cost increases for the base program (+$149 million) and new initiatives (+$291 million). The IRS collects $51 billion per year (2007
      estimate) in direct enforcement revenue, and its enforcement program helps maintain the more than $2 trillion in taxes voluntarily paid each year. The cost increases will help maintain the
      base revenue. The 2008 initiatives will yield an estimated $317 million in new enforcement revenue, fund improvements in the base program such as new computers and better research, and help
      deter tax cheating. This deterrence impact is not directly measured. However, research suggests it is at least three times as large as the direct impact on revenue.
    \4\ These data are based on estimates from the HHS Office of the Actuary for return on investment from program integrity activities.
    \5\ The maximum UI benefit period is typically 26 weeks. As a result, preventing an ineligible individual from collecting UI benefits would save at most a half year of benefits. The two years
      of savings reflect the fact that reemployment and eligibility assessments conducted late in the year affect individuals whose benefits would have continued into the subsequent fiscal year.

       Table 15-5.  TRANSPORTATION CATEGORY FOR HIGHWAYS AND MASS TRANSIT
                                    SPENDING
                        (Amounts in millions of dollars)
    ------------------------------------------------------------------------
                                                  2007      2008      2009
    ------------------------------------------------------------------------
    Transportation Category: \1\
      Highways: \2\
        Obligation Limitations................    36,847    40,946    42,581
        Outlays...............................    33,840    37,649    39,443

      Mass Transit:
        Obligation Limitations................     6,910     7,873     8,406
        Outlays \3\...........................     7,479     8,740     9,774

    Memorandum:
      Discretionary budget authority for Mass
       Transit included in the Nondefense
       Category:..............................
      Budget authority........................     1,688     1,550     1,980
    ------------------------------------------------------------------------
    \1\ The amounts included for 2007 reflect the levels provided by the
      continuing resolution (P.L. 109-289, Division B, as amended). The
      SAFETEA-LU levels enacted for Highway and Mass Transit programs apply
      in 2008 and 2009.
    \2\ The Highway levels do not include adjustments authorized in SAFETEA-
      LU of $631 million in FY 2008 for the revenue aligned budget authority
      (RABA) calculation. The levels do include $122 million in FY 2008-2009
      for the National Highway Traffic Safety Administration. The proposal
      is to fund NHTSA completely from the Highway Trust Fund instead of a
      portion from General Fund, as authorized in SAFETEA-LU.
    \3\ Includes outlays from discretionary budget authority.

      SSA is required by law to conduct CDRs for all beneficiaries who are
    receiving Disability Insurance benefits, as well as all children under
    18 who are receiving Supplemental Security Income. SSI redeterminations
    are also required by law, but the frequency is not specified in statute.
    Because of this mandate, in previous President's Budgets it was assumed
    that SSA devoted the resources necessary to carry out between 500,000
    and 700,000 full medical CDRs and between 1 and 2 million SSI
    redeterminations per year, with resulting savings built into the
    baseline for SSI and DI. However, actual performance of program
    integrity activities has been well below this level. This year, the
    baseline assumes a more likely scenario for program integrity funding,
    and the President's Budget shows the savings which will result from the
    program integrity cap adjustment proposal.
      For the IRS, the $440 million cap adjustment covers cost increases
    (+$149 million) for the $6.8 billion base IRS enforcement program plus
    new investments in expanding staff and improving the efficiency of the
    IRS' enforcement programs (+$291 million). As a result of these efforts,
    the IRS will collect an estimated $51 billion in 2007 in direct
    enforcement revenue. The IRS succeeded in increasing this figure by 44
    percent between 2002 and 2006. The IRS estimates that work completed by
    the proposed new staff in 2008 will eventually yield another $317
    million. Once these new staff are trained and become more experienced
    the enforcement revenue impact of the work they complete each year will
    rise to $699 million. However, this ROI estimate is understated because
    much of the new investment is directed towards efforts to improve the
    performance of the existing staff (such as new computers and better
    research) that are not reflected in the IRS' ROI calculation. More
    importantly, the ROI is understated because it does not reflect the
    impact enhanced enforcement has on deterring non-compliance that helps
    to ensure the continued payment of more than $2 trillion in taxes
    voluntarily paid each year. The impact of increased IRS enforcement on
    improving voluntary compliance is not directly measured. However,
    research suggests it is at least three times as large as the direct
    impact on revenue.
      The discretionary cap adjustment of $183 million for the Centers for
    Medicare and Medicaid Services' HCFAC program is designed to provide
    additional resources to identify and reduce improper payments in the
    Medicare prescription drug benefit and Medicare Advantage programs. This
    $183 million would build on

