Mandatory Spending: Using Budget Triggers to Constrain Growth	 
(31-JAN-06, GAO-06-276).					 
                                                                 
Prepared as part of GAO's basic statutory responsibility for	 
monitoring the condition of the nation's finances, the objectives
of this report were to (1) determine the feasibility of designing
and using trigger mechanisms to constrain growth in mandatory	 
spending programs and (2) provide an analysis of the factors that
led to differences between estimated and actual outlays in seven 
mandatory budget accounts during fiscal years 2000 through 2004. 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-276 					        
    ACCNO:   A46083						        
  TITLE:     Mandatory Spending: Using Budget Triggers to Constrain   
Growth								 
     DATE:   01/31/2006 
  SUBJECT:   Budget activities					 
	     Budget administration				 
	     Budget controllability				 
	     Budget deficit					 
	     Budget outlays					 
	     Budget scorekeeping				 
	     Economic analysis					 
	     Economic policies					 
	     Financial management systems			 
	     Fiscal policies					 
	     Policy evaluation					 
	     Spending legislation				 
	     Strategic planning 				 

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GAO-06-276

     

     * Report to Congress
          * January 2006
     * MANDATORY SPENDING
          * Using Budget Triggers to Constrain Growth
     * Contents
          * Results in Brief
          * Background
          * Objectives, Scope, and Methodology
          * Trigger Mechanisms Could Help Constrain Mandatory Spending but
            Must Be Carefully Designed
               * Issues to Consider in Constructing a Trigger
               * Issues to Consider in Designing the Triggered Response
               * Expert Views on Trigger Mechanisms Are Mixed
          * Reasons for Differences between Estimated and Actual Outlays in
            Selected Accounts Varied
               * Legislation Enacted After Original Estimates Explained Many
                 Differences between Estimated and Actual Outlays
               * Economic Factors Were Especially Important in Some Programs'
                 Differences
               * Technical Factors Explained a Broad Spectrum of Differences
          * Conclusions
          * Matter for Congressional Consideration
          * Agency Comments
     * Illustrative Examples of Triggers and Responses for Case Study
       Accounts
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Illustrative Triggers and Response
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Ideas for Improving the Accuracy of Estimates
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Illustrative Trigger and Response
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Currently Existing Program Trigger and Response
          * Illustrative Trigger and Response
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Currently Existing Program Triggers and Responses
          * Illustrative Trigger and Response
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Illustrative Trigger and Response
          * Account Name
          * Administering Organization
          * Program Description
          * Funding Source
          * Differences between Estimated and Actual Outlays
          * Explanation of Key Differences
          * Illustrative Triggers and Responses
     * Analysis of Total Outlays, Receipts, and Fiscal Position
          * Aggregate Mandatory Spending Estimates Were Close to Actual
            Outlays but Large Differences Appear at the Account Level
          * Differences between Estimated and Actual Mandatory Outlays Had
            Limited Effect on the Unified Deficit/Surplus
     * Mandatory Budget Accounts
     * GAO Contact and Acknowledgments

Report to Congress

January 2006

MANDATORY SPENDING

Using Budget Triggers to Constrain Growth

Contents

Tables

Figures

Abbreviations

January 31, 2006Letter

The President of the Senate The Speaker of the House of Representatives

Over the next few decades as the baby boom generation retires and health
care costs continue to rise, federal spending on retirement and health
programs-Social Security, Medicare, Medicaid, and other federal pension,
health, and disability programs-will grow dramatically. Absent policy
changes on the spending and/or revenue sides of the budget, a growing
imbalance between expected federal spending and tax revenues will mean
escalating and ultimately unsustainable federal deficits and debt that
threaten our future economy and national security as well as the standard
of living for the American people.1

Given rising deficits, the expiration of the Budget Enforcement Act (BEA)
of 1990,2 and the long-term fiscal outlook, new budget control mechanisms
are needed. Accordingly, there have been calls for the reintroduction of
discretionary spending caps and PAYGO rules. Although PAYGO was effective
in preventing legislative actions that increased the deficit, it did not
address increases that occurred absent legislative action. Constraining
the growth of existing mandatory spending programs requires additional
action.

In our 1994 report on capping mandatory spending,3 we noted that an
alternative method to prompt congressional review of mandatory spending
trends would be to require Congress to vote periodically on whether or not
to make program changes when mandatory spending exceeds certain targets.
One way to do this and potentially achieve greater fiscal responsibility
would be to create triggers for individual mandatory
programs-predetermined spending or revenue thresholds-that signal the need
for some type of action to be taken on the program. Once tripped, the
trigger could drive either a review or an automatic action. It could, for
example, trigger a requirement for Congress to either review or reaffirm
acceptance of the unexpected increase in actual program spending or
projections. Alternatively, it could trigger previously specified changes
to the program that automatically take effect to reduce spending or
increase program revenue.

Insufficient transparency regarding both the expected and actual cost path
for spending and revenue decisions hampers the ability of decision makers
to make informed choices. In previous work, we have called for increased
disclosure and recognition of long-term costs of proposed policies and
programs.4 The ability to monitor actual spending paths can also play an
important role in decisions about both the overall fiscal position and the
allocation of scarce resources. Moreover, as we reported in 1994, a cap on
mandatory spending would have little if any effect on the longer-term
growth trends until and unless issues of underlying program eligibility
and benefits are addressed.5 Thus, efforts to constrain growth in
mandatory programs need to be focused on and tailored to individual
programs. One way to assess mandatory spending is to analyze growth by
examining the estimated and actual outlays for each program. Because
budget estimates can be linked to achieving fiscal responsibility in the
government, identifying and understanding recurring patterns between
mandatory account budget estimates and actual results can facilitate
future budget decisions.

This report, prepared as part of our basic statutory responsibility for
monitoring the condition of the nation's finances, examines issues related
to using such triggers on mandatory programs. The objectives were to (1)
determine the feasibility of designing and using trigger mechanisms to
constrain growth in mandatory spending and (2) provide an analysis of the
factors that led to differences between estimated and actual outlays in
seven mandatory budget accounts during fiscal years 2000 through 2004.

This report does not deal with the question of projected costs at the time
decisions are made but instead with the need for responses when there is
significant growth. Analogous analyses could be applied to the revenue
side of the budget (e.g., tax expenditures).

Results in Brief

One idea to constrain growth in mandatory programs is to develop triggers
that, when tripped, prompt a response. A trigger could result in a "hard"
or automatic response, unless Congress and the President acted to override
or alter it. Alternatively, reaching a trigger could require a "soft"
response, such as a report on the causes of the overage, development of a
plan to address it, or an explicit and formal decision to accept or reject
a proposed action or increase. By identifying significant increases in the
spending path of a mandatory program relatively early and acting to
constrain it, Congress may avert larger financial challenges in the
future. However, both in establishing triggers and in designing the
subsequent actions to be triggered, the integrity of program goals needs
to be preserved.

