[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
                                                                            ----------------------------------------------------------------------------
  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

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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  ........  ........  ........  ........  ........
----------------------------------------------------------------------------------------------------------------
\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

[[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.