Budget Issues: Budget Enforcement Compliance Report (15-JUN-01,
GAO-01-777).
This report assesses the 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. Overall, GAO found that OMB and CBO
substantially complied with the act, however some of the required
OMB and CBO reports were issued late. GAO's work was conducted in
accordance with generally accepted government auditing standards.
OMB and CBO officials agreed with GAO's presentation of their
views and the facts as presented.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-777
ACCNO: A01196
TITLE: Budget Issues: Budget Enforcement Compliance Report
DATE: 06/15/2001
SUBJECT: Budget deficit
Budgeting
Congressional budgets
Medicare Program
Medicaid Program
State Children's Health Insurance
Program
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GAO-01-777
GAO United States General Accounting Office
Report to the Chairman, Committee on the Budget, House of Representatives
June 2001 BUDGET ISSUES Budget Enforcement Compliance Report
GAO- 01- 777
Page i GAO- 01- 777 Budget Enforcement Compliance Report Letter 1
Appendix I Background and Scope and Methodology 7
Appendix II Implementation Issues 15
Appendix III Future of Budget Enforcement Rules 30
Appendix IV GAO Contact and Staff Acknowledgments 46
Tables
Table 1: Sequestration Reports and Due Dates 2 Table 2: Percentage of OMB
Scorekeeping Reports Issued Late 4 Table 3: Sequestration Reports and Due
Dates 8 Table 4: Discretionary Spending Categories by Fiscal Year 9 Table 5:
CBO and OMB Estimates of Fiscal Year 2001
Appropriations Compared to End- of- Session Discretionary Caps 16 Table 6:
Provisions With More Than $500 Million Difference
Between OMB and CBO Estimates 18 Table 7: Comparison of OMB and CBO Scoring
for Section 505 of
the Department of Transportation and Related Agencies Appropriations Act,
2001, as Directed in the Consolidated Appropriations Act, 2001 24 Table 8:
Comparison of OMB and CBO PAYGO Scoring for the
Consolidated Appropriations Act, 2001 25 Table 9: Comparison of OMB and CBO
Scoring Medicaid and
SCHIP Provisions 26 Table 10: Comparison of OMB and CBO Scoring for National
Defense Authorization Act for Fiscal Year 2001 27 Table 11: Comparison of
OMB and CBO Scoring for the Military
Retiree Health Care Benefit of the National Defense Authorization Act for
Fiscal Year 2001 28 Table 12: Comparison of OMB and CBO Scoring for the
Energy
Employees Occupational Illness Compensation Program Act of 2000 29 Contents
Page ii GAO- 01- 777 Budget Enforcement Compliance Report Figures
Figure 1: Discretionary Outlay Caps and Enacted Appropriations 32
Page 1 GAO- 01- 777 Budget Enforcement Compliance Report
June 15, 2001 The Honorable Jim Nussle 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). 1 Our assessment covers OMB and CBO reports issued for
legislation enacted during the 2nd session of the 106th Congress, which
ended on December 15, 2000.
According to CBO?s final sequestration report issued on December 29, 2000,
discretionary outlays for all spending categories combined are estimated to
fall beneath the adjusted spending limits for fiscal year 2001. OMB?s final
sequestration report, issued on January 16, 2001, also estimated that no
sequestration of discretionary spending will be required for fiscal year
2001.
To assess compliance with the Deficit Control Act (DCA), we reviewed OMB and
CBO sequestration reports issued under the act to determine if they complied
with all of the act?s requirements. In addition we reviewed the scorekeeping
reports issued by OMB and CBO to (1) identify major scoring differences and
(2) determine the timeliness of the reports. Appendix I contains greater
detail on our scope and methodology, as well as background information on
DCA.
Our work was conducted in Washington, D. C., from August 2000 through May
2001 in accordance with generally accepted government auditing
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- Rudman- 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 pay- as- you- go procedures.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 01- 777 Budget Enforcement Compliance Report
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.
Overall, we found that OMB and CBO substantially complied with the act.
However, some of the required OMB and CBO reports were issued late. DCA sets
a specific timetable for issuance of OMB and CBO sequestration reports, as
shown in table 1.
Table 1: Sequestration Reports and Due Dates 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
Although OMB met the timing requirement for the Sequestration Preview
Report, the update report was issued 19 days late on September 8, 2000, and
the final report was issued 17 days late on January 16, 2001. CBO?s update
report was issued on time, but its preview report was issued 2 days late on
February 4, 2000, and its final report was issued on December 29, 2000, 4
days late.
The late issuance of CBO?s fiscal year 2001 sequestration preview report was
due to the extremely late issuance of OMB?s final sequestration report for
fiscal year 2000. As noted in last year?s compliance report, OMB?s report
was issued 49 days late- on January 25, 2000. 2 Because CBO uses
2 OMB attributed the delay in issuing its final report for fiscal year 2000
to the lateness of legislation, leading to a situation in which many of its
scorekeeping reports were due during its busiest time of the year- when it
was preparing the President?s budget. As discussed in appendix I, OMB is
supposed to issue these reports within 7 working days after an appropriation
or PAYGO legislation is enacted. Because the final sequestration report
covers all legislation enacted during a congressional session, its timing
can be affected by late scorekeeping reports. According to OMB, the lateness
of appropriation action and the magnitude of legislation enacted at the end
of the year caused it to miss its reporting deadline. See Budget Issues:
Budget Enforcement Compliance Report (GAO/ AIMD- 00- 174, May 31, 2000).
Results in Brief
Page 3 GAO- 01- 777 Budget Enforcement Compliance Report
the discretionary spending limits (caps) included in OMB?s final
sequestration report as the starting point for the adjustments that it
publishes in its preview report, CBO cannot update its fiscal year estimates
until OMB?s report is issued. For fiscal year 2001 CBO did not receive the
data needed to issue its preview report promptly. This in turn meant that
CBO?s published adjustments were not available to OMB to include in the OMB
fiscal year 2001 preview report, which was published in the President?s
Budget in February 2000.
As has been the case for the past 4 fiscal years, OMB issued most of its
fiscal year 2001 scorekeeping reports late. For fiscal year 2001, OMB issued
a total of 4 discretionary scorekeeping reports (covering 10 pieces of
enacted legislation) and 51 pay- as- you- go (PAYGO) reports. 3 Of this
total of 55 scorekeeping reports, only six of the PAYGO reports were issued
on time. All of the discretionary reports and 45 of the PAYGO reports were
issued later than the time required by law, which is 7 working days after
enactment of the relevant piece of legislation. On average, the fiscal year
2001 discretionary spending reports were issued 23 working days late and the
PAYGO reports were issued an average of 9 working days late.
While CBO does not have a timing requirement for its PAYGO or discretionary
scoring reports, DCA requires CBO to issue estimates ?as
soon as practicable? after the Congress completes action. On average, CBO
issued its fiscal year 2001 appropriations scoring reports about 3.5 working
days after congressional action was completed and its PAYGO reports (for
legislation with significant budgetary impact) 9.5 working days after
congressional action was completed.
There was a slight improvement over last year in the percentage of OMB
scorekeeping reports issued on time. Table 2 shows the percentage of reports
issued late for the last 6 years. The percentage of late reports has more
than doubled since 1996 and has remained above 80 percent since 1999.
3 Although CBO issued scorekeeping reports on 157 PAYGO bills enacted during
this session of the Congress, OMB no longer issues PAYGO scorekeeping
reports for legislation where OMB and CBO estimate zero or negligible budget
impact.
Page 4 GAO- 01- 777 Budget Enforcement Compliance Report
Table 2: Percentage of OMB Scorekeeping Reports Issued Late Fiscal year 1996
1997 1998 1999 2000 2001
Percent of reports issued late 40 71.3 52.5 82.8 94 89.1
As you requested, we also looked beyond compliance to some implementation
issues. We further discuss differences between CBO and OMB concerning
appropriations scoring and PAYGO scoring in appendix II.
We identified a total of 21 items in which differences of over $500 million
existed between CBO?s and OMB?s scoring of discretionary budget authority
and outlays for enacted laws. Of the 21 differences, 3 are due to long-
standing differences in the way OMB and CBO treat outlays from
appropriations designated as contingent emergencies. 4 Additionally, four of
the differences are caused by different reporting practices- these are
reporting differences rather than actual differences in the estimates of
budgetary effect. Eleven of the differences were due to different outlay
rate estimates. Different DCA categorization (PAYGO versus discretionary)
produced two of the differences and one difference was due to different
assumptions concerning a payment date.
CBO and OMB differed substantially in PAYGO scoring for three pieces of
enacted legislation. CBO and OMB estimates for the Transportation
Appropriations Act appeared to vary by $1,265 million over the 5- year
period 2001- 2005. However, the actual difference in the estimates for this
act is only $59 million. The apparent $1,265 million difference is related
to the scoring of the civil service retirement rollback provision. CBO
scored this provision as PAYGO since it always scores revenue provisions as
such, while OMB scored this provision as discretionary because it was
contained in an appropriations act. OMB, therefore, found no PAYGO impact
for the Transportation Appropriations Act. Later, in the
4 When the Congress designates an appropriation as a contingent emergency,
the funds are not available for obligation until the President also
designates the appropriation as an emergency. Traditionally, CBO has scored
the budget authority and outlays for these appropriations after
congressional action has been completed, while OMB scored them only after
the President designated them as ?emergency requirements.? In February 2000,
OMB began scoring budget authority for contingent emergency appropriations
consistent with congressional scoring practice. Subsequently, in the fiscal
year 2002 sequestration preview report, OMB reported that, consistent with
congressional scoring practice, it will begin scoring outlays for contingent
emergency appropriations after congressional action.
Page 5 GAO- 01- 777 Budget Enforcement Compliance Report
Consolidated Appropriations Act, OMB was directed to rescore the retirement
rollback provision as PAYGO and then estimated an impact of $1,206 million
in revenue losses. CBO and OMB also differed in their estimates of the
impact of provisions in the Consolidated Appropriations Act by $22,523
million from 2001 through 2005; $21,928 million of this difference resulted
from the estimates of the Medicare, Medicaid, and State Children?s Health
Insurance Program (SCHIP) Benefits Improvement and Protection Act of 2000.
In addition, CBO estimated the cost of the National Defense Authorization
Act for Fiscal Year 2001 at $20,167 million from 2001 through 2005, while
OMB estimated the cost at $18,970 million over the same period.
In addition, our analysis of required cap adjustments made by OMB and CBO
found no significant differences between the estimates of the final fiscal
year 2001 discretionary spending caps resulting from the adjustments.
