Budget Issues: Budget Enforcement Compliance Report (Letter Report,
04/01/99, GAO/AIMD-99-100).
Pursuant to a congressional request, GAO reviewed compliance by the
Office of Management and Budget (OMB) and the Congressional Budget
Office (CBO) with the requirements of the Balanced Budget and Emergency
Deficit Control Act of 1985, focusing on OMB and CBO reports issued for
legislation enacted during the 2nd session of the 105th Congress, which
ended on October 21, 1998.
GAO noted that: (1) CBO and OMB substantially complied with the act; (2)
however, some of the required OMB reports were issued late; (3) the
Deficit Control Act (DCA) sets a specific timetable for issuance of OMB
reports; (4) by law, OMB must issue sequestration reports at three
specific times during the calendar year: (a) the preview report when the
President submits his budget; (b) the update on August 20; and (c) the
final report 15 days after the end of a congressional session; (5) OMB
issued its fiscal year (FY) 1999 sequestration update report on August
26, 1998--6 days late; (6) its final report was issued December 10,
1998--35 days later than the required date of November 5, 1998; (7) if
OMB had issued its report on the required date, the report would have
excluded, at a minimum, nine pieces of legislation that were passed by
Congress but that had not been signed by the President before DCA's
15-day deadline; (8) assuming no other changes in the issuance of other
scoring reports, the final sequestration report would not have included
the impact of 5 of the appropriations acts and 18 of the 51 pieces of
pay-as-you-go (PAYGO) legislation; (9) as was the case for FY 1997 and
FY 1998, OMB issued many of its FY 1999 scorekeeping reports late; (10)
all 7 of its discretionary scorekeeping reports and 41 of its 51 PAYGO
scorekeeping reports were issued later than the time specified by law;
(11) the DCA requires OMB to issue scorekeeping reports within 7 working
days after enactment; (12) on average, the 1999 reports were issued 11.2
working days after enactment; (13) of the 58 reports issued prior to the
issuance of the final sequestration report, 83 percent were issued late,
a decline in timeliness from FY 1998 and FY 1997 reports; (14) half of
the 1998 reports and about 70 percent of the 1997 reports were issued
late; (15) according to OMB, part of the reason for the increased delay
was the volume of legislation enacted at the end of this session of
Congress; (16) five of the seven discretionary acts were enacted in the
last 2 weeks of the session; (17) one-third of the PAYGO legislation was
enacted in the last 2 weeks of the session or before the statutory date
for OMB's final sequestration report; (18) GAO found several
implementation issues in which OMB and CBO differed in: (a) PAYGO
scorekeeping; (b) appropriations scoring; and (c) cap adjustments; and
(19) the use of emergency spending designations was different this year
than in prior years.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: AIMD-99-100
TITLE: Budget Issues: Budget Enforcement Compliance Report
DATE: 04/01/99
SUBJECT: Spending legislation
Budget scorekeeping
Budget administration
Reporting requirements
Agency reports
Noncompliance
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AI99100.book GAO United States General Accounting Office
Report to the Chairman, Committee on the Budget, House of
Representatives
April 1999 BUDGET ISSUES Budget Enforcement Compliance Report
GAO/AIMD-99-100
GAO/AIMD-99-100
United States General Accounting Office Washington, D. C. 20548
Lett er
Page 1 GAO/AIMD-99-100 Budget Enforcement Compliance Report
GAO
Accounting and Information Management Division
B-281190 Letter April 1, 1999 The Honorable John R. Kasich
Chairman Committee on the Budget House of Representatives
Dear Mr. Chairman: This report responds to your request that we
assess compliance by the Office of Management and Budget (OMB) and
the Congressional Budget Office (CBO) with the requirements of the
Balanced Budget and Emergency Deficit Control Act of 1985, as
amended (the Deficit Control Act). Our assessment covers OMB and
CBO reports issued for legislation
enacted during the 2nd session of the 105th Congress, which ended
on October 21, 1998.
Results in Brief Overall, we found that CBO and OMB substantially
complied with the act. However, some of the required OMB reports
were issued late. The Deficit Control Act (DCA) sets a specific
timetable for issuance of OMB reports.
By law, OMB must issue sequestration reports at three specific
times during the calendar year: (1) the preview report when the
President submits his budget, (2) the update on August 20, and (3)
the final report 15 days after
the end of a congressional session. 1 OMB issued its fiscal year
1999 sequestration update report on August 26, 1998 6 days late.
Its final report was issued December 10, 1998 35 days later than
the required date of November 5, 1998. However, as noted in
appendix II, there is a tension
between the completeness and timeliness of the final sequestration
report. If OMB had issued its report on the required date, the
report would have excluded, at a minimum, nine pieces of
legislation that were passed by the Congress but that had not been
signed by the President before DCA's 15 day deadline. 2 In
addition, assuming no other changes in the issuance of other
scoring reports, the final sequestration report would not have
included the impact of 5 of the appropriations acts (including the
Omnibus Act) and 18 of the 51 pieces of PAYGO legislation.
1 CBO has similar reporting requirements. 2 Although the President
is required to take action on legislation within 10 days after it
is presented to him by the Congress, there can be delays between
final congressional action and when the measure is formally
presented to the President for signature.
B-281190 Page 2 GAO/AIMD-99-100 Budget Enforcement Compliance
Report
As was the case for fiscal years 1997 and 1998, OMB issued many of
its fiscal year 1999 scorekeeping reports late. All 7 of its
discretionary scorekeeping reports and 41 of its 51 pay- as- you-
go (PAYGO) scorekeeping reports were issued later than the time
specified by law. The DCA requires OMB to issue scorekeeping
reports within 7 working days after enactment. On average, the
1999 reports were issued 11.2 working days (4. 2 days late)
after enactment. Of the 58 reports issued prior to the issuance of
the final sequestration report, 83 percent were issued late, a
decline in timeliness from the fiscal years 1998 and 1997 reports.