The budget experts we consulted had mixed views of triggers. Some
expressed strong support for budget triggers. These proponents of triggers
noted that mandatory spending is currently unconstrained and a mechanism
that causes decision makers to at least periodically reevaluate spending
is better than allowing spending to rise unchecked. Others, however,
expressed considerable skepticism about the effectiveness of triggers;
many felt they would be circumvented or ignored. For example, one expert
pointed to "accounting tricks" that have resulted from triggers with hard
responses, such as when Congress mandated certain costs not be counted
against spending limits so as to avoid across-the-board cuts. Others
worried that applying budget triggers to various mandatory programs
diverts attention from what they see as the real source of the nation's
fiscal woes-health care spending. Further, they felt that establishing
triggers on such programs could mislead the public into thinking that the
long-term fiscal problem had been addressed, thus delaying efforts to
appropriately address it.

Any discussion to create triggered responses and their design must
recognize that unlike controls on discretionary spending, there is some
tension between the idea of triggers and the nature of entitlement and
other mandatory spending programs. These programs-as with tax provisions
such as tax expenditures-were designed to provide benefits based on
eligibility formulas or actions as opposed to an annual decision regarding
spending. This tension makes it more challenging to constrain costs and to
design both triggers and triggered responses. At the same time, with only
about one-third of the budget under the control of the annual
appropriations process, considering ways to increase transparency,
oversight, and control of mandatory programs must be part of addressing
the nation's long-term fiscal challenges.

Ignoring significant growth in mandatory accounts is inconsistent with
evaluation of programs and their costs. While we appreciate the concerns
raised by budget experts, we believe that, if carefully designed, budget
constraint mechanisms such as triggers should be considered as existing
programs are reexamined or reauthorized and when new programs are created.
Each program would need to be considered individually to ensure that any
actions that are triggered preserve program goals. The seven mandatory
accounts we examined helped inform our thinking about budget constraint
mechanisms, and we present illustrative examples of how growth could be
constrained in many of the accounts discussed in appendix I.

For seven case study accounts,6 we categorized the reasons provided by
agencies for differences between estimated and actual outlays during
fiscal years 2000 through 2004 as the result of (1) legislative changes
enacted after original estimates were submitted, (2) economic changes such
as interest and unemployment rates, or (3) technical changes, which is a
residual category that represents revisions to budget estimates that
cannot be attributed to legislative or economic factors. Our analysis of
the reasons for differences between estimated and actual outlays showed
that out of 40 differences, legislative changes7 were the primary reason
for 19, economic changes for 7, and technical changes for 13. In one case,
it was unclear which factors most significantly caused the difference
between estimated and actual outlays. In many cases, a combination of
factors caused the differences.

OMB and agencies responsible for the seven case study accounts either did
not have comments or provided comments that were clarifying and/or
technical in nature. These comments were incorporated as appropriate.

Background

BEA8 divided federal spending into two broad categories: discretionary and
mandatory. Discretionary spending refers to outlays from budget authority
that is provided in and controlled by appropriation acts; it can and has
been controlled through annual, adjustable dollar limits (spending caps)
that permanently lower the base for future appropriations. Mandatory
spending9 refers to outlays resulting from budget authority that is
provided in laws other than appropriation acts, for example, entitlement
programs such as Medicare, Food Stamps, and veterans' pensions. Mandatory
spending-like tax expenditures-is governed by eligibility rules and
benefit formulas, which means that funds are spent as required to provide
benefits to those who are eligible and wish to participate. Therefore,
unforeseen events such as changes in the economy or additional demands for
services can translate into unanticipated additional program outlays.
Congress controls spending for these programs indirectly by defining
eligibility and setting the benefit or payment rules rather than directly
through appropriation acts. On an annual basis, however, mandatory
spending is relatively uncontrollable since Congress and the President
must change substantive law in order to further increase or decrease
outlays. This makes it more challenging to constrain costs and to design
both triggers and triggered responses.

Over the past 4 decades, we have seen mandatory spending grow as a share
of the total federal budget. For example, figure 1 shows that spending on
mandatory programs rose from approximately 42 percent of total federal
spending in 1984 to about 49 percent in 1994, and to 54 percent in 2004.
This growth is projected to continue with mandatory programs claiming
about 58 percent of total federal spending in 2010.

Figure 1: Federal Spending for Mandatory and Discretionary Programs

The nation's long-term fiscal outlook is daunting under many different
policy scenarios and assumptions. For instance, under a fiscally
restrained scenario, if discretionary spending grew only with inflation
over the next 10 years and all existing tax cuts expire when scheduled
under current law, spending for Social Security and health care programs
would grow to consume over three-quarters of federal revenues by 2040 (see
fig. 2). On the other hand, if discretionary spending grew at the same
rate as the economy-measured by Gross Domestic Product (GDP)-in the near
term and if all tax cuts were extended, federal revenues may just be
adequate to pay interest on the growing federal debt by 2040 (see fig. 3).
Numerous alternative scenarios can be developed incorporating different
combinations of possible policy choices and economic assumptions, but
these two scenarios can be viewed as "bookends" showing a range of
possible outcomes.

Figure 2: Composition of Spending as a Share of GDP under Baseline
Extended

Note: In addition to the expiration of tax cuts, revenue as a share of GDP
increases through 2015 due to (1) real bracket creep, (2) more taxpayers
becoming subject to the alternative minimum tax (AMT), and (3) increased
revenue from tax-deferred retirement accounts. After 2015, revenue as a
share of GDP is held constant.

Figure 3: Composition of Spending as a Share of GDP Assuming Discretionary
Spending Grows with GDP After 2005 and All Expiring Tax Provisions Are
Extended

Note: Although expiring tax provisions are extended, revenue as a share of
GDP increases through 2015 due to (1) real bracket creep, (2) more
taxpayers becoming subject to the AMT, and (3) increased revenue from
tax-deferred retirement accounts. After 2015, revenue as a share of GDP is
held constant.

As both these simulations illustrate, absent policy changes on the
spending and/or revenue side of the budget, the growth in spending on
federal retirement and health entitlements will encumber an escalating
share of the government's resources. Neither slowing the growth in
discretionary spending nor allowing the tax provisions to expire-nor both
together-would eliminate the imbalance. Although revenues will be part of
the debate about our fiscal future, making no changes to Social Security,
Medicare, Medicaid, and other drivers of the long-term fiscal gap would
require at least a doubling of taxes-and that seems implausible.
Accordingly, substantive reform of Social Security and our major health
programs remains critical to recapturing our future fiscal flexibility.

These long-term spending projections can largely be attributed to the
aging population and increased health care costs. This does not, however,
mean that the rest of the budget should be exempt from review. It is
important to periodically look at mandatory accounts in order to determine
possible ways to constrain spending and ensure a more accurate and
responsible federal budget process.