BEA was designed to ensure lower deficits with the goal of a balanced
budget, and there is widespread agreement that for much of the past decade
BEA was successful in restraining fiscal action by the Congress and the
President. However, there is also general acknowledgment both that the
spending caps for the last couple of years were unrealistically tight when
they were set and that the emergence of budget surpluses undermined the
acceptance of the BEA enforcement mechanisms that had been designed to reach
budget balance. In a period of surplus, the Congress and the President need
a new overall framework upon which a process and interim targets can be
based. A budget process that is part of a broader fiscal framework can help
policymakers make wise fiscal choices and meet the challenges of this new
era. Given the forthcoming expiration of the BEA enforcement regime and its
apparent inadequacy in a time of surplus, you asked us to comment on the
future of budget enforcement mechanisms. We discuss this more in appendix
III.
We are sending copies of this report to the Director, Office of Management
and Budget; the Director, Congressional Budget Office; the Chairmen and
Ranking Minority Members of House and Senate Committees on the Budget and
Appropriations. Copies will be made available to other interested parties on
request. The Future of Budget
Enforcement
Page 6 GAO- 01- 777 Budget Enforcement Compliance Report
Please contact me at (202) 512- 9142 if you or your staff have any
questions. Major contributors to this report are listed in appendix IV.
Sincerely yours, Susan J. Irving Director, Federal Budget Analysis Strategic
Issues
Appendix I: Background and Scope and Methodology
Page 7 GAO- 01- 777 Budget Enforcement Compliance Report
The Balanced Budget and Emergency Deficit Control Act of 1985 (DCA), as
amended, 1 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 the Congressional Budget
Office (CBO) and the Office of Management and Budget (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 an appropriation or on PAYGO legislation, 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 or
PAYGO legislation 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
1 DCA was 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 DCA, it is sometimes called
Gramm- Rudman- 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 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. OMB and CBO have interpreted the PAYGO requirement as applying
to surpluses as well; the aggregate effect of new legislation must not
decrease the surplus.
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 appropriation acts.
4 Sequestration is the cancellation of budgetary resources. Appendix I:
Background and Scope and
Methodology
Appendix I: Background and Scope and Methodology
Page 8 GAO- 01- 777 Budget Enforcement Compliance Report
CBO estimates, OMB is required to consult with the budget committees prior
to issuing its scoring report.
DCA also requires CBO and OMB to submit a series of three sequestration
reports at specified times during each year, as shown in table 3. CBO and
OMB reports include discretionary sequestration reports that adjust the
discretionary spending caps and PAYGO sequestration reports that display the
net decrease or increase in the deficit or surplus for enacted PAYGO
legislation. Because OMB?s reports control for purposes of sequestration,
CBO uses estimates from OMB?s most recent sequestration report as the
starting point for each of its reports.
Table 3: Sequestration Reports and Due Dates 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
Annual discretionary spending limits for budget authority and outlays are
set forth in DCA. 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 were combined resulting in two categories- Violent Crime
Reduction Spending and all other discretionary spending. 5 The violent crime
reduction category was eliminated for fiscal years 2001 and 2002 and
associated appropriations were included in the Other Discretionary category.
The spending cap structure was altered again in the Transportation Equity
Act for the 21st Century (TEA- 21). Two new outlay caps that apply
separately to highway and mass transit programs were established for 1999
through 2003. 6 Because these programs previously
5 CBO refers to the spending category that encompasses all other
discretionary spending as
?Overall Discretionary? while OMB refers to it as ?Other Discretionary.? 6
Title VIII of TEA- 21 (P. L. 105- 178, enacted June 9, 1998) amended DCA to
add these two new caps. These caps continue for 2003 even though DCA caps
only exist through 2002. Discretionary
Spending Limits
Appendix I: Background and Scope and Methodology
Page 9 GAO- 01- 777 Budget Enforcement Compliance Report
had been included under the Nondefense cap, the Nondefense cap for 1999 and
the Other Discretionary caps for 2000, 2001, and 2002 were reduced. However,
the new caps on highway and mass transit outlays exceeded the reductions in
the other caps by about $15.4 billion. Therefore, the amount of total
discretionary outlays permitted under all of the caps was increased for each
year from 1999 through 2002.
On October 11, 2000, the President signed the Department of the Interior and
Related Agencies Appropriations Act for fiscal year 2001 (P. L. 106291),
which established limits for a new spending category, ?Conservation
spending.? The new spending limits were established for fiscal years 2002
through 2006 even though the DCA caps expire after 2002. The law also
established six distinct subcategories under the conservation category. The
subcategories are (1) federal land and state land water conservation fund,
(2) state and other conservation, (3) urban and historic preservation, (4)
payments in lieu of taxes, (5) federal deferred maintenance, and (6) coastal
assistance. Table 4 summarizes the various caps for fiscal years 1998
through 2002.
Table 4: Discretionary Spending Categories by Fiscal Year 1998 1999 2000
2001 2002
Violent Crime Reduction Violent Crime Reduction Violent Crime Reduction
Defense Defense
Nondefense Other Discretionary Other Discretionary Other Discretionary
Highway Highway Highway Highway Nondefense Mass Transit Mass Transit Mass
Transit Mass Transit
Conservation Note: The Highway and Mass Transit categories were formerly
included in the Nondefense category. Similarly, spending in the Conservation
category was formerly included in the Other Discretionary category.
The Foreign Operations Appropriations Act for FY 2001 (P. L. 106- 429),
signed by the President on November 6, 2000, included a provision increasing
the budget authority limit for fiscal year 2001 in the Other Discretionary
category to $637 billion and the outlay limit to $612.7 billion, increases
of $95.9 billion and $58.6 billion respectively. 7
7 P. L. 106- 429 also included a provision allowing OMB to adjust the 2001
budget authority limit for this category upward by 0.5 percent, resulting in
an increase of $3.188 billion. Additionally, the standard adjustments
authorized by DCA for budget authority and outlays totaled $615 million and
$552 million, respectively.
Appendix I: Background and Scope and Methodology
Page 10 GAO- 01- 777 Budget Enforcement Compliance Report
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 through fiscal year
2000, (6) the earned income tax credit compliance initiative, (7) adoption
incentive payments, and (8) 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. Finally, the law establishing the
new conservation category specified that the amount, if any, by which
appropriations for this category for a given fiscal year fall below the
limit for that year will be added to the limit for the following year. 8
In addition to increasing the discretionary spending limits, the Foreign
Operations Appropriations Act also prohibited OMB from adjusting the fiscal
year 2001 limits for emergency appropriations or for additional funds for
IMF or international arrearages, which otherwise would have been allowed.
The law also authorizes rounding adjustments of 0.5 percent in the budget
authority limit for the Other Discretionary category. Both OMB and CBO used
the rounding authority, adjusting the budget authority limit by over $3
billion. Appendix II presents more detail about these adjustments.
The spending limits are to be enforced by sequestration should budget
authority or outlays exceed the statutory limits. CBO estimated in its
fiscal year 2001 final sequestration report that total discretionary outlays
for all categories combined are below the adjusted caps for 2001 and thus
concluded that no discretionary sequestration was required. OMB?s final
sequestration report drew the same conclusion.
In addition, the law specifies that for a fiscal year in progress, if an
appropriation enacted between end- of- session adjournment and July 1 of
8 This adjustment applies to the six subcategories as well.
Appendix I: Background and Scope and Methodology
Page 11 GAO- 01- 777 Budget Enforcement Compliance Report
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 sequestration set
forth in the OMB report. If appropriations causing a breach within any
category for the fiscal year in progress are made after June 30, the limits
in that category for the next fiscal year will be reduced by the amount of
the breach. In the sequestration update report for fiscal year 2001, OMB
estimated that spending provisions in the Military Construction
Appropriations Act for 2001 (P. L. 106- 246), signed into law on July 13,
2000, breached the Other Discretionary budget authority limit by $2.4
billion and the outlay limit by $6.8 billion. However, section 5107 of that
law bars any sequestration to eliminate a fiscal year 2000 breach or
reductions in discretionary spending limits for fiscal year 2001 due to
provisions in the law. Therefore, no within- session sequestration was
required.
PAYGO enforcement covers all direct spending (also known as mandatory
spending) and receipts legislation. CBO and OMB maintain a ?scorecard?
showing the cumulative deficit/ surplus 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 result in a net cost, a sequester of nonexempt direct spending
programs is required to offset the cost. In determining the need for
sequestration the estimates for the budget year and those for the current
year that were not included in the final sequestration report for the
current year are combined. Effective on its enactment, BEA- 97 set the
scorecard balance to zero for the then- current year and for each subsequent
year through fiscal year 2002. This prevented 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. The
Consolidated Appropriations Act, 2000 (P. L. 106- 113) required OMB to reset
the PAYGO scorecard to zero on January 3, 2000. Although BEA expires in
2002, the sequestration procedure applies through 2006 to eliminate any
projected net costs stemming from PAYGO legislation enacted through fiscal
year 2002.
In the final sequestration reports, OMB and CBO calculate the net change in
the deficit or surplus due to PAYGO legislation. However, the OMB report is
the sole basis for determining whether an end- of- session sequestration is
required. If OMB determines that sequestration is required, the President
must issue an order implementing it. For fiscal year PAYGO Enforcement
Appendix I: Background and Scope and Methodology
Page 12 GAO- 01- 777 Budget Enforcement Compliance Report
2001, both CBO and OMB concluded that a PAYGO sequester was not needed.
However, as in fiscal year 2000, the Consolidated Appropriations Act, 2001
(P. L. 106- 554) required OMB to reset the PAYGO scorecard to zero for
fiscal year 2001. OMB estimated that the cumulative effect of legislation
subject to PAYGO procedures enacted through the end of the 106th Congress
decreased the projected surplus in 2001 by $10.54 billion. Similarly, CBO?s
estimate of net costs was $7.908 billion. Absent the requirement to reset
the scorecard to zero, a sequester of $10.54 billion would have been
required.