Half of the 1998 reports 3 and
about 70 percent of the 1997 reports were issued late. According
to OMB, part of the reason for the increased delay was the volume
of legislation enacted at the end of this session of the Congress.
For example, five of the seven discretionary acts were enacted in
the last 2 weeks of the session. These five acts included the
Omnibus Consolidated
and Emergency Supplemental Appropriations Act, which incorporated
both eight appropriation acts and emergency spending provisions.
Similarly, one- third of the PAYGO legislation was enacted in the
last 2 weeks of the session or before the statutory date for OMB's
final
sequestration report. In addition to the compliance issue, we
found several implementation issues in which OMB and CBO differed
in (1) PAYGO scorekeeping, (2) appropriations scoring, and (3) cap
adjustments. In addition, the use of emergency spending
designations was different this year than in prior years. These
issues are discussed in appendixes III and IV.
To assess compliance with DCA we reviewed OMB and CBO reports
issued under the act to determine if they complied with all of the
act's requirements. To accomplish this, we reviewed the OMB and
CBO preview, update, and final sequestration reports to determine
if they reflected all of the technical requirements specified in
DCA, such as (1) estimates of the discretionary spending limits,
(2) explanations of any adjustments to the limits, (3) estimates
of the amount of net deficit increase or decrease, and
(4) the sequestration percentages necessary to achieve the
required reduction in the event of a sequester. In addition we
reviewed the
3 Reports issued in fiscal year 1998 were governed by two
different criteria. Those issued before August 5, 1997 were
required to be issued within 5 calendar days of enactment. Those
issued after that date had the same 7 working day criteria as the
1999 reports. Nearly 78 percent of the reports issued
before the change in criteria were late compared with 48 percent
afterwards.
Page 4 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Contents Letter 1 Appendix I Background and Scope and Methodology
6 Appendix II Compliance Issues 11
Appendix III Implementation Issues 14
Appendix IV Emergency Spending 23
Appendix V Major Contributors to This Report
27 Tables Table I. 1: Sequestration Reports and Due Dates 7
Table I. 2: Discretionary Spending Categories by Fiscal Year 8
Table II. 1: Timing of OMB Sequestration Reports 11 Table II. 2:
Percentage of Scorekeeping Reports Issued Late 13 Table III. 1:
Status of Fiscal Year 1999 Appropriations 20 Table III. 2:
Provisions With More Than $500 Million Difference
Between OMB and CBO Estimates 21 Table IV. 1: Emergency Budget
Authority, Fiscal Years 1991- 1999 24 Table IV. 2: Components of
the Omnibus Act 25
Contents Page 5 GAO/AIMD-99-100 Budget Enforcement Compliance
Report Abbreviations
BEA Budget Enforcement Act CBO Congressional Budget Office DCA
Deficit Control Act IMF International Monetary Fund IRS Internal
Revenue Service OMB Office of Management and Budget PAYGO pay- as-
you- go REIT Real Estate Investment Trusts TANF Temporary
Assistance to Needy Families TEA- 21 Transportation Equity Act for
the 21 st Century
Page 6 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Appendix I Background and Scope and Methodology Appendi x I
The DCA, 1 as amended, established statutory limits on federal
government spending for fiscal years 1991 through 2002 by creating
annual adjustable dollar limits (spending caps) on discretionary
spending funded through the regular appropriations process, a
pay- as- you- go (PAYGO) 2 requirement for direct spending 3 and
receipts
legislation, and a sequestration 4 procedure to be triggered if
(1) aggregate discretionary appropriations enacted for a fiscal
year exceed the fiscal year's discretionary spending caps or (2)
aggregate PAYGO legislation is estimated to increase the combined
current and budget year deficits. To track progress against the
budget enforcement requirements and to
implement any needed sequestration, DCA requires CBO and OMB to
score (estimate) the budgetary effects of each appropriation
action and each piece of PAYGO legislation. As soon as practicable
after the Congress completes action on any appropriation involving
discretionary spending, CBO is required to report to OMB the
estimated amount of new budget authority and outlays provided by
the legislation. Within 7 working days after an appropriation is
enacted, OMB must report its estimates for these
amounts, using the same economic and technical assumptions
underlying the most recent budget submission. It must also include
the CBO estimates and explain any differences between the two sets
of estimates. If there are
significant differences between the OMB and CBO estimates, OMB is
required to consult with the budget committees prior to issuing
its scoring report. OMB and CBO have similar requirements for
reporting their estimates for any direct spending or receipts
legislation.
The DCA also requires CBO and OMB to submit a series of three
sequestration reports at specified times during each year as shown
in 1 The Balanced Budget and Emergency Deficit Control Act of 1985
as amended by the Budget Enforcement Act of 1990 (BEA), the
Omnibus Budget Reconciliation Act of 1993 (OBRA 93), and the
Budget Enforcement Act of 1997 (BEA- 97). In addition to being
known as the Deficit Control Act, it is sometimes called Gramm-
Rudmann- Hollings or GRH. It is also referred to as BEA since that
legislation amended GRH in 1990 by adding the current
discretionary spending caps and PAYGO procedures. 2 The DCA
requires that the aggregate effect of new legislation that
increases direct spending or decreases receipts be deficit neutral
(that is, not increase the deficit). Such legislation is often
referred to as PAYGO legislation.
3 Direct spending (commonly referred to as mandatory spending)
means entitlement authority, the food stamp program, and any
budget authority provided by laws other than in appropriation
acts. 4 Sequestration is the cancellation of budgetary resources.
Appendix I Background and Scope and Methodology
Page 7 GAO/AIMD-99-100 Budget Enforcement Compliance Report
table I. 1. Each CBO and OMB report must include a discretionary
sequestration report that adjusts the discretionary spending caps
and a PAYGO sequestration report that displays the net deficit
decrease or increase for enacted PAYGO legislation. Because OMB's
reports are
controlling for purposes of sequestration, CBO uses estimates from
OMB's most recent sequestration report as the starting point for
each of its reports.