Congressional interest in fiscal discipline and the adoption of budget
tools to control mandatory spending are not new. The Balanced Budget and
Emergency Deficit Control Act of 1985, commonly referred to as
Gramm-Rudman-Hollings (GRH), established declining deficit targets and a
sequestration procedure to reduce spending if those targets were exceeded.
GRH was amended several times, most significantly by BEA in 1990. One
important reason for BEA's success in reducing the deficit during the
1990s was that the process enforced a previously reached agreement to
reduce the deficit. However, recurring surpluses at the end of the decade
caused a new debate to emerge and undermined the acceptance of BEA's
spending caps and PAYGO enforcement. BEA rules were not extended beyond
their scheduled expiration date at the end of fiscal year 2002.

In the past, mandatory spending caps were proposed as a way to control the
growth of mandatory programs. This idea was discussed in a report we
issued in 1994.10 Mandatory caps fail to address underlying eligibility
and benefits formulas-which drive spending. In addition, if caps were
imposed in the context of a control requiring across-the-board spending
cuts, they would present agencies with difficulties in successfully
reducing their program spending to stay within limits, and perhaps lead to
a cycle of continual sequestrations. This difficulty is because in such a
regime, any shortfalls in savings or growth in spending that occurred
despite agency efforts would be added to the amount of cuts required in
the next year. Moreover, the mandatory programs that would be most
affected by a cap-because of their high and/or volatile growth rates-are
also the programs for which a cap would be hardest to implement.

In the mid-1990s, there was a period when the idea of constraining
greater- than-expected growth through the use of triggers surfaced.
However, it coincided with a period when actual growth generally was less
than expected. Recently, with the reappearance of large deficits, there
has been a resurgence of interest in restoring budget controls and
containing the growth in both discretionary and mandatory spending. For
example, in

2005, numerous bills to reinstate fiscal discipline were proposed.11
Moreover, in May 2005, OMB issued a memo to agencies that required them to
propose offsets to any administrative action that would increase mandatory
spending.

Budget estimates and actual outlays are determined over a period that
spans nearly 2 years: from the time the President's budget is formulated,
about a year before the start of the fiscal year in question, to the
completion of that fiscal year. Within this 2-year lag period between
original estimates and actual outlays, legislative, economic, and
technical factors can affect program outlays. Budget estimates are revised
part way through the fiscal year and included in the budget request for
the following fiscal year. These revisions reflect updated technical and
economic assumptions as well as any legislative changes. Also, midsession
reviews conducted during the summer, usually in July, update budget
estimates prior to the completion of the fiscal year. In addition, both
CBO and OMB estimate the cost of bills that affect mandatory spending.

Objectives, Scope, and Methodology

The objectives of this study were to (1) determine the feasibility of
designing and using trigger mechanisms to constrain growth in mandatory
spending and (2) provide an analysis of the factors (legislative,
economic, and technical) that led to differences between estimated and
actual outlays in seven mandatory budget accounts during fiscal years 2000
through 2004. This second objective contributed to our understanding of
programs, helped us better appreciate the reasons behind growth in
mandatory accounts that experienced relatively large dollar changes, and
more fully informed our thinking about triggers.

To accomplish our first objective, we performed a literature search on
mechanisms to constrain mandatory spending and had discussions with
numerous budget experts from OMB, CBO, the Senate Budget Committee staff,
and various policy research organizations. Based on our research,
interviews at agencies, and discussions with experts, we then considered
possible approaches for budgetary constraint within each account.

To accomplish our second objective we extracted from OMB's budget database
mandatory outlays of accounts where 50 percent or more of the outlays were
mandatory. We analyzed these data for fiscal years 2000 through 2004. To
determine the estimated and actual outlays for each year, we used the
original budget estimate and the actual outlays reported 2 years later,
after the end of the fiscal year. For example, when determining the
difference between estimated and actual outlays for fiscal year 2000, we
compared the fiscal year 2000 budget estimates published in February 1999
to the actual outlays published in February 2001.

From the 534 accounts with outlays at least half mandatory, we selected
the top 10 accounts that experienced the greatest average dollar change
between original estimate and actual outlays in absolute value terms for 5
fiscal years (2000-2004). The complete list of these accounts is included
as appendix III. These 10 accounts, which represent approximately 50
percent of total average mandatory outlays, include (1) Interest on
Treasury Debt Securities, (2) Unemployment Trust Fund, (3) Commodity
Credit Corporation Fund,12 (4) Federal Supplementary Medical Insurance
Trust Fund (Medicare Part B), (5) Federal Hospital Insurance Trust Fund
(Medicare Part A), (6) Grants to States for Medicaid,13 (7) Rail Industry
Pension Fund, (8) Federal Direct Student Loan Program (FDLP) Account, (9)
Payments to Health Care Trust Funds, and (10) Mutual Mortgage Insurance
Program Account (MMI). Because many of the programs we selected are
relatively big, large dollar increases may represent small percentage
increases relative to program size.

After initial analysis, we excluded three of these accounts from further
analysis: Interest on Treasury Debt Securities, MMI,14 and Payments to
Health Care Trust Funds. We eliminated the U.S. Treasury account because
interest payments are a function of all other funding decisions and thus

provide little insight into trigger design.15 We excluded the MMI account
because the program itself is discretionary-only the large mandatory
reestimates of its credit subsidy required by the Federal Credit Reform
Act of 1990 caused it to fall into our original sample. Because decisions
about the size of this program are annually made in the appropriations
process and can be informed by the reestimates of previous years' loans,
there is no need for separate triggers. Finally, we excluded the Payments
to Health Care Trust Funds account because the payments are classified as
intragovernmental transfers and therefore do not affect overall budget
outlay data. Moreover, these transfers are captured within other accounts
in our sample.

Figure 4 below shows the 5-year average difference between estimated and
actual mandatory outlays in absolute value terms for the seven accounts we
reviewed. These differences ranged from $9.4 billion in the Unemployment
Trust Fund to $2.6 billion in FDLP.

Figure 4: Five-Year Average Differences between Estimated and Actual
Mandatory Outlays, Fiscal Years 2000 through 2005

To gain more perspective on what factors contributed to the differences
between estimated and actual outlays in the remaining seven accounts, we
met with officials from the cognizant agencies to determine if the reasons
behind the differences were (1) legislative, (2) economic, (3) technical,
or a combination of the three. We did not independently verify the
explanations agencies provided for differences.

Our work was done between May 2005 and January 2006 in Washington, D.C.,
in accordance with generally accepted government auditing standards.