As discussed in our report on BEA compliance for fiscal year 2000, after
consulting with the congressional budget committees and CBO, in early 2001
OMB made two changes to budget scoring and adjusted the discretionary
spending caps accordingly. 9 The first change concerned receipts from
purchase power and wheeling activities associated with the Department of
Energy?s power marketing administrations. These receipts were reclassified
from mandatory to discretionary. Scoring these receipts as discretionary
reduced net discretionary budget authority and outlays; therefore the
spending caps were reduced by approximately $60 million a year in fiscal
years 2001 and 2002. The second change concerned the scoring of contingent
emergency appropriations. When the Congress designates an appropriation as a
contingent emergency, the funds are not available for obligation until the
President also designates the appropriation as an emergency. In the past,
although CBO scored these contingent emergency appropriations after the
Congress acted, OMB did not score them until the President designated them
as ?emergency
requirements? and only then increased the discretionary spending caps by the
budget authority made available and the estimated outlays. In its fiscal
year 2001 Preview Report, OMB stated that it would follow the CBO practice
of scoring budget authority for these items after the Congress has completed
action; it will score outlays when the President releases the funds. 10
Subsequently, in the fiscal year 2002 sequestration preview report, OMB
reported that consistent with congressional scoring practice it will also
begin scoring outlays for contingent emergency appropriations after
9 Budget Issues: Budget Enforcement Compliance Report (GAO/ AIMD- 00- 174,
May 31, 2000). 10 In its fiscal year 2001 sequestration preview report, OMB
adjusted its scoring of the 2000 appropriations acts and the resulting
discretionary spending caps to conform with this change. Changes in OMB?s
Budget Scoring
Appendix I: Background and Scope and Methodology
Page 13 GAO- 01- 777 Budget Enforcement Compliance Report
congressional action. OMB plans to make an additional scoring change that
will eliminate another long- standing difference it has had with CBO
scoring. In March 2001, an OMB official told us that for the fiscal year
2002 budget and thereafter OMB would follow CBO?s practice and score the
budget authority associated with spending in the Mass Transit and Highway
categories as discretionary. When TEA- 21 amended BEA, it created separate
outlay caps for highway and mass transit spending, but those categories do
not have budget authority limits. CBO and OMB have taken different
approaches to avoid counting the budget authority in these categories
against the discretionary limits. CBO scores the budget authority as
discretionary, but does not include the amount in the estimate of the
spending limits in the final sequestration report. OMB has categorized the
budget authority as mandatory spending to ensure that the discretionary
total did not overstate budget authority. For fiscal year 2001, as in the
past, the different treatment of this budget authority produced large
differences in the scoring reports. These differences will no longer exist
if OMB implements the change and both it and CBO score the budget authority
as discretionary.
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 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
second session of the 106th Congress, the 21 continuing appropriations
measures, as well as all applicable OMB and CBO appropriations scoring
reports issued as of January 15, 2001. 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 any differences of $500 million or more in budget authority
or outlay estimates. We examined OMB and CBO adjustments to the
discretionary spending limits for the preview, update, Scope and
Methodology
Appendix I: Background and Scope and Methodology
Page 14 GAO- 01- 777 Budget Enforcement Compliance Report
and final sequestration reports. During the course of our work, we also
interviewed OMB and CBO officials.
Our work was performed in Washington, D. C., from August 2000 through May
2001, 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.
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We examined three areas in which the Office of Management and Budget (OMB)
and the Congressional Budget Office (CBO) often have differed in the past:
(1) discretionary scoring, (2) pay- as- you- go (PAYGO) scoring, and (3)
discretionary spending cap adjustments. We compared OMB and CBO
discretionary and PAYGO scoring reports and obtained explanations for
estimates of individual items or report totals that differed by $500 million
or more. We also examined OMB and CBO adjustments to the discretionary
spending limits for the preview, update, and final sequestration reports. We
found no significant differences between their estimates of the final fiscal
year 2001 discretionary spending caps resulting from these adjustments.
The CBO and OMB final sequestration reports agreed that there was no need
for sequestration in fiscal year 2001. As shown in table 5, OMB estimated
budget authority in all categories and outlays in all categories as below or
meeting the caps. CBO estimated that budget authority for all categories was
below the caps while outlays for the Highway and Mass Transit categories
exceeded their limits. However, because CBO?s estimates of outlays in the
Overall Discretionary category were $2,488 million below the caps, the total
budget authority still fell below the spending caps. The difference between
the CBO and OMB estimates is accounted for by many scorekeeping differences;
the largest of these are detailed in the following discussion. Appendix II:
Implementation Issues
Although There Are Many Scorekeeping Differences, Neither OMB nor CBO Call
for Sequestration
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Table 5: CBO and OMB Estimates of Fiscal Year 2001 Appropriations Compared
to End- of- Session Discretionary Caps
Dollars in millions
OMB CBO Budget authority Outlays Budget
authority Outlays Overall Discretionary
Enacted appropriations 634,258 610,783 633,083 610,738 End- of- session caps
640,803 613,247 640,800 613,226 Difference -6,545 -2,464 -7,717 -2,488
Highway
Enacted appropriations 26,897 27,294 End- of- session caps 26,920 26,920
Difference -23 374
Mass Transit
Enacted appropriations 4, 639 4,992 End- of- session caps 4,639 4,639
Difference 0 353
Total for all spending categories
Total enacted appropriations 634,258 642,319 633,083 643,024 End- of-
session caps 640,803 644,806 640,800 644,785 Difference -6,545 -2,487 -7,717
-1,761
Note: Highway and Mass Transit categories were created by TEA- 21 and
include outlay caps only. Source: OMB and CBO final sequestration reports.
Although there were many discretionary scorekeeping differences between OMB
and CBO, most were relatively small. In the four discretionary scorekeeping
reports issued by OMB and CBO, we identified 21 differences that were
greater than $500 million in either budget authority or outlays.
Of the 21 differences greater than $500 million, 3 were due to longstanding
differences in the way OMB and CBO treat contingent emergencies. CBO scores
contingent emergency appropriations when the Congress enacts them. OMB
traditionally scores them only after the President designates them as
emergency requirements and the funds are released. In OMB?s sequestration
Preview Report, issued February 7, 2000, OMB reported plans to change its
scoring of budget authority for contingent emergency appropriations to be
consistent with congressional scoring practice and has done so. However, for
the fiscal year 2001 budget, OMB continued to wait until the President has
designated the appropriations as emergencies and released the funds before
scoring the Scoring Differences
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associated outlays. 1 Since the scorekeeping differences due to the
treatment of contingent emergencies reflect differences in timing, we have
not included them in the discussion below.
Additionally, four apparent scoring differences were simply differences in
the way OMB and CBO aggregated the budgetary effects of the provisions. For
these provisions CBO reported its estimates of budgetary effect at the title
level- in effect combining several line items, while OMB?s estimates were
distributed by account. Thus, where CBO estimates a cost for each title, OMB
has no such estimate. However, these differences are offset by differences
that appear because OMB estimates effects at the account level, while CBO
has no estimates at that level. Because these are offsetting differences due
to reporting aggregations, rather than actual scoring differences, we do not
discuss them further. The provisions with the remaining 14 largest
differences in budget authority, outlays, or both, are shown in table 6.
1 In April 2001, OMB reported that it would begin scoring outlays for
contingent emergency appropriations after congressional action. See appendix
I for more information.
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Table 6: Provisions With More Than $500 Million Difference Between OMB and
CBO Estimates a
Dollars in millions
Difference between OMB and CBO estimates (OMB- CBO) 2000 2001
Act with: Provision Budget authority Outlays
Budget authority Outlays Outlay rate differences
Military Construction Appropriations Act, 2001 Overseas contingency
operations transfer account
0 1, 160 0 -739 Military Construction Appropriations Act, 2001 Repeal of HHS
obligation
delays 0 -1,175 0 1, 166 Department of Defense Appropriations Act, 2001
Operations and
maintenance, Army b b 1 505
Department of Defense Appropriations Act, 2001 Operations and Maintenance,
Air Force
b b 0 571 Departments of Veterans Affairs and Housing and Urban Development,
and Independent Agencies Appropriations Act, 2001
Medical care b b 138 809 Departments of Labor, Health, and Human Services,
and Education and Related Agencies Appropriations Act, 2001
National Institutes of Health
b b 0 639 Departments of Labor, Health and Human Services, and Education and
Related Agencies Appropriations Act, 2001
Welfare- to- work jobs b b 0 -525 Departments of Commerce, Justice, and
State, the Judiciary, and Related Agencies Appropriations Act, 2001
Community- oriented policing services
b b 0 793 Department of Transportation and Related Agencies Appropriations
Act, 2001 Highway and Mass
Transit category outlays b b 0 -743
DCA categorization differences
Department of Transportation and Related Agencies Appropriations Act, 2001
Formula grants b b -669 181 Department of Transportation and Related
Agencies Appropriations Act, 2001 Capital investment grants b b -529 -246
Payment date difference
Departments of Veterans Affairs and Housing and Urban Development, and
Independent Agencies Appropriations Act, 2001
Housing certificate fund b b 0 831 Note: Positive numbers indicate
provisions for which CBO estimates were lower than OMB. Negative numbers
indicate provisions for which CBO estimates were higher than OMB. a
Differences due to the treatment of contingent emergencies and reporting
aggregations are not
included. b Only fiscal year 2001 budgetary impacts were reported.
For these provisions, the differences between the OMB and CBO estimates can
be grouped into the following categories.
Appendix II: Implementation Issues Page 19 GAO- 01- 777 Budget Enforcement
Compliance Report Different Outlay Rate Estimates:
For the fiscal year 2000 supplemental appropriations for the Overseas
Contingency Operations Transfer Account, OMB assumed a higher spendout rate
than CBO in fiscal year 2000 (75 percent versus 17 percent) and a slower
rate than CBO in fiscal year 2001 (20 percent versus 57 percent). OMB
explained that it assumed that the Department of Defense (DOD) had
transferred large amounts of resources from other accounts to fund immediate
needs resulting from continued overseas operations. As a result, the
supplemental funds would be used to ?repay? those other accounts.
Alternatively, CBO assumed that because the supplemental appropriations act
that contained this provision was enacted in July- three- quarters through
the fiscal year- associated outlays would be delayed. Therefore, CBO assumed
that in fiscal year 2000 DOD would spend only one- quarter of the outlays
CBO would usually estimate to be spent from the associated budget authority.
Different assumptions about how the National Institutes of Health (NIH)
would have dealt with the imposition of the obligation delay are the primary
cause of the different outlay estimates for the repeal of Department of
Health and Human Services (HHS) obligation delays. OMB had assumed the
obligation delay placed on NIH would not slow spending in fiscal year 2000,
because NIH would speed up spending of existing resources and then
?backfill? when the delayed funds became available. Therefore, the repeal of
the obligation delay did not significantly change OMB?s outlay estimates for
fiscal years 2000 and 2001. Conversely, CBO had assumed that the original
delay in availability of funds would result in a delay of outlays of $1.6
billion from fiscal year 2000 to 2001. With the repeal of the delay, CBO
assumed the money could be obligated immediately and restored the $1.6
billion in outlays to fiscal year 2000.
The differences in the estimates for Operations and Maintenance, Army and
Operations and Maintenance, Air Force are the result of different estimates
of spendout rates for budget authority provided prior to fiscal year 2001.
While OMB and CBO applied the same outlay rate for fiscal year 2001 budget
authority, OMB estimated a faster rate from the prior year?s budget
authority than CBO did.
Similarly, OMB estimated higher outlay rates from prior year?s budget
authority than CBO for the Medical Care provision in the Veteran?s Affairs,
Housing and Urban Development Appropriations. OMB?s outlay estimate from
prior year balances was $989 million larger than CBO?s estimate. CBO assumed
that the Department of Veterans Affairs (VA) would not be
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able to spend its large prior year balances as quickly as OMB believes it
will. However, CBO?s estimate of fiscal year 2001 outlays from new budget
authority was $180 million more than OMB?s estimate.