Table I. 1: Sequestration Reports and Due Dates
Discretionary Spending Limits
Annual discretionary spending limits for budget authority and
outlays are set forth in the Deficit Control Act. The Budget
Enforcement Act of 1997 amended DCA to establish three separate
categories of discretionary spending for 1998 and 1999: defense,
nondefense excluding violent crime reduction spending, and violent
crime reduction spending. For fiscal year 2000, defense and
nondefense are combined resulting in two categories- violent crime
reduction spending and all other discretionary spending. For 2001
and 2002, these are combined into a single category. The
Transportation Equity Act for the 21 st Century (TEA- 21) 5
altered the spending cap structure by establishing two new outlay
caps that apply separately to highway and mass transit programs
for 1999 and continuing through 2002. (See table I. 2.) Since
these programs had been included under the nondefense caps, the
nondefense cap for 1999 and the overall discretionary caps for
2000, 2001, and 2002 were reduced. Because the new caps on highway
and mass transit outlays exceed the reductions in the other caps
by about $15.4 billion, the amount of total discretionary outlays
permitted under all of the caps has been increased for each year
from 1999
through 2002.
Due date Report CBO OMB
Preview report 5 days before President's budget submission
President's budget submission Update report August 15 August 20
Final report 10 days after end of
congressional session 15 days after end of congressional session
5 Title VIII of TEA- 21 (P. L. 105- 178, enacted June 9, 1998)
amended DCA to add these two new caps.
Appendix I Background and Scope and Methodology
Page 8 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Table I. 2: Discretionary Spending Categories by Fiscal Year
Note: The highway and mass transit categories were formerly
included in the nondefense category.
The DCA provides that adjustments be made to the discretionary
limits for certain specified reasons. The limits must be adjusted
for (1) changes in concepts and definitions, (2) emergency
appropriations, (3) funding for continuing disability reviews, (4)
funding for International Monetary Fund (IMF) increases, (5)
international arrearages funding, (6) the earned income tax credit
compliance initiative, and (7) a special outlay allowance to cover
technical scoring differences between OMB and CBO. In addition
to adjustments to the limits required by DCA, TEA- 21 added
adjustments for the two transportation caps. It requires that OMB
adjust the highway spending caps in each year's sequestration
preview report to reflect differences between current and future
estimates of revenues that will be credited to the Highway Trust
Fund. It also requires that both transportation caps be adjusted
each year to reflect any changes in technical estimates of the
outlays that will result from the TEA- 21 funding levels.
The spending limits are enforced by sequestration should budget
authority or outlays exceed the limits. According to CBO's final
sequestration report issued on October 30, 1998, discretionary
outlays for all categories combined are estimated to exceed the
adjusted caps by $2. 8 billion for fiscal year 1999. CBO estimates
that a sequestration of about 1 percent would be required for the
defense category and a sequestration of about 0.5 percent would be
required for the nondefense category. In contrast, OMB's final
sequestration report, issued on December 10, 1998, estimates that
no
sequestration of discretionary funding will be required for fiscal
year 1999. Since by law OMB's estimates are controlling, there
will be no sequester in fiscal year 1999. In addition the law
specifies that for a fiscal year in progress, if an appropriation
that is enacted between end- of- session adjournment and
1998 1999 2000 2001 2002
Violent crime reduction Violent crime reduction Violent crime
reduction Discretionary Discretionary Defense Defense
Discretionary Nondefense Nondefense
Highway Highway Highway Highway Mass transit Mass transit Mass
transit Mass transit
Appendix I Background and Scope and Methodology
Page 9 GAO/AIMD-99-100 Budget Enforcement Compliance Report
July 1 of that fiscal year causes any of the spending limits for
the year in progress to be exceeded, CBO and OMB must issue
within- session sequestration reports 10 and 15 days,
respectively, after enactment. On the same day as the OMB report,
the President must issue an order implementing any sequestrations
set forth in the OMB report. No withinsession sequestration
reports were required for fiscal year 1998.
Pay- As- You- Go Enforcement
PAYGO enforcement covers all direct spending and receipts
legislation. CBO and OMB maintain a "scorecard" showing the
cumulative deficit effect of PAYGO legislation to track progress
against the PAYGO requirements. If, at the end of a congressional
session, cumulative legislated changes enacted in direct spending
and receipts increase the deficit (or reduce a projected surplus)
6 for the budget year, a sequester of non- exempt direct spending
programs is required to offset the increase. BEA- 97, upon its
enactment, set the scorecard balance to zero for the then- current
year and each year through fiscal year 2002. This prevents any net
savings achieved by legislation enacted prior to the enactment of
BEA- 97 from being used to offset deficit- increasing legislation
enacted through 2002. BEA- 97 also
extended PAYGO discipline to legislation enacted through fiscal
year 2002. However, because the PAYGO scorecard must take into
account not only the current year and the budget year, but also
the following 4 years, a sequester could occur in the years 2003
through 2006 based on the effects of PAYGO legislation enacted
through fiscal year 2002.
In their final sequestration reports, both OMB and CBO calculated
the net change in the deficit due to PAYGO legislation. However,
the OMB report is the sole basis for determining whether any end-
of- session sequestration is required. If OMB determines that
sequestration is required, the President must issue an order
implementing it. For fiscal year 1999, both CBO's report, issued
October 30, 1998, and OMB's report, issued December 10, 1998,
concluded that a PAYGO sequester was not needed.
Scope and Methodology To determine whether the OMB and CBO reports
complied with the
requirements of DCA as amended by BEA and other legislation, we
reviewed the OMB and CBO preview, update, and final sequestration
6 The question has been raised about the applicability of the
PAYGO rules when the federal government has a surplus. CBO has
opined that BEA enforcement applies regardless of whether or not
there is a deficit. OMB has noted that there is still an on-
budget deficit so the question is moot.