    [[Page 216]]

    funding provided in the Deficit Reduction Act of 2005 for Part D program
    integrity activities for FY 2006 only. The funding would be allocated
    among CMS, the Health and Human Services Office of Inspector General,
    the Federal Bureau of Investigation, and Department of Justice to
    safeguard these programs as well as Medicaid against fraud and abuse.
    This $183 million would generate approximately $330 million in savings
    in FY 2008, which would reflect recouping improper payments made to
    providers.
      The 2008 Budget proposes a discretionary cap adjustment of $40 million
    for the Department of Labor's (DOL) Unemployment Insurance (UI) State
    administrative grants program to reduce UI improper payments, a top
    management challenge identified by GAO and DOL's Inspector General. The
    proposal would expand a $10 million Reemployment and Eligibility
    Assessment initiative begun in 2005 to finance in-person interviews at
    One-Stop Career Centers to assess UI beneficiaries' need for job-finding
    services and their continued eligibility for benefits. The current $10
    million effort results in a savings in UI benefit payments of $50
    million. The maximum UI benefit period is typically 26 weeks. As a
    result, preventing an ineligible individual from collecting UI benefits
    would save at most a half year of benefits. The two years of savings
    from the additional $40 million, totaling $145 million in 2008 and $60
    million in 2009, reflect the fact that reemployment and eligibility
    assessments conducted late in the year affect individuals whose benefits
    would have continued into the subsequent fiscal year.
       Transportation Category.--The Administration's proposal for
    discretionary caps includes separate outlay categories for spending on
    Federal Highway and Mass Transit programs. The transportation levels
    will be financed by dedicated revenues through 2009. Table 15-5 shows
    the levels, excluding the revenue aligned budget authority (RABA)
    adjustment as authorized in SAFETEA-LU for 2007 and 2008. The RABA
    adjustment is calculated based on changes in estimated Highway Trust
    Fund receipts, and results in either an increase or decrease in the
    Highway Category funding level enacted in SAFETEA-LU. The amounts shown
    for 2007 reflect the levels provided by the continuing resolution (P.L.
    109-289, Division B, as amended), which did not include the 2007 RABA
    adjustment authorized in SAFETEA-LU. For 2008, the RABA adjustment
    authorized in SAFETEA-LU is a positive $631 million; however, the
    Administration proposes not to provide this increase in funding in order
    to preserve the solvency of the Highway Trust Fund.
       Advance Appropriations.--An advance appropriation becomes available
    one or more years beyond the year for which its appropriations act is
    passed. Budget authority 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 budget authority freed up under the budget year
    discretionary cap to other programs. The effect of these advance
    appropriations is to limit the amount of discretionary budget authority
    available in subsequent years, thereby reducing future funding options
    available to both Congress and the President. From 1993 to 1998, 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 2001 Congressional Budget Resolution and this
    Administration's budget proposals have capped advance appropriations