For the NIH provision in the Labor, Health and Human Services
appropriations, OMB assumed higher outlay rates than did CBO for fiscal year
2001 outlays from both prior- year balances and new budget authority.
Under existing law, states and localities were required to expend all
welfare- to- work funds awarded in 1998 by the end of fiscal year 2001 and
all funds awarded in 1999 by the end of fiscal year 2002. The Consolidated
Appropriations Act of 2001 extended the time states and localities have to
spend the money by 2 years. Most of the difference in the outlay estimates
for the extended availability of Welfare- to- Work Jobs grant money results
from the differences in OMB and CBO baseline assumptions. In its baseline,
OMB assumed that resources would be obligated and outlayed much more quickly
than CBO did and that the states would spend all of their welfare- to- work
grants. Thus, OMB assumes that the extended availability of funds will allow
states to slow their spending in the near term, and spend more later.
Therefore, OMB scored outlay savings of $485 million in fiscal year 2001 and
outlay costs in fiscal years 2002 and 2003. On the other hand, in its
baseline, CBO assumed that a portion of the grant money would go unspent.
With the extended availability of funds, CBO assumes additional spending
above its baseline- spending will not slow in the near term, but will
increase in later years. In addition, OMB scored savings of $15 million from
the rescission of the welfare- to- work performance bonus, while CBO scored
savings of $25 million.
The difference in the OMB and CBO estimates for the Community Oriented
Policing Services (COPS) provision in the Commerce, Justice, and State
appropriations is also due to the use of different outlay rates. CBO assumes
a modest outlay rate from new budget authority while OMB assumes no outlays
in the first year. However, OMB assumes much higher outlays in the second
year than CBO. For fiscal year 2001, CBO estimates $72 million more in
outlays from new budget authority, while OMB estimates $865 million more
than CBO in outlays from prior- year balances.
The large difference reported for the estimates of Highway and Mass Transit
Category Outlays is the sum of the differences in outlay estimates in the
Highway category and the Mass Transit category. CBO estimates that outlays
in both categories exceeded the limits. OMB estimates that Highway outlays
do not exceed the limit, while Transit outlays exceed the limit by $3
million due to rounding. The total difference of $743 million is
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composed of a $392 million difference in the estimates of Highway outlays
and a $351 million difference in Mass Transit outlays. OMB explained that
the differences are due to different spendout rate estimates.
DCA Categorization Differences:
The Transportation Equity Act of the 21st Century (TEA- 21) amended BEA to
create separate outlay caps for highway and mass transit spending. However,
the Highway and Mass Transit spending categories do not have budget
authority limits. As in the past, OMB and CBO used different scoring
treatments of the budget authority associated with the Mass Transit category
in their efforts to avoid counting it against the discretionary budget
authority limits. In its appropriations scoring report, CBO scored $669
million for Formula Grants and $529 million for Capital Investment Grants in
budget authority under the Mass Transit category as discretionary. OMB
categorized the Mass Transit budget authority as mandatory spending to
ensure that its discretionary totals did not overstate budget authority.
Although OMB and CBO treated the Mass Transit budget authority differently
for their appropriations scoring reports, neither final sequestration report
scored it against the discretionary budget authority spending caps. An OMB
official told us that for purposes of the fiscal year 2002 budget and
thereafter OMB will score budget authority associated with spending in the
Highway and Mass Transit categories as discretionary. Thus, differences will
no longer exist in the way CBO and OMB handle budget authority for these
transportation programs.
Payment Date Difference:
For the Housing Certificate Fund, most of the $831 million difference is the
result of CBO scoring one extra payment in fiscal year 2000. CBO scored $680
million in outlays in fiscal year 2000 reflecting an extra grant payment for
Section 8 rental assistance at the end of the year and, therefore, one less
payment in fiscal year 2001. In the past, the Department of Housing and
Urban Development (HUD) has made early grant payments whenever the first-
of- the- month payment falls on a weekend. October 1, 2000, was a Sunday,
qualifying for the normal early payment. Although eligible to make the extra
payment, HUD chose not to make the payment early. Thus, OMB estimates
reflect the payment made in 2001. CBO explained that their estimates of
discretionary prior- year spending are developed in the spring, and the
Congress uses the estimates as a starting point for the budget resolution.
When scoring appropriations bills, CBO remains faithful to the underlying
assumptions in the budget resolution. In
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addition, the remaining $151 million of the total difference was due to
different outlay rate estimates.
In its final sequestration report, CBO reported that PAYGO legislation
passed by the Congress through the end of the second session of the 106th
Congress resulted in a net spending increase of $42 million in fiscal year
2000 and $7,908 million in fiscal year 2001. For both years, most of that
amount can be attributed to provisions in the Consolidated Appropriations
Act, 2001 (P. L. 106- 554). OMB, in its final sequestration report,
estimated that new legislation produced a net increase of $42 million for
2000 and $10,500 million for 2001. Under BEA, OMB?s 2000 and 2001 numbers
would be totaled to determine whether sequestration was required. 2 However,
section 2( b) of P. L. 106- 554 instructs OMB to ?change any balance of
direct spending and receipts legislation for fiscal year 2001 ? to zero? and
thereby avoids a PAYGO sequestration.
P. L. 106- 554 contains another directed scorekeeping provision as well.
Normally under scorekeeping guidelines, when changes to mandatory spending
are made in an appropriation act, the effect of those changes are initially
counted as discretionary spending and in the following year are reclassified
as mandatory. However, section 2( a) in the Consolidated Appropriations Act
specified that certain costs in the Consolidated Appropriations Act and
other acts be counted as part of the PAYGO balance and not as discretionary
spending, otherwise they would have counted against the discretionary caps.
This resulted in $7,170 million being scored as PAYGO rather than
discretionary in fiscal year 2001. These PAYGO costs were then part of the
PAYGO balance that was subsequently eliminated when the scorecard was reset
to zero.
During the second session of the 106th Congress, 53 pieces of PAYGO
legislation with estimated budgetary impact greater than $500,000 were
enacted. 3 We analyzed those scorekeeping reports for which OMB and CBO
estimates differed by $500 million or more either in any single year or
2 As required by BEA, the fiscal year 2000 total reflects only that
legislation added to the scorecard after the 2000 final sequestration report
was issued. 3 OMB announced in its Sequestration Preview Report for fiscal
year 2000 that it was no longer issuing PAYGO reports on legislation for
which OMB and CBO estimate zero or negligible budget impact, i. e., less
than $500, 000. During the 2nd session of the 106th Congress, OMB issued 51
PAYGO reports. CBO issued 52 reports for legislation estimated to have
impacts greater than $500, 000. PAYGO Scoring Issues
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over the 5- year period 2001 through 2005. Only three pieces of legislation
met this criterion: (1) the Department of Transportation and Related
Agencies Appropriations Act, 2001, (P. L. 106- 346), (2) the National
Defense Authorization Act for Fiscal Year 2001, (P. L. 106- 398), and (3)
the Consolidated Appropriations Act, 2001, (P. L. 106- 554). They are
discussed below.
Besides providing appropriations for the Department of Transportation, the
Department of Transportation and Related Agencies Appropriations Act
includes various general provisions. One of these, found in Section 505 of
the act rolls back by 0.5 percent the amount employees contribute to the
mandatory civil service retirement fund.
OMB did not originally score this section as PAYGO when the law was signed
on October 23, 2000. As discussed above, when changes to mandatory programs
(including offsetting receipts) are made in an appropriation act, the effect
of those changes is initially counted as discretionary and in the following
year is reclassified as mandatory. So OMB scored section 505 as
discretionary, reducing budget authority and outlays by $427 million for
fiscal year 2001. In contrast, since CBO interprets the BEA scorekeeping
guidelines as instructing that only direct spending provisions in
appropriations bills are to be treated as discretionary, it always scores
revenue provisions as PAYGO no matter the type of legislation in which the
provision is contained. CBO estimated a decrease in receipts of $460 million
in fiscal year 2001 and $1,265 million from fiscal years 2001 through 2003.
Due to this scoring discrepancy, CBO showed $1,265 million more in PAYGO
than did OMB. Subsequently, section 2( a) of the Consolidated Appropriations
Act, enacted on December 21, 2000, specified that section 505 of the
Department of Transportation and Related Agencies Appropriations Act, 2001
be treated as PAYGO legislation. In response, OMB re- scored the provision
as mandatory when it scored the Consolidated Appropriations Act and
estimated a $1,206 million decrease in revenue over the 5- year period. OMB
also adjusted the discretionary scorecard to reflect the directed scoring
provision. Once OMB re- scored the provision as PAYGO there was an
insignificant scoring difference of $59 million over the 5- year period.
(See table 7.) Department of
Transportation and Related Agencies Appropriations Act
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Table 7: Comparison of OMB and CBO Scoring for Section 505 of the Department
of Transportation and Related Agencies Appropriations Act, 2001, as Directed
in the Consolidated Appropriations Act, 2001
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB -$ 427 -$ 619 -$ 160 $0 $0 -$ 1,206
CBO -460 -640 -165 0 0 -1,265
Difference (OMB- CBO) $33 $21 $5 $0 $0 $59
As discussed earlier, the Consolidated Appropriations Act, 2001,
incorporated three regular appropriations acts for fiscal year 2001 into a
single measure. In addition, the consolidated act included six other
separate measures: (1) the Miscellaneous Appropriations Act, 2001 (H. R.
5666), (2) the Commodity Futures Modernization Act of 2000 (H. R. 5660), (3)
the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of
2000 (H. R. 5661), (4) the Community Renewal Tax Relief Act of 2000 (H. R.
5662), (5) the New Markets Venture Capital Program Act of 2000 (H. R. 5663),
and (6) the Small Business Reauthorization Act of 2000 (H. R. 5667). Both
OMB and CBO prepared PAYGO scorekeeping reports on this legislation due to
the instructions in section 2( a) directing the treatment of certain
provisions as mandatory despite being contained in an appropriations act.
As shown in table 8, there were significant differences between OMB and CBO
scoring over the 5- year cost of the legislation. OMB and CBO differed by
$22,523 million over the 5- year estimate, with the largest annual
difference of $7,099 million occurring in fiscal year 2005. Consolidated
Appropriations Act, 2001
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Table 8: Comparison of OMB and CBO PAYGO Scoring for the Consolidated
Appropriations Act, 2001
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB $7,170 $11,510 $9,551 $9,995 $11,237 $49,463
CBO 4,616 8,650 5,374 4,162 4,138 26,940
Difference (OMB- CBO) $2,554 $2,860 $4,177 $5,833 $7,099 $22,523
Most of the direct spending and the major differences in the estimates
stemmed from scoring of the Medicaid and Medicare provisions of H. R. 5661,
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act. In
addition, directed scoring by OMB of the civil service retirement rollback
in the Consolidated Act contributed $1,206 million to the 5- year
difference, as discussed in the previous section.