Appendix I Background and Scope and Methodology
Page 10 GAO/AIMD-99-100 Budget Enforcement Compliance Report
reports to determine if they reflected all of the technical
requirements specified in DCA, such as (1) estimates of the
discretionary spending limits, (2) explanations of any adjustments
to the limits, (3) estimates of the amount of net deficit increase
or decrease, and (4) the sequestration percentages necessary to
achieve the required reduction in the event of a sequester.
We reviewed legislation dealing with budget enforcement, including
DCA, as amended, and TEA- 21. We reviewed appropriations acts
enacted during the 2nd session of the 105th Congress the one
supplemental emergency appropriations for fiscal year 1998, the
six continuing appropriations
measures, the five separately enacted regular appropriations for
fiscal year 1999, and the eight appropriations bills included in
the Omnibus Consolidated Appropriations Act, as well as all
applicable OMB and CBO appropriations scoring reports issued as of
December 10, 1998. We also examined the OMB and CBO PAYGO scoring
reports for mandatory
spending and receipts legislation. We compared each OMB and CBO
report and obtained explanations for differences of $500 million
or more in estimates for the PAYGO reports. For discretionary
spending, we compared OMB and CBO scoring reports and obtained
explanations for differences of $500 million or more in budget
authority or outlay estimates. We also examined OMB and CBO
adjustments to the discretionary spending limits for the preview,
update, and final sequestration reports. We also examined
appropriation scoring reports for patterns in reasons for
differences between OMB and CBO, irrespective of the dollar
amounts.
During the course of our work, we also interviewed OMB and CBO
officials. Our work was performed in Washington, D. C., from
September 1998
through January 1999, in accordance with generally accepted
government auditing standards. We provided a draft of this report
to OMB and CBO officials for their review and comment. OMB and CBO
officials agreed with our presentation of their views and the
facts as presented. We incorporated their comments where
appropriate.
Page 11 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Appendix II Compliance Issues Appendi x I I
We identified several compliance issues related to the timing of
reports: (1) OMB issued both the update and final sequestration
reports later than their required dates and (2) OMB issued most of
its scorekeeping reports late. Each of these issues is discussed
in more detail below.
OMB Issued Sequestration Reports Late
The DCA sets a specific timetable for issuance of OMB reports, as
shown in table II. 1 below. 1
Table II. 1: Timing of OMB Sequestration Reports
This year, OMB met these requirements for the preview report. The
update report was issued 6 days late on August 26, 1998. The final
report was issued 35 days late on December 10, 1998 (50 days after
the end of the session). One of the factors that contributed to
the late issuance of the final sequestration report was
conflicting requirements of the DCA. On one hand, OMB's final
sequestration report is supposed to include the deficit
impact of all legislation enacted during the session of the
Congress and on the other hand there is the requirement to issue
the sequestration report 15 days after the end of the session. If
OMB had issued its report on the required date, the report would
have excluded nine pieces of PAYGO legislation that were passed by
the Congress but that had not been signed by the President before
DCA's 15 day deadline. 2 In addition, assuming no
other changes in the timing of other scoring reports, a final
sequestration report issued on time would not have included the
impact of 5 of the appropriations acts (including the Omnibus Act)
and 18 of the 51 pieces of PAYGO legislation. However, if OMB had
completed the scoring reports for the five appropriations acts
within the required 7 working days of their
1 CBO has similar reporting requirements.
Report Date
Preview report With President's budget (first Monday in February)
Update report August 20 Final report 15 days after the end of the
congressional session
2 Although the President is required to take action on legislation
within 10 days after it is presented to him by the Congress, there
can be delays between final congressional action and when the
measure is formally presented to the President for signature.
Appendix II Compliance Issues
Page 12 GAO/AIMD-99-100 Budget Enforcement Compliance Report
enactment, a final sequestration report issued on time could have
included them.
The tension between completeness and timeliness is not new and in
the past OMB has resolved this conflict in two very different
ways. In our report covering fiscal year 1997 compliance we
reported that OMB delayed the final report to include all enacted
legislation. In contrast, in our report covering fiscal year 1998
compliance we reported that OMB issued the final sequestration
report several days before the statutory deadline with the
result that several pieces of enacted legislation were not
included in the final report. Instead, as permitted by DCA, the
PAYGO effect of these provisions was simply carried over to the
preview report for the following year. In our report covering
fiscal year 1997 compliance, we reported that,
although not consistent with the report timing specified in law,
OMB's decision to delay the final sequestration report so it could
be complete seemed reasonable. We stated our belief that the main
purpose of the final report should be to determine whether a
sequester is necessary, based on all legislation enacted during a
session of the Congress. Thus, to do so, it would be appropriate
to consider changing the timing of the final report if necessary.
However, in 1997 when the Congress changed the requirements for
scorekeeping reports, it did not change the timing of the final
sequestration report. This would not, however, explain OMB's
decision to issue the 1998 report early.
OMB Issued Scoring Reports Late
Sections 251 and 252 of DCA require OMB to issue scorekeeping
reports for all enacted appropriation and PAYGO legislation within
7 working days of enactment. OMB met this time frame for 10 of the
58 required scorekeeping reports, with reports issued an average
of 11. 2 working days after enactment. All 10 of the on- time
reports were PAYGO reports. The time to issuance of the other 41
PAYGO reports ranged from 8 to 24 working days, with an average
time of 10. 4 working days (over 3 days late). The time to
issuance of the 7 discretionary spending reports ranged from 10 to
33
working days, with an average of 22.1 working days (over 15 days
late). The scorekeeping reports were issued later, on average,
this fiscal year than last. The change in reporting deadline from
5 calendar days to 7 working days as a result of BEA- 97, makes it
difficult to compare the timeliness of the fiscal year 1999
reports to reports issued prior to that time. On average the 1999
reports were 4.2 days late compared to 3. 1 days for the 1998
reports issued after the passage of BEA- 97.
Appendix II Compliance Issues
Page 13 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Compared to previous years, more 1999 reports were late. Because
of the change in the reporting deadlines, we calculated how many
scorekeeping reports were late for a given compliance requirement.