Trigger Mechanisms Could Help Constrain Mandatory Spending but Must Be
Carefully Designed

The purpose of a budget trigger is to either automatically cause some
action to occur or to prompt decision makers to evaluate and consider
responding to rising costs. For example, where differences between
expected and actual growth in a program exceed a specified amount,
Congress could decide explicitly-by voting-whether to accept the slippage
or could take action to bring the spending path closer to the original
goal by recouping some or all of the slippage through changes in the
program. Our background research, work in case study agencies, and
discussions with budget experts highlighted several issues to consider
when designing triggers and their resulting actions, such as the extent of
agreement among decision makers about underlying fiscal goals, measures
selected to trip the trigger, and the triggered response.

While a budget process can surface important issues, it is not a
substitute for substantive debate-no process can force agreement where one
does not exist. Accordingly, the success of any effort to constrain growth
depends on whether there is widespread agreement on the underlying goals;
absent such agreement, any trigger would likely be circumvented. For
example, underlying the successful budget enforcement mechanisms embodied
in BEA was the broadly accepted goal of deficit reduction and an agreement
on a specific set of legislative changes to reach that goal. Its triggers
were centered around measures that Congress could control-discretionary
spending caps and changes to entitlement and tax laws. However, once the
budget moved into surplus in the late 1990s and there was no longer
agreement on fiscal goals, actions were taken to bypass BEA controls. For
example, the consolidated appropriations acts for both fiscal years 2000
and 2001 mandated that OMB change the PAYGO scorecard balance to zero.
Both OMB and CBO estimated that without instructions to change the
scorecard, sequestrations would have been required in 2001.

Other countries we have studied have sought to address national priorities
by developing explicit goals to guide fiscal policy and justifying their
goals with compelling rationales that often pointed out the potential
fiscal and economic benefits of budgetary discipline. In a 2000 report,16
we noted that having fiscal goals anchored by a rationale that is
compelling enough to make continued restraint acceptable is critical to
sustain support for budgetary discipline.

Issues to Consider in Constructing a Trigger

One of the reasons for the success of BEA was its link to congressional
action.17 Discretionary spending caps and PAYGO constrained congressional
action-BEA held Congress accountable only for things it could control and
not for the effect of economic or technical factors on spending or
revenues. This was both the strength and the limitation of PAYGO. Triggers
seek to go beyond the PAYGO regime by subjecting program growth to
scrutiny even where that growth is the result of economic, population, or
other factors outside congressional control. Triggers recognize that even
the best estimates can turn out to be wrong and that decision makers who
expected one path might wish to consider changes in a program where the
path is significantly different from what was anticipated.

In general, there are two types of responses to budget triggers-soft and
hard-depending on what type of action results when the trigger is tripped.
A "soft" response prompts special consideration of a program or a proposal
for action when a certain threshold or target is breached. Examples of
soft responses that could be triggered include requiring the administering
agency to prepare a special report explaining why the trigger's threshold
was breached, or requiring the President to submit a proposal for reform.
An example of a soft response already exists in the Medicare program,
which requires the President to submit a proposal to Congress for action
if the Medicare Trustees determine in 2 consecutive years that the general
revenue share of Medicare spending is projected to exceed 45 percent
during a 7-year period.18 In addition, a few Social Security reform
proposals have included language requiring presidential and congressional
action if the Social Security Board of Trustees determines that the
balance ratio of either of the Social Security trust funds will be zero
for any calendar year during the succeeding 75 years.19

Soft responses can help in alerting decision makers of potential problems
but they do not ensure that action to decrease spending or increase
revenue is taken. With soft responses, the fiscal path continues unless
Congress and the President take action. In contrast, a trigger could lead
to "hard" responses requiring a predetermined, program-specific action to
take place, such as changes in eligibility criteria and benefit formulas,
automatic revenue increases, or automatic spending cuts. With hard
responses, spending is automatically constrained, revenue is automatically
increased, or both, unless Congress takes action to override. Figure 5
below illustrates the conceptual differences between hard and soft
responses of a budget trigger.

Figure 5: Conceptual Differences between Hard and Soft Responses

In establishing triggers, both near- and long-term perspectives need be
considered. For some programs it might be appropriate to tie triggers to
historical data. For example, unexpected spending growth in student loans
might be measured against past historical spending data. However, for
other programs that expose the government to long-term commitments-such as
Medicare or Social Security-it might be more appropriate to tie the
trigger to projections of future spending. Social Security, however,
represents a large long-term commitment of future resources. Thus, growth
for this program might be measured against changes in actuarial
projections of Social Security's 75-year outlook. Such an approach could
be used for other programs with long-term commitments, such as pension
insurance, if good long-term projections become available.

Since all estimates are subject to some uncertainty, the triggering
mechanism should not be so tight that it is overly sensitive to normal
variation in budget estimation. One way to address this concern is to
establish a normal or expected range of budget uncertainty and set a
trigger level that falls outside this range. For example, if a program's
actual outlays historically fall within plus or minus 5 percent of
estimated outlays, a trigger set at a level greater than 5 percent would
best signal unexpected growth. This approach resembles one CBO uses for
certain programs to analyze the budgetary effects of legislative
proposals.20 Using a probabilistic model, CBO estimates the weighted
average of the effects associated with all possible sets of circumstances,
taking into account their respective probabilities. Such an approach could
be adapted to establish a range of uncertainty around a budget estimate.

Triggers also could be used to ensure that policy changes actually achieve
intended reductions in spending growth. Such triggers could address
concerns that some budget constraint mechanisms create the false
impression that long-term problems have been addressed.

Although any hard response can be overridden by congressional action, it
could be important to incorporate a more automatic escape clause into
budget enforcement mechanisms such as triggers. Effective budget
enforcement mechanisms need to be able to accommodate changing budget
policy and political environments in which future outcomes are difficult
to predict. For example, periods of economic growth may be brief or
sustained, but inevitably are followed by periods of economic downturn
that may be shallow or deep. Escape mechanisms, such as expiration dates,
allow budget policies and procedures to be renegotiated later. In addition
to expiration dates, House or Senate rules can provide flexibility. For
example, any Senator may raise a point of order against legislation
violating PAYGO rules prohibiting consideration of revenue or direct
spending legislation that is not deficit-neutral. However, the point of
order may be waived if there is broad consensus on the need to do so-that
is, if there is an affirmative vote of three-fifths of the membership.

Although they provide important flexibility, escape clauses can be
overused. For example, in fiscal year 2002, the Department of Defense and
Emergency Supplemental Appropriations Act21 instructed that $130.3 billion
in costs be eliminated from the PAYGO scorecard. Both OMB and CBO
estimated that without instructions to change the scorecard, a
sequester-across-the-board spending cuts-would have been required in 2002.
In addition, many programs were exempt from PAYGO's sequestration
requirement. These exemptions meant that the full brunt of any sequester
was concentrated in the remaining programs, resulting in cuts so draconian
that Congress and the President changed the targets rather than impose the
required cuts.