H. R. 5661 directed the Secretary of the Department of Health and Human
Services to issue new regulations for the Medicaid payment system, increased
payments for many Medicare services, and expanded Medicare coverage for
certain preventive procedures, among other things. Differences in OMB and
CBO scoring of this legislation total almost $22 billion over the 5- year
period 2001 through 2005.
Of the $21,928 million difference for H. R. 5661, $19,116 million is related
to Medicaid, SCHIP, and other health provisions. (See table 9.) Mainly, this
is due to the requirement that HHS close a loophole that allowed states to
make higher than usual payments to non- state government facilities under
the Medicaid program. 4 Typically, a state using this strategy would pay a
local government facility the maximum payment eligible for federal matching
dollars, or upper payment limit, instead of the amount that it would
normally compensate other Medicaid providers using its payment rates. The
state would then receive the federal matching contribution for the higher-
than- normal payment. The local government facility would transfer all or an
agreed- upon share of the excess payment back to the state, which would use
the funds to cover the state share of Medicaid costs and/ or for other
purposes. New regulations to close the loophole would be phased in over
time, with full compliance required by October 1, 2008. The
4 For more information see Medicaid: State Financing Schemes Again Drive Up
Federal Payments (GAO/ T- HEHS- 00- 193, Sept. 6, 2000).
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estimating difference results from CBO assuming higher use of inappropriate
upper payment limits in the current system than does OMB. CBO therefore
estimates higher savings from the new provision. In fact, CBO estimates
decreases in the growth of the Medicaid baseline starting in fiscal 2002 and
continuing through fiscal year 2005.
Table 9: Comparison of OMB and CBO Scoring Medicaid and SCHIP Provisions
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB $995 $1,520 $690 $390 $220 $3,815
CBO 31 -755 -3,327 -5,069 -6,181 -15,301
Difference (OMB- CBO) $964 $2,275 $4,017 $5,459 $6,401 $19,116
The remaining $2,812 million difference between OMB and CBO scoring of H. R.
5661 relates to different baseline assumptions for Medicare and different
technical estimates of certain provisions. Both OMB and CBO officials
acknowledge their baselines have overestimated cost growth in Medicare over
the past several years, OMB more so than CBO. In response, both say they
have lowered their baseline but OMB still predicts a more rapid increase in
Medicare spending growth in the near future than does CBO. Additionally,
section 507 of the Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act clarifies the definition of the
?homebound? qualifying requirement for the Medicare home health benefit,
specifying that beneficiaries may not be disqualified for the benefit if
they leave home to use adult day care in a licensed facility for certain
purposes or if they attend religious services. OMB officials believe the
administration?s interpretation of this provision will qualify a greater
number of beneficiaries than does CBO. Lastly, the Congress has taken steps
in this legislation to increase spending on the Medicare+ Choice program,
the rationale being to persuade managed care plans who have left or are
thinking of dropping out of the program to continue participating. OMB
officials believe that in the long term, the managed care spending will
increase as a result. CBO believes this as well, but to a lesser extent.
The National Defense Authorization Act for Fiscal Year 2001, P. L. 106- 398,
authorized fiscal year 2001 appropriations for DOD programs, modified
military pay and benefits, created a new entitlement to provide lifetime
health care for military retirees and pharmacy access to all Medicare
National Defense
Authorization Act for Fiscal Year 2001
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eligible retirees, authorized fiscal year 2001 appropriations for the
Department of Energy (DOE) national security programs, created the Energy
Employees Occupational Illness Compensation Program, and made other
modifications to national security and related programs.
CBO estimated that the provisions in this act would cost about $20,167
million over the 5- year period 2001 through 2005, whereas OMB scored the
legislation to cost $18, 970 million over the same period- a difference of
$1,197 million. Table 10 shows the annual differences between OMB and CBO
scoring for this legislation.
Table 10: Comparison of OMB and CBO Scoring for National Defense
Authorization Act for Fiscal Year 2001
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB $428 $853 $5,694 $5,883 $6,112 $18,970
CBO -22 360 6,165 6,611 7,053 20,167
Difference (OMB- CBO) $450 $493 -$ 471 -$ 728 -$ 941 -$ 1,197
The most significant differences between the OMB and CBO scoring related to
the estimates for the military health care entitlement. This entitlement
establishes a new trust fund starting in fiscal year 2003, the Department of
Defense Medicare- Eligible Retiree Health Care Fund. The money in this fund
would pay for health care for retirees age 65 and over, who currently must
rely on Medicare for their medical needs unless they have access to a
military treatment facility. In essence, beneficiaries would be eligible to
use TRICARE, DOD?s health insurance program, as a supplement to Medicare.
Additionally, those eligible would be permitted to use the TRICARE
prescription drug benefit beginning April 1, 2001.
CBO estimates $18,738 million in spending for the health care benefit over
the 5- year period, $2,214 million more than OMB?s estimate of $16,524
million as shown in table 11. OMB officials offer several reasons for this
large disparity in the estimates. One difference stems from CBO?s assumption
that 90 percent of eligible patients will use TRICARE while OMB estimates a
participation rate of 80 percent. Furthermore, OMB presumes that more
Medicare- eligible retirees will use DOD?s special pricing agreements for
pharmaceuticals than does CBO. In addition, CBO assumes that 10 percent of
DOD?s overall health spending will shift to the mandatory program while OMB
did not believe this was a valid
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assumption and eliminated the shift from its estimates. Another estimating
difference results from different assumptions about how the new program will
affect Medicare. Both CBO and OMB agree that people will use more Medicare
services because they are no longer paying out- of- pocket costs, but in
this case CBO estimates smaller increases than does OMB.
Table 11: Comparison of OMB and CBO Scoring for the Military Retiree Health
Care Benefit of the National Defense Authorization Act for Fiscal Year 2001
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB $33 $164 $5,110 $5,445 $5,772 $16,524
CBO 23 150 5,703 6,183 6,679 18,738
Difference (OMB- CBO) $10 $14 -$ 593 -$ 738 -$ 907 -$ 2,214
Another provision of the National Defense Authorization Act with significant
scoring differences (see table 12) is the DOE workers? compensation
entitlement program, which provides benefits to federal employees and
contractors who worked for DOE and its predecessor agencies. Starting July
31, 2001, diseased workers would be allowed to collect a lump- sum payment
of $150,000 and/ or medical benefits for certain diseases caused by exposure
to dangerous materials in the workplace. Workers who are receiving or have
received $100,000 under the Radiation Exposure Compensation Act (RECA) will
receive the $50,000 difference. Because the program begins 10 months into
fiscal year 2001, CBO estimates no payments will be awarded until fiscal
year 2002. It believes that the agencies will not have enough of the program
in place to make benefit payments right away. OMB assumes no lag and
estimates $338 million will be expended in the first year. OMB states that
DOE staff have received roughly 900 inquiries per week about the program
since January. Most likely, the initial surge will come from certified RECA
claims and defined special exposure cohort cases. 5 Even though both
agencies used DOE and Department of Justice data for population estimates
and applied NIH cancer incidence data to those population estimates, OMB
assumed a higher eligible population. The largest difference is for the
radiogenic cancer element. According to OMB, the total potentially eligible
population is about 583,000. Applying the NIH
5 Special exposure cohort cases are more straightforward cases involving
those persons with a RECA cancer who worked in any of four specified
locations.
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cancer incidence data and an 8- percent claim approval rate approximates
4,000 individuals eligible for the program. In contrast, CBO estimated that
a total of only 920 individuals will receive this compensation. Based on DOE
radiation exposure records, CBO assumes only a small percentage who develop
cancer will have sufficient evidence to establish that their exposure to
radiation in the workplace is the source of their cancer.
Table 12: Comparison of OMB and CBO Scoring for the Energy Employees
Occupational Illness Compensation Program Act of 2000
Dollars in millions
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 Total
OMB $338 $551 $430 $230 $198 $1,747
CBO 0 243 381 279 189 1,092
Difference (OMB- CBO) $338 $308 $49 -$ 49 $9 $655
Appendix III: Future of Budget Enforcement Rules
Page 30 GAO- 01- 777 Budget Enforcement Compliance Report
The discretionary spending limits and pay- as- you- go (PAYGO) mechanism
established by the Budget Enforcement Act (BEA) will expire in fiscal year
2002. 1 While both the fiscal year 2001 and 2002 budgets proposed to extend
the discretionary caps and the PAYGO enforcement, to date no such
legislative action has been taken. There is widespread agreement that for
much of the past decade BEA was successful in restraining fiscal action by
the Congress and the President. However, there is also general
acknowledgment both that the spending caps for the last couple of years were
unrealistically tight when they were set and that the emergence of budget
surpluses undermined the acceptance of the BEA enforcement mechanisms that
had been designed to reach budget balance. Given the forthcoming expiration
of the BEA enforcement regime and its apparent inadequacy in a time of
surplus, you asked us to comment on the future of budget enforcement
mechanisms.
The Budget Enforcement Act of 1990 (Title XIII of P. L. 101- 508) was
designed to constrain future budgetary actions by the Congress and the
President. BEA took a different tack on fiscal restraint than earlier
efforts, which had focused on annual deficit targets in order to balance the
budget. 2 BEA sought to reach budget balance by limiting congressional
actions. The process was designed to enforce a previously reached agreement
on the size of discretionary spending and the budget neutrality of revenue
and mandatory spending legislation (PAYGO). In 1993, the discretionary
spending limits and the PAYGO rules were extended through fiscal year 1998;
the 1997 Budget Enforcement Act (title X of P. L. 105- 33) again extended
the discretionary spending caps and the PAYGO rules through 2002.
There is broad consensus among budget experts that BEA served for much of
the last decade as an effective restraint on spending. BEA?s discretionary
spending caps reined in the growth of discretionary spending while PAYGO
enforcement constrained the expansion of entitlements and
1 Although the overall discretionary spending caps expire in 2002, the
Highway and Mass Transit outlay caps established under Transportation Equity
Act for the 21st Century (TEA21) continue through 2003, and the conservation
caps established as part of the fiscal year 2001 Interior Appropriations Act
were set through 2006. In addition, the sequestration procedure applies
through 2006 to eliminate any projected net costs stemming from PAYGO
legislation enacted through fiscal year 2002.