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    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. For 2009, the
    Administration proposes a cap on advance appropriations of $23,174
    million.
      In addition, the Administration proposes to 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 would 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 2009
    that is in excess of the Administration's limit on advance
    appropriations of $23,174 million in 2009 will count against the
    discretionary cap in the year enacted, not against the year the funds
    first become available.
      For more information on individual accounts with advance
    appropriations, please see the chapter on this subject in the Budget
    Appendix.
       Federal Pell Grants.--To ensure funding shortfalls do not accumulate
    in the Pell Grant program in future years, the 2006 Congressional Budget
    Resolution adopted the Administration's proposal to score appropriations
    at the amount needed to fully fund the award level set in appropriations
    acts, beginning with the 2006-2007 school year, if the amount
    appropriated is insufficient to fully fund all awards. The
    Administration proposes to continue this scoring rule. Under this rule,
    the amount scored would be increased to cover any cumulative funding
    shortfalls from previous years and reduced by any surpluses carried over
    from previous years, beginning with any shortfalls or surpluses from the
    2006-2007 school year. If the amount appropriated exceeds 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. In the 2008 Budget, the Department of Education
    estimates that a cumulative $235 million shortfall will be carried into
    the 2008-2009 academic year. Because there is no final 2007
    appropriation for this account, the Budget assumes a 2007 enacted level
    of $12.607 billion for calculating this shortfall, which was the CBO
    estimate of the 2007 Senate Subcommittee appropriation of a $4,050
    maximum award for the 2007-2008 award year. For scoring purposes, the
    funding needed to fully fund all awards for 2008-2009 is increased by
    the amount of this shortfall.
       Project BioShield Category.--The Administration proposes a separate
    BEA category for budget authority for Project BioShield, which received
    an advance appropriation 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.

         Include Stricter Standard For Emergency Designation in the BEA

      When the BEA was enacted in 1990, 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 terrorist attacks of
    September 11, 2001, or Hurricane Katrina. 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, tor

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    nados, 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 a multi-year average for disaster
    relief. Funding at an average, therefore, should not be considered an
    emergency under this definition. On the other hand, an average level of
    funding for domestic disasters will not accommodate the level necessary
    to address a large and relatively infrequent domestic disaster, such as
    Hurricane Katrina. 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 mandatory spending control exemption
    would apply.

                                    Baseline

      The Administration supports the extension of section 257 of the BEA
    governing baseline calculations with the following changes:
        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.

                                 Earmark Reform

      An earmark is a spending provision that the Congress inserts in
    legislation. Frequently, these provisions are not publicly disclosed
    during the legislative process and often they are special interest
    projects. A number of organizations track earmarks. The Congressional
    Research Service (CRS) and Citizens Against Government Waste (CAGW) have
    been tracking earmarks for over a decade. While they do not use the same
    definition, their data show similar trends. Earmarks have expanded
    dramatically in recent years, with the numbers and costs of earmarks
    more than tripling since the early 1990s. According to CAGW, the
    Congress added nearly 550 earmarks at a cost of $3 billion to the Budget
    in 1991. The number of earmarks peaked in 2005. CAGW has estimated that
    earmarks grew to almost 14 thousand at a cost of $27 billion. CRS data
    show a similar trend, with earmarks reaching more than 16 thousand in
    2005 at a cost of $52 billion. OMB has also been tracking earmarks
    during recent years and estimates that the number of earmarks grew to
    over 13 thousand at a cost of nearly $18 billion. OMB is

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    in the process of developing the capability to track earmarks during the
    legislative process.
      One major concern about earmarks is the lack of transparency. Most
    earmarks do not appear in statutory language. Instead, they are included
    in committee reports that accompany legislation. According to CRS, more
    than 90 percent of earmarks are in report language. This means that the
    vast majority of earmarks do not appear in the statutory language that
    the Congress actually votes on or that the President signs into law.
    Also, earmarks frequently surface in the last stage of the legislative
    process, in conference committees between the House and the Senate.
      The President has called on the Congress to fully disclose all
    earmarks to reduce the amount of wasteful and unnecessary spending.
    Taxpayers should feel confident that their tax dollars are being spent
    wisely. Unfortunately, the large number of earmarks and the lack of
    transparency in the earmarking process make it difficult to assure the
    public that the Government is spending the people's money on the
    Nation's highest priorities. The President has proposed that the
    Congress provide justification for earmarks, and identify the sponsor,
    costs, and recipients of each project. In addition, the President has
    proposed that the Congress stop the practice of placing earmarks in
    report language. Finally, he has called on the Congress to cut the
    number and cost of earmarks by at least 50 percent.