Issues to Consider in Designing the Triggered Response

Whether a triggered response is soft, hard, or a combination of the two,
efforts to constrain growth in mandatory programs need to be focused at
the program level. The experience with GRH highlights the importance of
individually designed triggers and responses. The deficit-neutrality
targets under GRH triggered a hard response-across-the-board spending
cuts-if they were not met. The deficit targets under GRH were not achieved
due to the inability of Congress and the President to control all of the
factors-mainly economic factors-that affected whether the trigger would be
breached and their unwillingness to accept the across-the-board cuts that
would have been necessary to meet the deficit targets.

In developing program-specific triggers and responses, proposed changes in
underlying benefits structure and design of mandatory programs can be
considered in the context of the factors that drove the growth and the
goals and objectives of specific programs. For example, certain programs
such as unemployment insurance and crop assistance are designed and
intended to have a countercyclical effect on the economy. That is, they
are aimed at reducing the size and duration of swings in economic activity
in order to keep economic growth closer to a pace consistent with low
inflation and high employment. Thus, a triggered response in these
programs needs to be sensitive to whether growth is being driven by
automatic budget stabilizers. For example, a rise in the unemployment rate
would by design increase outlays in federal unemployment insurance not
only to provide assistance to the unemployed but also to stabilize the
economy. If a trigger were established that resulted in a contractionary
response, it could undermine these important goals and exacerbate the
effects of unemployment on the economy. In a January 2002 report,22 the
Congressional Research Service (CRS) suggested one option to avoid
procyclical triggers would be to delegate to some entity-for instance
Congress or an executive department-the responsibility for evaluating each
year whether deteriorating economic conditions would make a trigger
detrimental. If conditions were found to be deteriorating, decisions would
need to be made about whether and how to implement any reduction. CRS
acknowledged, however, that this type of proposal could be criticized on
the grounds that it is based on a subjective decision and thus could be
prey to the sort of political pressures that critics fear would undermine
a trigger. Indeed, one budget expert we met with expressed concern that in
devising a budget trigger, it would be helpful to acknowledge political
pressures by considering who would judge progress against the trigger and
the neutrality of the judging entity.

The programs and agencies we reviewed have objectives and missions that
contribute to the achievement of public policy goals such as income
security, feeding the nation, fostering higher education, and providing
health care. To these ends, these programs are designed to provide
entitlements-benefits and assistance-to eligible recipients. While
striving to meet these commitments, our nation is faced with a daunting
long-term fiscal outlook based on the challenges of an aging population,
unsustainable deficits, and mounting debt while also ensuring truth and
transparency. Figure 6 depicts the inherent tension in balancing public
policy goals and long-term fiscal challenges.

Figure 6: Balancing Public Policy Goals and Long-term Fiscal Challenges

Addressing this tension invariably entails difficult political choices
among competing programs that promise benefits to many Americans but are
collectively unaffordable and unsustainable at current revenue levels. In
February 2005 we highlighted the size of fiscal imbalances looming in the
future and the challenge of our policy process to act with more foresight
to take early action on problems that may not constitute an urgent crisis
but pose important longer-term threats to the nation's fiscal, economic,
security, and societal future.23 Budget triggers are mechanisms that can
encourage and facilitate such action.

To help us better consider the implications of establishing triggers, we
looked at seven mandatory accounts with relatively large differences
between estimated and actual outlays: Commodity Credit Corporation (CCC),
Federal Direct Student Loan Program Account, Grants to States for
Medicaid, Federal Hospital Insurance (HI) Trust Fund (Medicare Part A),
Federal Supplementary Medical Insurance (SMI) Trust Fund (Medicare Part
B), Rail Industry Pension Fund, and the Unemployment Trust Fund. We
explored ways in which existing triggers and their corresponding actions
could be revised, as well as an array of new trigger mechanisms that take
into consideration the issues just discussed and could be adopted to
promote better budgeting in light of the nation's long-term fiscal
outlook.

It is important to consider the data upon which the trigger will
hinge-future projections based on historical data, growth as a percent of
GDP, total growth, or another measure altogether. For example, Congress
has established a trigger to constrain growth in Medicare spending for
physicians' services. The sustainable growth rate (SGR) is a statutorily
set formula that estimates the allowed rate of increase in spending for
physicians' services; that rate is used to construct the spending target
for the following calendar year. If actual spending exceeds the cumulative
SGR targets, fee updates in future years must be lowered sufficiently both
to offset the accumulated excess spending and to slow expected spending
for the coming year.24 The Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) established another trigger-the general
revenue share of Medicare spending. If the Medicare Trustees determine in
2 consecutive years that the general revenue share is projected to exceed
45 percent during a 7-year projection period, the President must submit a
proposal to Congress for action. To date, this threshold has not been
breached and thus no response has been triggered. However, Medicare
Trustees are expected to determine the first breach in their upcoming 2006
report as the trigger is projected to be tripped in 2012, which falls
within the 7-year projection period captured in that report. For
unemployment insurance, a trigger was established around balances in the
Unemployment Trust Fund. When funds accumulating in federal unemployment
accounts reach statutorily set limits, a distribution of the "excess"
funds from the

trust fund to individual states' accounts-called "Reed
Distributions"25-are automatically triggered based on each state's share
of covered wages. One way to constrain federal spending would be to
increase the statutory cap on federal unemployment accounts, thus making
it more difficult to trigger Reed Distributions to states. By making it
more difficult to trip the trigger, funds could continue to build during
economic prosperity and be available to states when truly needed to
counter rising unemployment.

Our analysis allowed us to develop a list of illustrative examples, which
analyze the related trade-offs involved in balancing restraint with
optimization of program goals. These are shown in appendix I, along with a
brief description of the program and account. Finally, where appropriate
we present illustrative examples of hard responses that could be
established to constrain spending. We do not specifically advocate any of
these approaches-they are presented for illustrative purposes only to
provide a sense of the types of trigger and resulting actions that could
be established. Although the illustrative examples we developed apply
specifically to the seven case study accounts that we reviewed, we believe
the information can further the larger policy conversation about how to
increase oversight of the path of mandatory spending and advance and
encourage budgetary discipline.

Expert Views on Trigger Mechanisms Are Mixed

We interviewed budget experts from OMB, CBO, the Senate Budget Committee
staff, and various policy research organizations to discuss views on using
triggers to constrain mandatory spending. Overall, views were mixed. While
some were more in favor of triggers than others, many expressed concern
that they would be circumvented or ignored, thereby questioning their
effectiveness. In addition, many were concerned that triggers could
jeopardize the underlying intent of mandatory programs. Several experts
also pointed to the need to ensure that any triggers developed be
carefully designed to avoid procyclical effects.