2 For more on history see Budget Process: Evolution and Challenges (GAO/ T-
AIMD- 96- 129, July 11, 1996). Appendix III: Future of Budget Enforcement
Rules Recent History of Budget Enforcement Rules
Appendix III: Future of Budget Enforcement Rules
Page 31 GAO- 01- 777 Budget Enforcement Compliance Report
tax cuts. In fiscal year 1998, the federal government ran a unified surplus
for the first time in nearly 30 years. The budget was in surplus again in
fiscal years 1999 and 2000 and now surpluses are projected even beyond the
10- year projection period. The 1997 act envisioned achieving a balanced
budget in 2002. Though surpluses were achieved earlier than expected, the
BEA enforcement regime did not end. Both the PAYGO rules for direct spending
legislation and the discretionary spending caps are in force through fiscal
year 2002. 3 However, there is widespread agreement that the BEA control
mechanisms have been stretched so far in the last couple of years that they
no longer serve as an effective restraint. Recurring budget surpluses have
undermined the acceptance of the spending caps and the PAYGO enforcement
designed to achieve budget balance.
Figure 1 illustrates the increasing lack of adherence to the original
discretionary spending caps since the advent of surpluses in 1998. The
figure shows the original budget authority caps as established in 1990 and
as extended in 1993 and 1998, adjustments made to the caps, and the level of
enacted appropriations for fiscal years 1991 through 2002. With the
exception of fiscal year 1991, in which the adjustment was largely for
Operation Desert Storm, adjustments to the spending caps- mostly due to
emergency appropriations- were much larger in the last several years of
budget surpluses than in prior years. As we reported in our last two
compliance reports, the amounts designated as emergency spending for fiscal
years 1999 and 2000-$ 34.4 billion and $30.8 billion, respectively- were
significantly higher than in most past years. 4 In addition to the
largerthan- normal amounts, emergency appropriations in 1999 and 2000 also
were used for a broader range of purposes than in most prior years. 5 For
3 See The Budget Enforcement Act: Fact Sheet On Its Operation Under a Budget
Surplus, Congressional Research Service, February 28, 2001. 4 See Budget
Issues: Budget Enforcement Compliance Report (GAO/ AIMD- 99- 100, Apr. 1,
1999) and Budget Issues: Budget Enforcement Compliance Report (GAO/ AIMD-
00- 174, May 31, 2000).
5 Additional information on issues related to emergency spending can be
found in the Congressional Budget Office report Emergency Spending Under the
Budget Enforcement Act, issued in December 1998, the update to that report
issued in June 1999, the CBO report Supplemental Appropriations in the
1990s, issued in March 2001, and the GAO reports Budgeting for Emergencies:
State Practices and Federal Implications (GAO/ AIMD- 99- 250,
Sept. 30, 1999) and Emergency Criteria: How Five States Budget for
Uncertainty (GAO/ AIMD- 99- 156R, Apr. 20, 1999). Trends in Adherence to the
Discretionary Spending Caps and PAYGO Constraints
Appendix III: Future of Budget Enforcement Rules
Page 32 GAO- 01- 777 Budget Enforcement Compliance Report
fiscal year 2001, the Congress took a different approach. The Congressional
Budget Office (CBO) discretionary scoring reports show that only $8.7
billion in budget authority was designated as emergency spending. However,
as discussed in appendix I, the Foreign Operations appropriations for fiscal
year 2001 raised the 2001 budget authority cap by $95.9 billion, a level
assumed to be sufficient to cover all enacted and anticipated
appropriations.
Figure 1: Discretionary Outlay Caps and Enacted Appropriations
Note: Data for fiscal year 2001 are current as of January 16, 2001; the
final amount after the end of the fiscal year may be higher depending on the
enactment of any supplemental spending. Fiscal year 2002 appropriations have
not been enacted and the amount of total adjustments to the spending caps
may increase if additional adjustments are made.
Source: Office of Management and Budget.
Emergency spending designations have not been the only means used to permit
spending above the discretionary spending caps. In January 2001, CBO
reported that advance appropriations, obligation and payment delays, and
specific legislative direction for scorekeeping have been used to boost
discretionary spending while allowing technical compliance with the limits.
Advance appropriations have provided a way for the Congress to pass
appropriations that are scored, or counted, in subsequent fiscal years
rather than the years in which they are enacted. The Office of Management
0 100
200 300
400 500
600 700
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Fiscal year
Millions of dollars Original statutory caps Final adjusted caps Final
enacted appropriations
Appendix III: Future of Budget Enforcement Rules
Page 33 GAO- 01- 777 Budget Enforcement Compliance Report
and Budget (OMB) has advocated limiting this type of funding to its use as a
way to fully finance capital projects and ameliorate the problem of budget
spikes caused by funding the entirety of a large capital project in one
fiscal year. However, advance appropriations can and have also been used to
avoid spending limitations and/ or to mask true spending levels by crediting
appropriations to other years.
For fiscal year 2000, provisions of law that delayed certain obligations and
payments pushed outlays from certain appropriations into the next year. CBO
has reported that while these and the other techniques mentioned are not
new, in recent years they have been used in different ways or to a greater
extent than had been the case in previous years. 6
Directed scoring occurs when the budget committees instruct CBO to use an
estimate for an appropriation action that is different from the one that CBO
would otherwise use. CBO also reported that the committees directed it to
use such estimates for a wider variety of programs in 2000 than had been the
case in previous years and that these directions lowered CBO?s estimates of
budget authority by $3 billion and of outlays by about $19 billion.
As previously noted, in November 2000, as part of the Foreign Operations
Appropriations Act, the Congress and the President increased the fiscal year
2001 ?other discretionary spending category? caps to accommodate already
enacted discretionary appropriations and the anticipated levels for the
remaining appropriations acts. The budget authority limit was raised by
$95.9 billion and the outlay limit by $58.6 billion- increases of 17.7
percent and 10.6 percent, respectively. However, as shown in figure 1, the
fiscal year 2002 spending caps were not similarly adjusted. As a result, for
fiscal year 2002 the Congress and the President will face budget authority
and outlay caps set at $85.6 billion and $70.2 billion less than fiscal year
2001 appropriations, respectively.
The consolidated appropriations acts for both fiscal years 2000 and 2001
mandated that OMB change the PAYGO balance to zero. In fiscal year 2000,
this direction eliminated over $35 billion in costs from the PAYGO scorecard
for future years. In fiscal year 2001, both OMB and CBO
6 The Budget and Economic Outlook: Fiscal Years 2001- 2010, CBO, January
2000.
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Page 34 GAO- 01- 777 Budget Enforcement Compliance Report
estimated that without the instruction to change the scorecard a
sequestration would have been required. 7
On the eve of the BEA?s expiration, the Congress has a myriad of options
available for consideration as it begins crafting a new budget process. In
the past, we have suggested four broad principles or criteria for a budget
process. 8 The process should
provide information about the long- term impact of decisions, both macro-
linking fiscal policy to the long- term economic outlook- and micro-
providing recognition of the long- term spending implications of government
commitments;
provide information and be structured to focus on important macro
tradeoffs-- e. g., between investment and consumption
provide information necessary to make informed trade- offs between
missions (or national needs) and between the different policy tools of
government (such as tax provisions, grants, and credit programs); and
be enforceable, provide for control and accountability, and be
transparent, using clear, consistent definitions.
The lack of adherence to the original BEA spending constraints in recent
years, the nearing expiration of BEA, and the projection of continued and
large surpluses in the coming years suggest that now may be an opportune
time to think about the direction and purpose of our nation?s fiscal policy.
In a time of actual and projected surpluses, the goal of zero deficit no
longer applies. Rather, discussion shifts toward how to allocate surpluses
among debt reduction, spending increases, and tax cuts. Only then can limits
on subcategories of spending be set. Will the entire social security surplus
be ?saved?? If so- and to date there seems to be widespread support for
this- then how should the ?on- budget? surplus be allocated? In our work on
other countries that also have faced the challenge of setting fiscal policy
in a time of surplus we found that as part of a broad
7 For more information see appendix I of this report and Budget Issues:
Budget Enforcement Compliance Report (GAO/ AIMD- 00- 174, May 31, 2000),
appendix III. 8 For a fuller discussion of these criteria see Budget
Process: Evolution and Challenges (GAO/ T- AIMD- 96- 129, July 11, 1996),
Budget Process: History and Future Directions (GAO/ T- AIMD- 95- 214, July
13, 1995), and Budget Process: Comments on H. R. 853 (GAO/ T- AIMD- 99- 188,
May 12, 1999). Principles for a
Budget Process
Appendix III: Future of Budget Enforcement Rules
Page 35 GAO- 01- 777 Budget Enforcement Compliance Report
fiscal policy framework some countries adopted fiscal targets such as debt-
to- GDP ratios to serve as a guide for decision- making.
Complicating the discussion on formulating fiscal policy in a time of
surplus is the fact that the long- term picture is not so good. Despite
current projections that show surpluses continuing over the 10- year budget
window, our long- term budget simulations show a resumption of significant
deficits emerging after the anticipated demographic tidal wave of population
aging hits. These demographic trends serve to emphasize the importance of
the first principle cited above- the need to bring a longterm perspective to
bear on budget debates. Keeping in mind these principles and concerns, a
number of alternatives appear promising.
There is a broad consensus among observers and analysts who focus on the
budget both that BEA has constrained spending and that continuation of some
restraint is necessary even with the advent of actual and projected
surpluses. These views have been articulated by diverse commentators. During
his testimony to the Senate Budget Committee on January 25, 2001, Federal
Reserve Chairman Alan Greenspan stated, ?? I think that with all of the very
complexity of the previous caps, pay- go systems and the like, at the end of
the day, they actually were quite effective.? 9 He told the House Budget
Committee that he has been ?quite surprised? at how well some of the
measures the Congress adopted in past years to restrain discretionary
spending have worked, and stated that ?pay- go? has always ?been very
useful.? 10 These sentiments have been also been echoed by former CBO
director Robert Reischauer, the Concord Coalition, and President Bush in his
?Blueprint for New Beginnings.? 11 Discussions on the future of the budget
process have primarily focused on revamping the current budget process
rather than establishing a new one from scratch.
Where discussion has moved beyond a general call for continued restraint to
continuation or creation of specific control devices, the ones most
9 Greenspan, Alan, Testimony before the Senate Budget Committee, January 25,
2001. 10 Gregg, Diana. ?U. S. Budget: Greenspan Says Getting Productivity
Right ?Critical? Item in Budget Preparation,? Bureau of National Affairs,
No. 43, March 5, 2001. 11 Reischauer, Robert D., ?Stop Them Before They
Overspend Again,? New York Times, Feb. 8, 2001; The Concord Coalition,
?Discretionary Spending Caps: What?s Next?? Issue Brief, September 11, 2000;
and A Blueprint for New Beginnings (Washington, DC: Office of Management and
Budget, 2001), pp. 171- 2. Alternatives for
Improving the Budget Process
Appendix III: Future of Budget Enforcement Rules
Page 36 GAO- 01- 777 Budget Enforcement Compliance Report
frequently discussed are (1) extending the discretionary spending caps, (2)
extending the PAYGO mechanism, and (3) creating a trigger device or a set of
rules specifically designed to deal with the uncertainty of budget
projections. A new budget process framework could encompass any or all of
these instruments.