                                 Line-Item Veto

      A perennial criticism of the Federal Government is that spending and
    tax legislation contain too many provisions that are not fully
    justified, are a low priority, or are earmarked to avoid the discipline
    of competitive or merit-based reviews. These special interest items
    would likely not become law if considered as a stand-alone bill, and
    their persistence diverts resources from higher priority programs and
    erodes the confidence of citizens in Government.
      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.
      Last year, the President asked that Congress correct this state of
    affairs by providing him and future presidents with a line item veto
    that would withstand constitutional challenge, and the President
    transmitted legislation to the Congress in March 2006 that accomplishes
    this purpose. Under the President's proposal, a President could propose
    legislation to rescind wasteful spending, and the Congress would be
    obligated to vote quickly on that package of rescissions, without
    amendment. All savings from the line-item veto would be used for deficit
    reduction; they could not be applied to augment spending elsewhere.
      The President's proposal received strong support. In June 2006, the
    House of Representatives voted on a bipartisan basis to enact a version
    of the Legislative Line Item Veto. In the Senate, members voted to
    report an amended version of the President's proposal out of the Senate
    Budget Committee for consideration on the floor.
      Forty-three Governors have a line item veto to reduce spending, and
    the President needs similar authority to help control unjustified and
    wasteful spending in the Federal budget. The Administration urges
    continued support for this common-sense provision and will seek its
    enactment in the 110th Congress.

                          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, encourage the President and the Congress to reach agreement on
    overall fiscal policy before individual tax and spending bills are
    considered, and give the budget resolution the force of law.
       Biennial Budgeting and Appropriations.--Only three times in the last
    25 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, in recent years the Congress appropriated
    between $160 billion and $170 billion 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.--In the 22 out of the past 25 years
    in which Congress has not finished appropriation bills by the October
    1st deadline, it has funded the Government through ``continuing
    resolutions'' (CRs), which provide temporary funding author

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    ity 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. 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
    Administration'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.
       Results and Sunset Commissions.--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. Today, almost 30 percent of assessed programs have been
    determined to be either ineffective or unable to demonstrate results.
    And the problem of overlapping programs exists in many areas where the
    Government is trying to serve.
      From the 1930s through 1984, presidents were permitted to submit plans
    for reorganizing Federal agencies to Congress that would become
    effective unless the plan was disapproved by either House of Congress.
    After the Supreme Court decision in INS v. Chadha (462 U.S. 919), the
    authority granted to presidents for submitting reorganization plans
    under the Reorganization Act (5 U.S.C. 903) was limited by the
    requirement of congressional approval through a joint resolution and by
    the scope of what could be proposed. This authority was no longer
    available to the President after 1984.
      Today, proposals to restructure or consolidate programs or agencies so
    they can perform better require a change in law and often face long odds
    of being enacted due to a cumbersome process that requires approval from
    multiple congressional committees.
      To address this problem, in June 2005 the Administration transmitted
    the Government Reorganization and Program Performance Improvement Act,
    which would establish bipartisan Results Commissions and a Sunset
    Commission. Results Commissions would consider and revise Administration
    proposals to restructure or consolidate programs or agencies to improve
    their performance. The Sunset Commission would consider Presidential
    proposals to retain, restructure, or terminate agencies and programs
    according to a schedule set by the Congress. Agencies and programs would
    automatically terminate according to the schedule unless reauthorized by
    the Congress. The legislation was introduced in the House and Senate,
    but was not enacted.