Some of the experts expressed strong support for budget triggers. These
individuals believed that triggers with hard responses had the potential
to constrain mandatory spending and that the accountability added by
triggers would be preferable to the current unconstrained environment. For
example, one expressed concern about the debt burden being permitted to
mount for future generations in order to avoid the reduction in benefits
or increase in taxes needed to finance current benefits. Linking revenues
and spending with GDP, she argued, would help avoid such generational
inequities. Another added that under current policy, spending grows
automatically, by default, faster than tax revenues as the population ages
and health costs soar. He argued that only by changing the budget's
autopilot programming can we gain the flexibility needed to continually
improve government policies and services.

Others, however, said that triggers reduced accountability because they
enable decision makers to publicly extol budget constraint but quietly
continue to increase spending. One pointed to "accounting tricks" that
have resulted from triggers with hard responses, such as when Congress
mandated certain costs not be counted against spending limits so as to
avoid across-the-board cuts. However, as discussed previously, triggers
also could be used to ensure that policy changes actually achieve intended
reductions in spending growth. Such triggers could address concerns that
some budget constraint mechanisms create the false impression that
long-term problems have been addressed.

Many expressed skepticism that budget constraint mechanisms such as
triggers would be adhered to; one cited Medicare's SGR as an example. The
SGR system is designed to apply financial brakes whenever actual spending
for physicians' services exceeds predefined spending targets. It does this
by reducing physician fees or limiting their annual increase. Because the
actual versus target spending comparison is cumulative, future fee updates
are reduced to lower future actual spending below future target spending
until total cumulative actual spending is the same as total cumulative
target spending. However, fee declines were averted for 2003, 2004, and
2005 by administrative and legislative actions that modified or overrode
the SGR system.

Some experts worried that applying budget triggers to various mandatory
spending programs would divert attention from the real source of the
nation's fiscal woes-health care-whose costs continue to rise faster than
GDP. They pointed to CBO data as evidence that, outside of health care and
to a lesser extent Social Security, virtually all other mandatory programs
are decreasing or holding steady as a percent of GDP. Accordingly, they
expressed concern that establishing triggers on such programs could
mislead the public into thinking that the long-term fiscal problem had
been addressed, thus delaying efforts to appropriately address it.

Many of the budget experts raised concerns about triggers jeopardizing the
important underlying missions and program goals financed by mandatory
accounts. In particular, concerns were raised about undermining
countercyclical effects of programs such as unemployment insurance, Food
Stamps, and the Earned Income Tax Credit. Some noted that the desire to
preserve program goals is the reason why triggers with hard responses have
not worked in the past. With respect to the SGR, for example, one expert
explained that the reason Congress overrides the trigger is to ensure
doctors do not stop accepting Medicare patients.

Finally, a couple of experts pointed out that triggers need not only apply
to spending; the revenue side of the budget should also be addressed. One
noted, for example, that an increase in taxes to cover spending growth
would increase visibility to the public and thus permit the American
people to be more aware of how much they are paying for services. Applying
triggers to tax cuts was an issue considered in 2001 when the budget was
in surplus and tax cuts were proposed. For example, Federal Reserve
Chairman Greenspan at that time expressed his preference for a trigger
that would make tax cuts contingent on the realized net debt level.
Comptroller General Walker also raised the possibility of using a trigger
to return a "surplus dividend" if actual surpluses occurred in excess of
specific levels. Ultimately, however, triggers were not adopted. Instead,
tax cuts were enacted through 2010 even though substantial deficits have
reappeared. In addition, as we reported in a February 2005 testimony,26
there has been an extensive use of tax incentives, rather than direct
spending authority, to fund social objectives. As we reported in September
2005,27 the sum of revenue loss estimates associated with tax
expenditures-such as tax exclusions, credits, and deductions-was nearly
$730 billion in 2004.28 Many tax expenditures operate like mandatory
spending programs and generally are not subject to reauthorization. Such
tax expenditures are embedded in the tax system and are off the radar
screen for the most part. This is a concern from a budgetary standpoint
because federal dollars committed to fund these expenditures do not
compete in the annual appropriations process and are effectively "fully
funded" before any discretionary spending is considered. The analysis we
applied to spending in this report would also be useful in examining tax
expenditures. However, challenges in defining and measuring tax
expenditures, to some extent, would affect any effort to curtail revenues
foregone through tax expenditures. For example, after taxpayers have taken
advantage of tax expenditures, the federal government still may not know,
with much certainty, how much tax revenue was foregone, who benefited, and
what results were achieved.29

Reasons for Differences between Estimated and Actual Outlays in Selected
Accounts Varied

To better appreciate the reasons behind growth in mandatory accounts and
thus inform our thinking on triggers, we examined the reasons for
differences between originally estimated and actual outlays for seven
mandatory accounts that experienced relatively large dollar changes.30
Based on agencies' explanations of differences between estimated and
actual outlays of the case study accounts we examined, we found that
legislation enacted after original estimates were submitted was the
primary driver in 19 out of 40 differences during fiscal years 2000
through 2004. Economic factors, such as changes in interest and
unemployment rates, were primarily responsible for 7 differences. Finally,
technical factors, which cover a broad spectrum, most significantly drove
13 out of 40 differences. In one case, it was unclear which factors most
significantly caused the difference between estimated and actual outlays.
In many cases, a combination of factors resulted in differences.

In categorizing agencies' explanations for differences between estimated
and actual outlays, we applied criteria similar to those that CBO uses in
its annual budget and economic outlook reports to categorize changes as
legislative, technical, and economic. However, in our report, legislative
action was classified in a somewhat different manner from the method that
CBO applies. Whereas we examined the actual budgetary effect that resulted
from the legislation, CBO projects the anticipated future

budgetary effect of legislation.31 Figure 7 describes the criteria that we
applied to categorize agencies' explanations into three factors. While
this framework is helpful in evaluating changes in the federal budget, it
is not precise and should be viewed as indicative as opposed to
determinative.

Figure 7: Factors Affecting Budget Estimates

Table 1 summarizes the factors-legislative, economic, and technical-that
most significantly resulted in differences between estimated and actual
outlays by fiscal year and account. The factors that were major drivers
for differences between estimated and actual outlays are denoted with "."
Other factors that affected the difference are denoted with "x." In one
case, it was unclear which factors most significantly caused the
difference between estimated and actual outlays. In that case, both
relevant factors are marked with an "x." Detailed explanations supporting
this summary are presented in appendix I.