BEA distinguished between spending controlled by the appropriations
process-? discretionary spending?- and that which flowed directly from
authorizing legislation provisions of law-? direct spending,? sometimes
called ?mandatory.? Caps were placed on discretionary spending- and the
Congress? compliance with the caps was relatively easy to measure because
discretionary spending totals flow directly from legislative actions (i. e.,
appropriations laws). As noted above, there is broad consensus that,
although the caps have been adjusted, they have served to constrain
appropriations. This consensus combined with the belief that some restraints
should be continued has led many to propose that some form of cap structure
be continued as a way of limiting discretionary appropriations. However, the
actions in the last 2 years have also led many to note that caps can only
work if they are realistic; while caps may be seen as tighter than some
would like, they are not likely to bind if they are seen as totally
unreasonable given current conditions.
Further, some have proposed that any extension of BEA- type caps be limited
to caps on budget authority. Outlays are controlled by and flow from budget
authority- although at different rates depending on the nature of the
program. Some argue that the existence of both budget authority and outlay
caps has encouraged provisions such as ?delayed
obligations? to be adopted not for programmatic reasons but as a way of
juggling the two caps. The existence of two caps may also skew authority
from rapid spend out to slower spend out programs, thus pushing more outlays
to the future and creating problems in complying with outlay caps in later
years. Extending only the budget authority cap would eliminate the incentive
for such actions and focus decisions on that which the Congress is intended
to control- budget authority, which itself controls outlays. This would be
consistent with the original design of BEA.
Eliminating the outlay cap would raise several issues- chief among them
being how to address the control of transportation programs for which no
budget authority cap currently exists, and the use of advance appropriations
to skirt budget authority caps. However, agreements about these issues could
be reached; there is currently a proposal to change the scoring of certain
advance appropriations to count them in the year they Extending Caps on
Discretionary Spending
Appendix III: Future of Budget Enforcement Rules
Page 37 GAO- 01- 777 Budget Enforcement Compliance Report
are enacted rather than when they become available. The obvious advantage to
focusing decisions on budget authority rather than outlays is that the
Congress would not spend its time trying to control that which by design is
the result of its budget authority decisions- the timing of outlays.
There are other issues in the design of any new caps. For example, for how
long should caps be established? What categories should be established
within or in lieu of an overall cap? While the original BEA envisioned three
categories (Defense, International Affairs, Domestic), over time categories
were combined and new categories were created. At one time or another caps
for Nondefense, Violent Crime Reduction, Highway, Mass Transit, and
Conservation spending existed- many with different expiration dates. Should
these caps be ceilings, or should they- as is the case for Highway and
Conservation- provide for ?guaranteed?
levels of funding? The selection of categories- and the design of the
applicable caps- is not trivial. Categories define the range of what is
permissible. By design they limit trade- offs and so constrain both the
Congress and the President.
We have previously reported that the BEA process has not facilitated making
decisions on activities intended to promote long- term economic growth. 12
In the past we have suggested consideration of an ?investment
component? within the discretionary caps; this would cover funding for
physical infrastructure, research and development, and education and
training (investment in human capital). Such a structure could help the
Congress and the President make more informed decisions about the balance
between federal funding of investment activities and federal funding for
other activities.
Because caps are phrased in specific dollar amounts, it is important to
address the question of when and for what reasons the caps should be
adjusted. This is critical for making the caps realistic. For example,
without some provision for emergencies, no caps can be successful. At the
same time, there appears to be some connection between how realistic the
caps are and how flexible the definition of emergency is. As discussed in
last year?s compliance report, the amount and range of spending considered
as ?emergency? has grown in recent years. There have been a
12 Budget Structure: Providing an Investment Focus in the Federal Budget
(GAO/ T- AIMD- 95- 178, June 29, 1995) and Budget Process: Evolution and
Challenges (GAO/ T- AIMD- 96- 129, July 11, 1996).
Appendix III: Future of Budget Enforcement Rules
Page 38 GAO- 01- 777 Budget Enforcement Compliance Report
number of approaches suggested to balance the need to respond to emergencies
and the desire to avoid making the ?emergency? label an easy way to raise
caps. In the budget resolution for fiscal year 2001 [H. Con. Res. 290] the
Congress said it would limit emergencies to items meeting five criteria: (1)
necessary, essential, or vital (not merely useful or beneficial), (2)
sudden, quickly coming into being, and not building up over time, (3) an
urgent, pressing, and compelling need requiring immediate action, (4)
unforeseen, unpredictable, and unanticipated, and (5) not permanent,
temporary in nature. The resolution further required any proposal for
emergency spending that did not meet all the criteria to be accompanied by a
statement of justification explaining why the requirement should be accorded
emergency status. The fact that this provision was ignored during debates on
fiscal year 2001 appropriations bills emphasizes the fact that no procedural
hurdle can succeed without the will of the Congress to make it work. Others
have proposed providing for more emergency spending- either in the form of a
reserve or in a greater appropriation for Federal Emergency Management
Agency (FEMA)- under any caps. If such an approach were to be taken, the
amounts for either the reserve or the FEMA disaster relief account would
need to be included when determining the level of the caps. Some have
proposed using a 5- or 10- year rolling average of disaster/ emergency
spending as the appropriate reserve amount. Adjustments to the caps would be
limited to spending over and above that reserve or appropriated level for
extraordinary circumstances. Alternatively, with additional upfront
appropriations or a reserve, emergency spending adjustments could be
disallowed. 13
Even with this kind of provision only the commitment of the Congress and the
President can make any limit on cap adjustments for emergencies work. States
have used this reserve concept for emergencies, and their experiences
indicate that criteria for using emergency reserve funds may be useful in
controlling emergency spending. 14 Agreements over the use of the reserve
would also need to be achieved at the federal level.
13 The administration?s fiscal year 2002 budget submission included a
proposal to set aside a reserve for emergency needs in the annual budget and
appropriations process, arguing that this would limit the need for emergency
supplementals to extremely rare events.
14 Budgeting for Emergencies: State Practices and Federal Implications (GAO/
AIMD- 99- 250, Sept. 30, 1999).
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Page 39 GAO- 01- 777 Budget Enforcement Compliance Report
This discussion is not exhaustive. There are other issues that would come up
in the design of caps. In the next section, we note two of these issues.
If the discretionary caps are to be extended, consideration should be given
to addressing areas where attempts to ?expand? resources under the caps can
lead to distortions: the scoring of operating leases and the expansion of
user fees as offsets to discretionary spending.
We have previously reported that existing scoring rules favor leasing when
compared to the cost of various other methods of acquiring assets. 15
Alternative scorekeeping rules could recognize that many operating leases
are used for long- term needs and should be treated on the same basis as
purchases. This would entail scoring up front the present value of lease
payments covering the same time period used to analyze ownership options.
The caps could be adjusted appropriately to accommodate this change.
The 1967 President?s Commission on Budget Concepts recommended that receipts
from activities that were essentially governmental in nature, including
regulation and general taxation, be reported as receipts, and that receipts
from business- type activities ?offset to the expenditures to which they
relate.? However, these distinctions have been blurred in practice. As long
as classifications remain ambiguous, fee structure is likely to be driven by
budget rules that make certain designs most advantageous. The commission
could not have anticipated how discretionary caps would serve to erode the
criteria it proposed to distinguish the budgetary treatment of fees. The
obvious advantage of netting fees against program spending is that the
pressures to earmark fees for certain uses make it more likely in today?s
budget environment that fees from the public will be treated as offsets to
appropriations under BEA caps, regardless of whether the underlying federal
activity is business or governmental in nature. Consideration should be
given to whether it is possible to come up with and apply consistent
standards- especially if the discretionary caps are to be redesigned.
15 Budget Issues: Budget Scorekeeping for Acquisition of Federal Buildings
(GAO/ T- AIMD- 94- 189, Sept. 20, 1994). Miscellaneous
Discretionary Challenges: Leases and User Fees
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Page 40 GAO- 01- 777 Budget Enforcement Compliance Report
The PAYGO requirement prevented legislation that lowered revenue, created
new mandatory programs, or otherwise increased direct spending from
increasing the deficit unless offset by other legislative actions. As long
as the unified budget was in deficit, the provisions of PAYGO- and its
application- were clear. The shift to surplus raised questions about whether
the prohibition on increasing the deficit also applied to reducing the
surplus. Although the Congress and the executive branch have both concluded
that PAYGO does apply in such a situation, any extension should eliminate
potential ambiguity in the future.
This year the administration has proposed- albeit implicitly- special
treatment for a tax cut. The Budget states that the President?s tax plan and
Medicare reforms are fully financed by the surplus and that any other
spending or tax legislation would need to be offset by reductions in
spending or increases in receipts. It is possible that in a time of budget
surplus, the Congress might wish to modify PAYGO to permit increased direct
spending or lower revenues as long as debt held by the public is reduced by
some set percentage or dollar amount. Such a provision might prevent PAYGO
from becoming as unrealistic as overly tight caps on discretionary spending.
However, the design of such a provision would be important- how would a debt
reduction requirement be specified? How would it be measured? What should be
the relationship between the amount of debt reduction required and the
amount of surplus reduction (i. e., tax cut or direct spending increase)
permitted? What, if any, relationship should there be between this
calculation and the discretionary caps?
While PAYGO constrained the creation or legislative expansion of direct
spending programs and tax cuts, it accepted the existing provisions of law
as given. It was not designed to trigger- and it did not trigger- any
examination of ?the base.? Cost increases in existing mandatory programs are
exempt from control under PAYGO and could be ignored. However, constraining
changes that increase the cost of entitlements and mandatories is not
enough. Our long- term budget simulations show that as more and more of the
baby boom generation enters retirement, spending for Social Security,
Medicare, and Medicaid will demand correspondingly larger shares of federal
revenues. The growth in these programs will increasingly restrict budgetary
flexibility. Even if the Social Security surpluses are saved and used for
debt reduction, unified deficits are projected to emerge in about two
decades and by 2030 Social Security, Extending and
Refining PAYGO
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Page 41 GAO- 01- 777 Budget Enforcement Compliance Report
Medicare, and Medicaid would require more than three- fourths of federal
revenues. 16
Previously we suggested some sort of ?lookback? procedure to prompt a
reexamination of ?the base.? Under such a process the Congress could specify
spending targets for PAYGO programs for several years. The President could
be required to report in his budget whether these targets either had been
exceeded in the prior year or were likely to be exceeded in the current or
budget years. He could then be required to recommend whether any or all of
this overage should be recouped- and if so, to propose a way to do so. The
Congress could be required to act on the President?s proposal.