Table II. 2 shows that a higher percentage of 1999 reports were
late than in the previous 4 years.
Table II. 2: Percentage of Scorekeeping Reports Issued Late
According to OMB, part of the reason for the increased delay was
the volume of legislation enacted at the end of this session of
the Congress. For example, five of the seven discretionary acts
were enacted in the last 2 weeks of the session. These five acts
included the Omnibus Act, which incorporated eight appropriation
acts and emergency spending provisions. Similarly, one- third of
the PAYGO legislation was enacted in the last 2
weeks of the session or before the statutory date for OMB's final
sequestration report.
Fiscal year 1995 1996 1997 1998 1999
Percentage of reports issued late 20 40 71. 3 52.5 82. 8
Page 14 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Appendix III Implementation Issues Appendi x I I I
In addition to the compliance issue, we found several
implementation issues in which OMB and CBO differed in (1) PAYGO
scorekeeping, (2) appropriations scoring, and (3) cap adjustments.
PAYGO Scoring In its final sequester report, OMB included the
deficit effect of PAYGO legislation enacted through the end of the
2nd session of the 105th
Congress. According to OMB, this legislation reduced the deficit
for 1999 by $872 million, so no PAYGO sequester was required. In
its final sequester report, CBO reported that the same PAYGO
legislation decreased the deficit by $763 million for 1999 and
similarly concluded that no sequester for 1999
would be required. We analyzed those reports for which OMB and CBO
estimates differed by $500 million or more. Only estimates for 4
of the 53 laws enacted in the 2nd session of the 105th Congress
met this criteria: (1) the Internal Revenue Service Restructuring
and Reform Act of 1998, (2) the Transportation Equity Act for the
21 st Century, (3) the Higher Education Amendments of 1998, and
(4) the Omnibus Consolidated and
Emergency Supplemental Appropriations Act. Internal Revenue
Service Restructuring and Reform Act of 1998
The Internal Revenue Service Restructuring and Reform Act of 1998
(Public Law 105- 206) restructured the Internal Revenue Service
(IRS), created an IRS oversight board, created new rights and
protections for
taxpayers, changed the holding period for capital gains tax rates
from 18 to 12 months, enabled more taxpayers to convert
traditional Individual Retirement Accounts (IRAs) to Roth IRAs,
and made technical corrections
to the Transportation Equity Act for the 21 st Century. Most of
the budgetary costs of this act were associated with the new
rights and protections for taxpayers that were included in the
taxpayer bill of rights. Among the almost 70 provisions in the
taxpayer bill of rights were provisions that (1) shift the burden
of proof from taxpayers to the IRS in judicial proceedings when
the taxpayer produces credible evidence, (2) provide relief for
innocent spouses, and (3) provide certain interest and penalty
relief for taxpayers. The costs of these provisions and the change
in the capital gains holding period were partially offset by
provisions which limit employer deductions for vacation and
severance pay (commonly referred to as the Schmidt Baking
provision) and a provision making
Appendix III Implementation Issues
Page 15 GAO/AIMD-99-100 Budget Enforcement Compliance Report
certain trade receivables ineligible for mark- to- market
accounting treatment. 1
For fiscal year 1999, OMB estimated the net budgetary cost of this
act as $82 million dollars. 2 In contrast, CBO 3 estimated savings
of $659 million a difference of $741 million. This difference is
largely due to different assumptions about the timing of the
receipts from the capital gains and
other provisions. For fiscal years 1999- 2003, OMB's total cost of
$2. 8 billion greatly exceeded CBO's estimate of $1 billion.
Approximately one- half of this difference is attributable to the
mark- to- market provision. While OMB estimates that this
provision produces a one- time increase in revenues ($ 0.4 billion
over 5 years), CBO's estimate assumes continuing additional
receipts ($ 1.3 billion over 5 years). Most of the remaining
difference is due
to different baseline assumptions which result in OMB estimating
larger revenue losses for the taxpayer bill of rights provisions.
Transportation Equity Act for the 21 st Century (TEA- 21)
TEA- 21 (Public Law 105- 178) 4 reauthorized federal surface
transportation programs and had budgetary effects on both the
discretionary and mandatory components of the budget. For
discretionary spending, TEA- 21 established new mass transit and
highway categories, each with its own
caps through fiscal year 2003. The allowable spending under these
caps was partially offset by a decrease in the existing
discretionary caps. TEA- 21 contains a provision that specifically
exempts these cap changes from the PAYGO rules. If it had not
contained this provision, CBO and OMB would have differed on the
issue of whether this spending increase required an offset. CBO
officials stated that adjusting the caps does not have a PAYGO
effect (because changing the caps does not provide budget
authority) and therefore this provision would not require any
PAYGO
offset. Conversely, OMB officials stated that adjusting the caps
has a PAYGO effect, and thus it would have required a PAYGO
offset. 1 Under this method, securities that are in the hands of
securities dealers must be included in inventory at fair market
value. 2 The cost estimates in this paragraph exclude costs ($ 125
million for fiscal years 1999- 2003) of a provision designated as
an emergency. 3 The DCA requires that CBO use revenue estimates
prepared by the Joint Committee on Taxation (JCT) for provisions
affecting income taxes. 4 Technical corrections to TEA- 21 were
made by the Internal Revenue Service Restructuring and Reform Act
of 1998. Unless otherwise noted, all references to TEA- 21 include
these corrections.
Appendix III Implementation Issues
Page 16 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Several other TEA- 21 provisions were also exempt from the PAYGO
requirements. These provisions altered the highway program
obligation limits for fiscal year 1998, which resulted in lower
outlays in 1998 and 1999 and increased outlays thereafter, reduced
outlays for veterans benefits, changed interest rates for student
loans issued between July 1 and
October 1, 1998, and changed the Social Services Block Grant and
TANF programs.