Table 1: Reasons for Differences between Estimated and Actual Outlays

                                        

                 Account                Fiscal Reason for  
                                          year differences 
                                               Legislative Economic Technical 
Commodity Credit Corporation-Corn      2000                x     
                                          2001                x         x     
                                          2002                      
                                          2003                x     
                                          2004                          x     
Commodity Credit Corporation-Crop      2000                      
Disaster Assistance                    2001                      
                                          2002                      
                                          2003                      
                                          2004                      
Federal Direct Student Loan Program    2000                      
Account                                2001                          x     
                                          2002                          x     
                                          2003                          x     
                                          2004                      
Grants to States for Medicaid          2000                      
                                          2001                      
                                          2002                      
                                          2003                          x     
                                          2004                          x     
Medicare Part A-Federal Hospital       2000                      
Insurance Trust Fund                   2001                      
                                          2002                      
                                          2003                x         x     
                                          2004                          x     
Medicare Part B-Federal                2000                      
Supplementary Medical Insurance        2001                      
Trust Fund                             2002                      
                                          2003                x         x     
                                          2004                          x     
Rail Industry Pension Fund             2000                      
                                          2001                      
                                          2002                          x     
                                          2003                          x     
                                          2004                          x     
Unemployment Trust Fund                2000                      
                                          2001                      
                                          2002                x     
                                          2003                x     
                                          2004                x     
Total major drivers of differences              19         7        13     

Source: GAO analysis of agencies' explanations of differences between
estimated and actual outlays.

Note: Factors that were major drivers for the difference between estimated
and actual outlays are denoted with "." Other factors that affected the
difference are denoted with "x." In one case, it was unclear which factors
most significantly affected the difference. In that case, both relevant
factors are marked with an "x."

Legislation Enacted After Original Estimates Explained Many Differences
between Estimated and Actual Outlays

As seen above in table 1, most of the accounts we reviewed were directly
affected by legislation that was enacted after original estimates were
developed and significantly contributed to differences between expected
and actual outlays in 19 out of 40 instances.32 For example, the Temporary
Extended Unemployment Compensation Act (TEUC) of 2002 led to the
disbursement of greater-than-expected unemployment benefits. Supplemental
appropriations for crop disaster assistance and Agricultural Market
Transition Act payments largely contributed to additional outlays that
were not assumed in original CCC budget projections. Similarly, the MMA
and the Railroad Retirement and Survivors' Improvement Act of 2001,
respectively, increased Medicare outlays and Rail Industry Pension
outlays.

TEUC was enacted to provide up to 13 weeks of federally funded
unemployment insurance benefits to workers in all states who had exhausted
their entitlement to regular state unemployment benefits. Furthermore, the
Act provided up to 13 additional weeks of federally funded benefits to
workers in states with especially high unemployment rates. Congress
renewed this extension in April 2003, which allowed qualified individuals
to file for federal extensions through December 2003 and collect on those
extensions through December 2004. As a result, program outlays exceeded
estimates by $7.9 billion in 2002, $11 billion in 2003, and $4.3 billion
in 2004.

Outlays in both CCC programs that we reviewed also were directly affected
by subsequent legislative action that occurred after original budget
estimates were formulated. For example, Crop Disaster Assistance programs
are funded through supplemental appropriations every year throughout the
5-year period that we reviewed, which led to an additional total of $6
billion in program outlays. According to OMB officials, the Administration
prefers not to include estimates in the budget for relatively
unpredictable disaster-related programs such as crop disaster assistance.
Instead, such funding is typically initiated by Congress through
supplemental appropriations.33 Accordingly, for all 5 years we examined,
no estimates were provided and all of the outlays were as a result of
supplemental appropriations.

Legislative action that increased market loss assistance payments to corn
producers largely contributed to the greatest underestimates of outlays
for that particular commodity-nearly $9 billion in 2000 and 2001 together.
These payments were authorized on an ad hoc basis and, in fiscal year
2000, were paid out for both 1999 and 2000.

The Consolidated Appropriations Resolution of 2003 provided substantially
higher Medicare34 payments to physicians than estimated in original budget
projections and contributed to the largest discrepancy-over $13
billion-between estimated and actual SMI outlays throughout the 5 years
that we reviewed. Furthermore, both the HI and SMI trust funds incurred
unanticipated additional outlays as a result of MMA. Several of the
provisions under MMA were implemented in 2004 and directly affected that
year's outlays; however, officials from the Centers for Medicare &
Medicaid Services (CMS) said that the largest factors that led to
additional HI outlays of approximately $4.4 billion and additional SMI
outlays of nearly $12.3 billion were the substantially increased payments
to private health plans and rural health providers, as well as the
increased physician payment update-all of which were provided for under
MMA.

Finally, the Railroad Retirement and Survivors' Improvement Act of 2001
changed a number of benefit and eligibility criteria, which led to a sharp
rise in retirements. For example, the enactment of this law (1) eliminated
benefit reductions to early retirees, (2) eliminated the maximum threshold
on the amount of combined monthly employee and spouse benefit payments,
(3) lowered the minimum eligibility requirement for railroad retirement
annuities, and (4) increased benefit payments for widow(er)s. Under this
legislation, funds in excess of those needed for current benefit payments
and administrative expenses were transferred to the National Railroad
Retirement Investment Trust. As a result, rail industry retirements
increased, and pension fund outlays increased by almost $20 billion in
2002 and 2003 collectively.

Economic Factors Were Especially Important in Some Programs' Differences

Case study agencies cited economic factors as primary reasons for
differences between estimated and actual outlays for 7 out of 40
differences. This was especially true for agricultural commodities,
student loans, and unemployment insurance. For example, market prices for
commodities affected federal subsidy payments to farmers, changes in
interest rates affected revenues received from student loan borrowers, and
unemployment affected outlays of federal unemployment insurance. Economic
factors also affected the hospital market basket, which contributed to
greater-than-expected Medicare outlays.

For CCC's corn program,35 market prices were both underestimated and
overestimated over the 5-year period. According to a Department of
Agriculture (USDA) official, corn prices are extremely volatile and highly
dependent on weather conditions and global food production. In addition,
the countercyclical design of federal commodity subsidies results in
outlays that are highly sensitive to changes in price. This official
explained that a 1 cent change in estimated corn prices results in about
an $85 million change in federal outlays.

The historically low interest rates that prevailed in recent years were
below levels previously forecasted, which affected estimated student loan
subsidy costs. Subsidy cost estimates for FDLP are highly sensitive to
changes between projected and actual interest rates because borrower
interest rates are variable. The decline in interest rates resulted in
lower-than-expected interest payments to the government from FDLP
borrowers, thus increasing reestimated subsidy costs for these loans.36
Concurrently, the volume of student consolidation loans, which allow
borrowers to lock in fixed interest rates, increased as interest rates
declined. In consolidating their loans, borrowers effectively paid off
their underlying loans, thereby lowering anticipated interest payments to
the government on the loans and, in turn, increasing the estimated subsidy
costs of the underlying loans.