While the current budget process contains a similar point of order against
worsening the financial condition of the Social Security trust funds, 17 it
would be possible to link tripwires or triggers to measures related to
overall budgetary flexibility or to specific program measures. For example,
if the Congress were concerned about declining budgetary flexibility, it
could design a ?tripwire? tied to the share of the budget devoted to
mandatory spending.
Other variations of this type of ?tripwire? approach have been suggested.
The 1999 Breaux- Frist proposal (S. 1895) for structural and substantive
changes to Medicare financing contained a new concept for measuring
?programmatic insolvency? and required congressional approval of additional
financing if that point was reached. Other specified actions could be
coupled with reaching a ?tripwire,? such as requiring the Congress or the
President to propose alternatives to address reforms. Or the congressional
budget process could be used to require the Congress to deal with
unanticipated cost growth beyond a specified ?tripwire? by establishing a
point of order against a budget resolution with a spending path exceeding
the specified amount. One example of a threshold might be the percentage of
gross domestic product devoted to Medicare. The President would be brought
into the process as it progressed because changes to deal with the cost
growth would require enactment of a law.
16 Long- Term Budget Issues: Moving From Balancing the Budget to Balancing
Fiscal Risk (GAO- 01- 385T, Feb. 6, 2001). 17 2 U. S. C. 632 (i), and
Medicare Reform: Issues Associated With General Revenue Financing (GAO/ T-
AIMD- 00- 126, Mar. 27, 2000).
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Page 42 GAO- 01- 777 Budget Enforcement Compliance Report
In previous reports we have argued that the nation?s economic future depends
in large part upon today?s budget and investment decisions. 18 In fact, in
recent years there has been increased recognition of the long- term costs of
Social Security and Medicare. 19
While these are the largest and most important long- term commitments- and
the ones that drive the long- term outlook- they are not the only ones in
the budget. Even those programs too small to drive the long- term outlook
affect future budgetary flexibility. For the Congress, the President, and
the public to make informed decisions about these other programs, it is
important to understand their long- term cost implications.
While the budget was not designed to and does not provide complete
information on long- term cost implications stemming from some of the
government?s commitments when they are made, progress can be made on this
front. The enactment of the Federal Credit Reform Act in 1990 represented a
step toward improving both the recognition of long- term costs and the
ability to compare different policy tools. With this law, the Congress and
the executive branch changed budgeting for loan and loan guarantee programs.
Prior to Credit Reform, loan guarantees looked ?free?
in the budget. Direct loans looked like grant programs because the budget
ignored loan repayments. The shift to accrual budgeting for subsidy costs
permitted comparison of the costs of credit programs both to each other and
to spending programs in the budget.
Information should be more easily available to the Congress and the
President about the long- term cost implications both of existing programs
and new proposals. In 1997 we reported that the current cash- based budget
generally provides incomplete information on the costs of federal insurance
programs. 20 The ultimate costs to the federal government may not be
apparent up front because of time lags between the extension of the
18 See Budget Process: Evolution and Challenges (GAO/ T- AIMD- 96- 129, July
11, 1996) and The Deficit and the Economy: An Update of Long- Term
Simulations (GAO/ AIMD/ OCE- 95- 119, April 26, 1995), among others. 19
Budget of the United States Government, Fiscal Year 2002, OMB, Apr. 9, 2001;
The Budget and Economic Outlook: Fiscal Years 2002- 2011, CBO, January 2001;
Long- term Budget Issues: Moving From Balancing the Budget to Balancing
Fiscal Risk (GAO- 01- 385T, Feb. 6, 2001); Medicare: Higher Expected
Spending and Call for New Benefit Underscore Need for Meaningful Reform
(GAO- 01- 539T, Mar. 22, 2001). 20 Budget Issues: Budgeting for Federal
Insurance Programs (GAO/ AIMD- 97- 16, Sept. 30, 1997). Improving the
Recognition of LongTerm Commitments
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Page 43 GAO- 01- 777 Budget Enforcement Compliance Report
insurance, the receipt of premiums, and the payment of claims. While there
are significant estimation and implementation challenges, accrualbased
budgeting has the potential to improve budgetary information and incentives
for these programs by providing more accurate and timely recognition of the
government?s costs and improving the information and incentives for managing
insurance costs. This concept was proposed in the Comprehensive Budget
Process and Reform Act of 1999 (H. R. 853), which would have shifted
budgetary treatment of federal insurance programs from a cash basis to an
accrual basis.
There are other commitments for which the cash and obligation- based budget
does not adequately represent the extent of the federal government?s
commitment. These include employee pension programs, retiree health
programs, and environmental cleanup costs. While there are various
analytical and implementation challenges to including these costs in budget
totals, more could be done to provide information on the longterm cost
implications of these programs to the Congress, the President, and the
interested public. At your request, we are continuing to address this issue.
As the budgeting horizon expands, so does the certainty of error. Few
forecasters would suggest that 10- year projections are anything but that-
projections of what the world would look like if it continued on a line from
today. And long- term simulations are useful to provide insight as to
direction and order of magnitude of certain trends- not as forecasts.
Nevertheless, budgeting requires forecasts and projections. Baseline
projections are necessary for measuring and comparing proposed changes.
Former CBO Director Rudy Penner has suggested that 5- year and 10- year
projections are useful for and should be used for different purposes: 5-
year projections for an indicator of the overall fiscal health of the
nation, and 10- year projections for scorekeeping and to prevent gaming with
regard to the timing of costs.
No 10- year projection is likely to be entirely correct; the question
confronting fiscal policymakers is how to deal with the risk that a
projection is materially wrong. This year some commentators and Members of
the Congress have suggested dealing with this risk by using triggers.
Triggers were part of both Gramm- Rudman- Hollings (GRH) and BEA. The GRH
triggers were tied to deficit results and generally regarded as a failure-
they were evaded or, when deficits continued to exceed the targets, the
targets were changed. BEA triggers have been tied to congressional action
rather than to deficit results; sequesters have rarely Dealing With the
Uncertainty of Projections
Appendix III: Future of Budget Enforcement Rules
Page 44 GAO- 01- 777 Budget Enforcement Compliance Report
been triggered- and those were very small. This year the discussion of
triggers has been tied specifically to the tax debate and to whether the
size of the tax cut in future years should be linked to budget results in
those years. There could be several variations on this trigger: actual
surplus results, actual revenue results (this with the intent of avoiding a
situation in which spending increases can derail a tax cut), and actual debt
results. There is little consensus on the effectiveness of any triggers.
Although the debate about triggers has been tied to the tax debate in 2001,
there is no inherent reason to limit the discussion to taxes. Some might
wish to consider triggers that would cause decisionmakers to make proposals
to address fiscal results that exceed some specific target, such as debt or
spending as a share of GDP.
Former CBO Director Robert Reischauer has suggested another way of dealing
with the fact that forecasts/ projections become less certain as they go
further out in time. Under his proposal, a declining percentage of any
projected surplus would be available- either for tax cuts or for spending
increases. Specifically, 80 percent of the surplus would be available to
legislators in years 1 and 2, 70 percent in years 3 and 4, 60 percent in
years 5 and 6, until reaching the 40- percent level in years 9 and 10. The
consequence of not adhering to these limits would be an across- the- board
sequester. When a new Congress convenes, it would be given a new budget
allowance to spend based on a new set of surplus projections.
Both the deficit fighting experience of the 1980s and 1990s and a look at
how other countries have approached fiscal policy in the shift from deficit
to surplus can be helpful as the Congress and the President look to changes
in the budget process.
To affect decision- making, the fiscal goals sought through a budget process
must be accepted as legitimate. For many years the goal of ?zero
deficit?- or the norm of budget balance- was accepted as the right goal for
the budget process. In the absence of the zero deficit goal, policymakers
need an overall framework upon which a process and any targets can be based.
Some of the other countries we studied shifted to goals framed in terms of
debt reduction or surpluses to be saved. Others shifted from a system with a
specific end- state goal to a system focused on processes that lead to sound
fiscal management.
Some have observed that, as the discretionary caps became less accepted and
less realistic, the BEA constraints were increasingly stretched. Conclusion
Appendix III: Future of Budget Enforcement Rules
Page 45 GAO- 01- 777 Budget Enforcement Compliance Report
Compliance in both form and spirit is more likely if end goals, interim
targets, and enforcement boundaries are both accepted and realistic.
The contrast between the perceived failure of GRH and the success of BEA
offers another lesson: enforcement is more successful when it is tied to
actions controlled by the Congress and the President. Both the BEA spending
caps and the PAYGO enforcement rules were designed to hold the Congress and
the President accountable for the costs of the laws enacted each session-
not for costs which could be attributed to economic changes or other
factors. At the same time, end goals are important. This might imply that
while goals should be phrased in terms of results, enforcement and interim
targets should be tied to actions.
For more than 15 years the budget process has been designed (and redesigned)
around achieving a single goal: zero deficit in the unified budget. It is
worth remembering, however, that unlike more recent budget process rules,
the 1974 Congressional Budget and Impoundment Control Act was not designed
to advance a particular fiscal outcome. It was designed to reassert the
Congress? role in the fiscal policy process and to provide a structure
within which the Congress could decide not only on a fiscal position but
also on the allocation of resources across national needs.
Today the Congress and the President face a different budgetary situation
than in the past few decades. The current budget challenge is not to achieve
a balanced unified budget. Rather, budgeting today is done in the context of
projections for continued and growing surpluses followed over the longer
term by demography- driven deficits. What process will enable policymakers
to deal with the near term without ignoring the long term? At the same time,
the challenges for any budget process are the same: what process will enable
policymakers to make informed decisions about both fiscal policy and the
allocation of resources within the budget?
Extending the current BEA without setting realistic caps and addressing
existing mandatory programs is unlikely to be successful for the long term.
The original BEA employed limited actions in aiming for a balanced budget.
It left untouched those programs- direct spending and tax legislation-
already in existence. Going forward with new challenges, we believe that a
new process that prompts the Congress to exercise more foresight in dealing
with long- term issues is needed. The budget process appropriate for the
early 21st Century will have to exist as part of a broader framework for
thinking about near- and long- term fiscal goals.
Appendix IV: GAO Contact and Staff Acknowledgments
Page 46 GAO- 01- 777 Budget Enforcement Compliance Report
Christine E. Bonham, (202) 512- 9576 In addition to the person named above,
Melinda F. Bowman, Jennifer A. Eichberger, Hannah Laufe, and Robert M.
Sexton made key contributions to this report. Appendix IV: GAO Contact and
Staff
Acknowledgments GAO Contact Acknowledgments
(935367)
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