OMB estimated total savings of $1. 5 billion for the TEA- 21
provisions that were not exempted from PAYGO requirements, while
CBO estimated total costs of $0.2 billion. This $1. 7 billion
difference is largely attributable to the scoring of the extension
of the 2.5 cents per gallon tax on gasohol and other alcohol fuels
that is currently deposited into the general fund instead of being
deposited in the Highway Trust Fund. CBO's baseline assumes the
continuation of these taxes while OMB's does not. Thus, CBO
assumes there are no savings from their extension and OMB assumes
that there are. We believe OMB's position to be correct under the
law because section 257
of DCA states that, for purposes of the baseline, only those
excise taxes associated with trust funds are assumed to continue
after their expiration date and these excise taxes are not
deposited into trust funds. 5
Higher Education Amendments of 1998
The Higher Education Amendments of 1998 (Public Law 105- 244)
amended the Higher Education Act of 1965 by making numerous
changes in the student loan programs and eliminating the Perkins
loan revolving fund. It also amended the Bankruptcy Code regarding
student loan bankruptcies.
For 1999- 2003, OMB estimated that this bill would increase the
deficit by $0. 7 billion, while CBO estimated that the increase
would be $2. 5 billion. Most of the difference between OMB and CBO
stems from the scoring of the impact of changing the interest
rates for guaranteed student loans. The interest rates on these
loans is calculated using the 91- day Treasury bill rate plus an
additional factor depending on whether the student is still in
school or in loan repayment. However, the interest rate charged to
borrowers is capped at 8.25 percent, with the federal government
assuming any costs above that. In preparing its estimates, CBO
used a probabilistic model to simulate the variation of the 91-
day Treasury bill rate around the CBO baseline estimate. The model
provided probabilities of how often and by how much the simulated
rates exceeded the 8.25 percent interest rate cap. These
probabilities were then used in CBO's model of the student loan
5 Section 257( b)( 2)( C)
Appendix III Implementation Issues
Page 17 GAO/AIMD-99-100 Budget Enforcement Compliance Report
program to estimate changes in subsidy costs. OMB's estimate did
not include these probabilistic effects. Instead, it relied on
traditional point estimates of the 91- day Treasury bill rate to
calculate additional costs. In CBO's view, this understates the
expected costs of the provision.
Omnibus Consolidated and Emergency Supplemental Appropriations Act
The Omnibus Consolidated and Emergency Supplemental Appropriations
Act (Public Law 105- 277) contained revenue and direct spending
provisions subject to PAYGO scoring. The revenue provisions extend
certain expiring tax and trade provisions, provide relief for
farmers, close certain tax loopholes and make other changes to the
tax code. The direct spending provisions made changes to a wide
variety of programs, including Medicare, veterans compensation,
and Tennessee Valley Authority debt refinancing.
For 1999, there was a difference of $330 million between the OMB
and CBO estimates a $250 million cost for OMB compared to $80
million in savings for CBO. Over 5 years, there is a larger
cumulative difference of $7. 7 billion
dollars with OMB estimating $7. 65 billion in savings and CBO
estimating costs of $25 million.
The largest single difference is associated with a receipts
provision restricting abusive liquidating Real Estate Investment
Trusts (REIT) transactions. As required by the Omnibus Act, OMB
scored this provision using the economic and technical assumptions
used in preparing the fiscal year 1999 Mid- Session Review
baseline receipts forecast which contained
an explicit adjustment for anticipated revenue losses associated
with liquidating REIT transactions. Since CBO's baseline did not
fully capture this adjustment, its estimates of the increased
revenues from the provision ($ 5.6 billion) were lower than OMB's
($ 15 billion). There were also significant 5- year scoring
differences on the tax and trade extensions ($ 886 million) and
special tax provisions for farmers ($ 675 million), with OMB
estimating higher revenue losses in both cases. These differences
were both attributable to technical modeling differences. Cap
Adjustments Section 251( b) of DCA requires that the discretionary
spending limits be adjusted to account for (1) changes in concepts
and definitions,
(2) emergency appropriations, (3) an allowance for the
International Monetary Fund, (4) international arrearages, (5)
earned income tax credit compliance initiative, and (6) spending
for continuing disability reviews by the Social Security
Administration. While both CBO and OMB are required
Appendix III Implementation Issues
Page 18 GAO/AIMD-99-100 Budget Enforcement Compliance Report
to calculate how much the spending limits should be adjusted,
OMB's adjustments control for the purposes of budget enforcement,
such as determining whether enacted appropriations fall within the
spending limits or whether and, if so, how much sequestration is
required. CBO's cap
adjustment estimates are advisory. Overall, CBO's estimates of the
1999 caps are $7. 3 billion higher than OMB's for budget authority
and $2.1 billion higher for outlays. All of the difference in
budget authority and nearly all the difference in outlays is due
to longstanding differences in the way each treats contingent
emergencies. CBO scores contingent emergency budget authority in
the fiscal year it is appropriated because it does not know what
the President is going to release and it tries to reflect the
total enacted amounts. OMB scores the
authority only after it is officially released by the President
and designated by the President as emergency requirements. This
results in CBO increasing the caps more than OMB immediately after
emergency legislation is enacted. For example, CBO scores all $8.
3 billion in defense emergency appropriations included in the
Omnibus Act but OMB only scores the approximately $4.1 billion
that has been released.
When CBO makes the adjustment to the discretionary caps in its
final sequestration report, it first calculates the difference
between OMB's and CBO's update caps since OMB's are controlling.
When calculating the final 1998 nondefense cap, CBO inadvertently
did not include a $50 million
contingent emergency release of Low- Income Home Energy Assistance
Program funds that had been released prior to the issuance of
OMB's update report. If CBO had included this contingent
emergency, its 1999
outlay cap would have increased by $13 million. The same
contingent emergency also was excluded from the Status of Fiscal
Year 1998 Appropriations table in OMB's update report even though
it was included in the reported cap adjustment. According to OMB
this occurred because the release of the funds occurred after the
report had been typeset and the table was inadvertently not
updated.
