[Analytical Perspectives]
[Budget Reform Proposals]
[15. Budget Reform Proposals]
[From the U.S. Government Printing Office, www.gpo.gov]
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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
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Total.................................................................... -90 -10,555 -17,560 -14,633 -18,944 -22,708 -84,490
Total, 2007 and 2008................................................... ......... -10,645 ......... ......... ......... ......... .........
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\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
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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 ........ ........ ........ ........ ........
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\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
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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
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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
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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
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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.