Status of 1999 Appropriations and Discretionary Scoring
Differences
Only one appropriations act (Military Construction (Public Law
105- 237)) was enacted prior to the start of fiscal year 1999. An
additional four acts were separately enacted (Energy and Water
Development Appropriations Act, 1999 (Public Law 105- 245),
Department of Defense Appropriations Act, 1999 (Public Law 105-
262), Legislative Branch Appropriations Act, 1999
(Public Law 105- 275), and Departments of Veterans Affairs and
Housing and Urban Development and Independent Agencies
Appropriations Act,
Appendix III Implementation Issues
Page 19 GAO/AIMD-99-100 Budget Enforcement Compliance Report
1999 (Public Law 105- 276)) after the start of the fiscal year.
The remaining eight acts were combined into the Omnibus
Consolidated and Emergency Supplemental Appropriations Act, 1999
(Public Law 105- 277). CBO's and OMB's final sequestration reports
differed on the potential need for sequestration in fiscal year
1999. As shown in table III. 1, CBO estimates that outlays for
defense, nondefense and mass transit categories slightly exceed
the caps. In contrast, OMB shows budget authority and outlays in
all categories as meeting the caps. Since OMB's estimates and caps
are
controlling, sequestration was not triggered. The difference
between the CBO and OMB estimates is accounted for by many
scorekeeping differences, detailed below.
Appendix III Implementation Issues
Page 20 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Table III. 1: Status of Fiscal Year 1999 Appropriations
Note: Highway and Mass Transit Categories were created by TEA- 21
and include only outlay caps. Dollars in millions
OMB CBO Budget Authority Outlays Budget
Authority Outlays Defense Discretionary
Total Enacted Appropriations 275,645 268,911 279,891 274, 160 End-
of- Session Limits 275,651 270,207 279,891 271, 978 Difference -6
-1,296 0 2, 182
Nondefense Discretionary
Total Enacted Appropriations 283,928 272,228 286,952 275, 042 End-
of- Session Limits 284,090 273,999 287,107 274, 377 Difference -
162 -1,771 -155 653
Violent Crime Reduction
Total Enacted Appropriations 5,797 4, 946 5,798 4, 951 End- of-
Session Limits 5,800 4, 953 5,800 4, 953 Difference -3 -7 -2 -2
Highway
Total Enacted Appropriations 21,568 21, 977 End- of- Session
Limits 21,991 21, 977 Difference -423 0
Mass Transit
Total Enacted Appropriations 3,942 4, 404 End- of- Session Limits
4,401 4, 401 Difference -459 3
Total
Total Enacted Appropriations 565,370 571,595 572,641 580, 534 End-
of- Session Limits 565,541 575,551 572,798 577, 698 Difference -
171 -3,956 -157 2, 836
Appendix III Implementation Issues
Page 21 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Scorekeeping Differences Although, as discussed below, there were
scorekeeping differences between OMB and CBO, for the most part
these differences were relatively
small. Over 75 percent of the 187 differences in either budget
authority or outlays that we identified were less than $100
million with only 5 greater than $500 million. The five provisions
with the largest differences are shown in table III. 2.
Table III. 2: Provisions With More Than $500 Million Difference
Between OMB and CBO Estimates
a This law had no budgetary impact in 1998. Notes: Negative
numbers indicate provisions where CBO's estimates were higher than
OMB's. Positive numbers indicate provisions where CBO's estimates
were lower than OMB's.
For these provisions, the difference between the OMB and CBO
estimates can be grouped into the following categories:
Economic differences: Scoring differences related to the Housing
Certificate Funds and Annual Contributions for Assisted Housing
are largely the result of different OMB and CBO economic
assumptions. CBO assumes higher rental inflation (3.2 percent per
year compared to
Dollars in millions
Difference between OMB and CBO estimates (OMB- CBO) 1998 1999 Act
Agency Account Budget
Authority Outlays Budget Authority Outlays
Departments of Veterans Affairs, Housing and Urban Development and
Independent Agencies Appropriations Act, fiscal year 1999
Department of Housing and Urban Development
Housing Certificate Fund a a 0 -1, 112
Supplemental Appropriations and Rescissions Act, fiscal year 1998
Department of Defense Overseas Contingency
Operations Transfer 0 989 0 -805 Supplemental Appropriations and
Rescissions Act, fiscal year 1998 Federal Emergency
Management Agency Disaster Relief 0 0 0 640 Omnibus Consolidated
and Emergency Supplemental Appropriations Act, 1999
Department of Education Student Financial Assistance a a 0 -610
Departments of Veterans Affairs, Housing and Urban Development and
Independent Agencies Appropriations Act, fiscal year 1999
Department of Housing and Urban Development
Annual Contributions for Assisted Housing a a 0 533
Appendix III Implementation Issues
Page 22 GAO/AIMD-99-100 Budget Enforcement Compliance Report
OMB's 2 percent per year) and slower tenant income growth (2. 5 to
2.8 percent per year compared to OMB's 3 percent). These different
assumptions result in CBO's outlay estimate for the Housing
Certificate
Fund account being $1. 1 billion higher than OMB's and its
estimate for Annual Contributions for Assisted Housing account
being $533 million lower. Spendout rates: Differences in the
Overseas Contingency Operations
Transfer account are the result of OMB assuming a faster spendout
rate for emergency funds than does CBO which results in OMB
assuming that outlays were $989 million higher in 1998 but $805
million lower in 1999. Similarly, most of the differences in the
Student Financial Aid account are the result of CBO assuming 1999
outlays of $7.5 billion from previously available authority, while
OMB assumes the prior year outlays of $7.0 billion. The rest of
the difference is because OMB
assumes a slower spendout rate for new authority provided in 1999.
Faster obligation rates: For the Disaster Relief account, OMB
assumed
that obligations for emergency needs will occur quickly and
outlays will begin in fiscal year 1999, while CBO assumed that
outlays will begin in fiscal year 2000.
Page 23 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Appendix IV Emergency Spending Appe ndi x I V
The Deficit Control Act allows spending to be designated as
emergency spending which is exempt from the discretionary spending
caps. When a spending provision is designated as an emergency the
discretionary caps are increased by the amount of the resulting
budget authority and outlays. The emergency spending provisions in
the Omnibus Consolidated and
Emergency Supplemental Appropriations Act (Public Law 105- 277)
were a departure from recent budgetary practice in terms of size,
use of offsets and the nature of the provisions.
The Deficit Control Act does not set forth any criteria
determining what constitutes an emergency. It provides only the
following definition, any appropriations that the President
designates as emergency requirements and that the Congress so
designates in statute. Typically, emergency appropriations are
provided in supplemental appropriations acts, although they have
been included in normal appropriations acts. Defense- related
emergency spending has included such items as Operation Desert
Storm
and peacekeeping operations in Bosnia. Nondefense emergency
spending has typically occurred following natural disasters such
as hurricanes, floods, and earthquakes. The Congress appropriated
the second highest amount of emergency budget authority for fiscal
year 1999 than for any fiscal year since the enactment of the
Budget Enforcement Act in 1990, as shown in table IV. 1. The $7.8
billion in defense emergency spending is the second largest total,
surpassed only by budget authority associated with Operation
Desert Storm in fiscal year 1991. The $13.8 billion in nondefense
budget authority represents the largest amount of emergency
spending authority. The only
other fiscal year with more than $10 billion in nondefense
emergency budget authority was fiscal year 1994, which included
spending associated with the Northridge earthquake. Almost all of
the emergency spending enacted so far for fiscal year 1999 was
included in the Omnibus Consolidated and Emergency Supplemental
Appropriations Act.
Appendix IV Emergency Spending
Page 24 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Table IV. 1: Emergency Budget Authority, Fiscal Years 1991- 1999
Note: Data current as of November 16, 1998. The final 1999 amounts
after the end of the fiscal year will likely be higher depending
on the additional emergency spending designations during the year.
Source: CBO.
The Omnibus Act differed from most recent emergency spending acts
in two ways. First, it provided much larger amounts of emergency
appropriations. Second, unlike recent practice, it did not offset
the emergency appropriations with reductions in other
discretionary spending. Although as noted above, emergency
spending is exempt from the caps,
since 1994 the practice has been to offset some or all of the
emergency spending with cuts in other programs. For example, the
1998 Supplemental Appropriations and Rescissions Act (Public Law
105- 174) enacted on May 1, 1998, included $5.4 billion in
emergency appropriations and $2.6 billion in reductions in other
programs. In contrast, with the
exception of $0. 1 billion in defense spending, none of the
emergency appropriations in the 1999 Omnibus Act was explicitly
offset. Since 1991, there have been two major types of emergency
spending legislation that focusing on a particular emergency need
and legislation that is of a broader omnibus nature. An example of
the narrower legislation is the Dire Emergency Supplemental
Appropriations Act, 1992 (Public Law 102- 368) which provided
emergency disaster relief following
hurricanes Andrew and Iniki. As shown in table IV. 2, the 1999
Omnibus Act is an example of the broader type of act.
Dollars in millions
1991 1992 1993 1994 1995 1996 1997 1998 1999
Defense 44, 387 7, 527 642 1,497 2, 448 982 2, 077 2,834 7, 796
Nondefense 1, 459 8,641 5,387 12, 363 5,487 4, 069 7,459 3, 064
13, 778
Total 45, 846 16,168 6,029 13, 860 7,935 5, 051 9,536 5, 898 21,
574
Appendix IV Emergency Spending
Page 25 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Table IV. 2: Components of the Omnibus Act
Source: CRS.
Within these broad purposes, the variety of programs addressed by
the emergency provisions is also broad. For example, the defense
provisions range from funding U. S. troops in Bosnia to funds for
ballistic missile defense, and the agriculture disaster relief
provisions range from direct payments to producers to increased
crop insurance costs. In order in enact the producer payments
provision as an emergency, the Congress included
language in the Omnibus Act that overrode a prohibition in the
Deficit Control Act that prohibited emergency designations for
such payments.
During the debate on the Omnibus Act, the issue of what
constitutes emergency spending was raised. This debate has
continued into the 106th Congress with the introduction of several
proposals to change the treatment of emergency spending. 1 These
proposals range from requiring committee reports to include
justifications for emergency spending provisions to including some
emergency spending within the spending caps. For example, the
Budget Enforcement Act of 1999 (S. 93) would
require that committee reports proposing emergency spending
analyze whether the requirement meets the following criteria:
A 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-- a pressing and
compelling need requiring immediate action. Unforeseen-- not
predictable or anticipated as a coming need.
Purpose Budget authority in billions of dollars
Agriculture disaster relief 5.9 Antiterrorism/ embassy security
2.4 Y2K conversion 3. 4 Natural disasters 1. 4 Other emergencies
0. 1 Counter- drug & interdiction 0.9 National defense 6. 6
Total 20. 8
1 See, for example, Senate Resolution 5, S. 93 and H. R. 853.
Appendix IV Emergency Spending
Page 26 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Not permanent-- the need is temporary. 2 Additional information
on issues related to emergency spending can be found in the CBO
report Emergency Spending Under the Budget Enforcement Act issued
in December 1998.
2 These criteria are similar to those proposed by OMB in 1991.
Page 27 GAO/AIMD-99-100 Budget Enforcement Compliance Report
Appendix V Major Contributors to This Report Appe ndi x V
Accounting and Information Management Division, Washington, D. C.
Christine E. Bonham, Assistant Director Robert M. Sexton, Senior
Evaluator John W. Mingus, Senior Evaluator Joseph G. Heisler,
Evaluator
Office of the General Counsel
Charles Roney, Assistant General Counsel Frank Maguire, Attorney-
Advisor
(935288) Let t er
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