Discrepancies between estimated and actual unemployment insurance outlays
are partially attributed to economic factors such as unanticipated changes
in both the unemployment rate and benefit recipiency rates. For example,
Department of Labor officials said that most of the outlay overestimate in
2000 resulted from a lower-than-expected unemployment rate-the ratio of
the total number of unemployed individuals to the total workforce-which
translated into lower-than-expected outlays. In subsequent years, the
unemployment rate was underestimated and thus contributed to
greater-than-expected outlays. Inaccurate assumptions about the benefit
recipiency rates, that is, the ratio of the total number of unemployed
individuals filing for or receiving benefits to the total number of
unemployed, further contributed to the agency's errors in accurately
estimating program outlays. According to agency officials, these economic
factors tend to be key drivers affecting budget estimates, albeit to a
somewhat lesser degree during the timeframe we reviewed given the
significance of the temporary extended unemployment compensation
legislation that substantially increased outlays in 2002 through 2004.

To a lesser extent, economic factors affected Medicare outlays. In 2003, a
higher-than-expected market basket,37 which is basically a price index
representing the cost of providing health care services to patients, was
part of the explanation behind higher-than-originally-estimated Medicare
outlays, according to CMS officials. This increase in the market basket
led to greater-than-expected inpatient and outpatient hospital
expenditures in the HI and SMI funds respectively.

Technical Factors Explained a Broad Spectrum of Differences

Technical factors, which encompass a somewhat wide-ranging residual
category, significantly explained outlay differences in 13 out of 40
instances. Generally, technical factors account for differences between
budget estimates and actual outlays that cannot be attributed to
legislative or economic factors. For example, delayed implementation and
difficulty in predicting the behavior of providers under new payment
systems, an increased case mix, and the deferral of adjusting payments for
skilled nursing facilities utilization led to differences between
estimated and actual Medicare outlays. Increases in administrative costs
and revised assumptions of the amount of loan defaults and collections
caused some of the direct student loan outlays to differ from original
estimates. Similar to the diversity of the programs we reviewed, there was
great variability among the technical factors that affected account
outlays.

Actual outlays for both Medicare Parts A and B differed from estimates
primarily due to a number of technical factors, which accounted for both
some of the largest and some of the smallest discrepancies. For example,
the largest discrepancy in the HI fund (Medicare Part A) occurred in
fiscal year 2000 for which outlays were lower-than-originally estimated by
nearly $16 billion. According to CMS, the majority of this inaccuracy is
attributed to lower-than-expected benefit payments as a result of the
agency's difficulty in predicting the behavior of providers under newly
implemented payment systems for skilled nursing facility (SNF) services
and home health services. CMS officials said that these payment systems
were very new at the time fiscal year 2000 budget estimates were done and
the effect of these new systems was unknown. Similarly, SMI outlays were
$4.6 billion less-than-originally estimated due largely to the delayed
implementation of and unfamiliarity with a new outpatient hospital
prospective payment system. Other technical factors CMS cited to explain
the differences between estimated and actual Medicare outlays included
case mixes that were more complex than expected and deferred payment
refinements for SNF utilization. Case mix refers to the average complexity
of inpatient admissions for Medicare beneficiaries. A change in the mix of
cases causes the amount of benefit payments to change. The deferral of
payment adjustments for SNF utilization contributed to
greater-than-expected outlays in both fiscal years 2003 and 2004. These
adjustments would have reduced payment rates that had previously been
increased on a temporary basis under the Medicare, Medicaid, and SCHIP
Balanced Budget Refinement Act of 1999 (BBRA).38 CMS included the
budgetary effects of these adjustments in their HI estimates for 2003 and
2004, but later decided not to implement them citing the need for
additional time to review and analyze the implications of implementing
hospital case mix refinements.

Differences between estimated and actual outlays for federal direct
student loans were most frequently explained by technical factors,
including revised assumptions in the Department of Education's loan
subsidy model, increased administrative costs, and Congress's decision not
to adopt a budget proposal to shift administrative expenses to a
discretionary account. Moreover, because of the way federal credit
programs are budgeted, original estimates include a loan subsidy amount
for one fiscal year but actual outlays include a loan subsidy reestimate
for all prior fiscal years-in the case of FDLP, up to 8 years for fiscal
year 2004.

Conclusions

Given that unsustainable federal deficits and debt threaten our future
economy and national security as well as the standard of living for the
American people, renewed emphasis on increasing fiscal discipline is
crucial. Mandatory spending represents an increasing percentage of the
federal budget (e.g., about 54 percent in 2004, up from about 42 percent
in 1984). Unexpected growth in individual programs-especially certain very
large programs-can significantly change the nation's fiscal position. By
identifying significant increases in mandatory spending relatively early
and acting to constrain it, Congress may avert even larger fiscal
challenges in the future.

The notion of establishing budget triggers to constrain growth is not new
and has been used in the past with varying degrees of success. Given that
spending for mandatory programs is driven by underlying benefit and
eligibility formulas, serious efforts to constrain spending would require
substantive changes to current law. Such changes should consider program
goals and objectives and be enacted as programs are created, reexamined,
or reauthorized. While budget triggers certainly are neither a panacea nor
a substitute for deliberate consideration by stakeholders and decision
makers, they can help to prompt action and enhance fiscal responsibility.

Ignoring significant growth in mandatory accounts is inconsistent with
evaluation of programs and their costs. While we appreciate the concerns
raised by budget experts, in our opinion, establishing budget triggers
warrants serious consideration in order to constrain growth in mandatory
spending programs. However, it is clear that how the triggers are designed
must be carefully considered. For example, once widespread agreement on
underlying public policy goals has been achieved, it needs to be decided
whether a soft or hard response to a trigger-or a combination
thereof-would be most appropriate. Also, it is important to consider the
data upon which the trigger will hinge-future projections of historical
data, growth as a percent of GDP, total growth, or another measure
altogether. Moreover, this trigger concept might also be useful in
examining tax expenditure growth. Calculating a normal range of
uncertainty for a program could help avoid triggering an action
prematurely or unnecessarily. In addition, it is important to strike an
appropriate balance between responses that constrain spending or increase
revenues. We recognize that automatic responses pose much more difficult
trade-offs. Ensuring countercyclical effects are not undermined is of
particular importance. In any case, recognizing the natural tension in
balancing both long-term fiscal challenges and other public policy goals,
each program needs to be considered individually to ensure that any
responses triggered strike the appropriate balance between the long-term
fiscal challenge and the program goals. Considering ways to increase
transparency, oversight, and control of mandatory spending programs must
be part of addressing the nation's long-term fiscal challenges.

Matter for Congressional Consideration

To promote explicit scrutiny of significant growth in mandatory accounts,
as mandatory spending programs are created, reexamined, or reauthorized,
Congress should consider incorporating budget triggers that would signal
the need for action. Further, it should determine whether in some cases it
might be appropriate to consider automatically causing some action to be
taken when the trigger is exceeded. Once a trigger is tripped, Congress
could either accept or reject all or a portion of the response to the
spending growth.

Agency Comments

We requested comments on a draft of this report from OMB; the Departments
of Agriculture, Education, Health and Human Services, Labor; and the
Railroad Retirement Board. OMB and the Departments of Education and Labor
had no comments. The Departments of Agriculture, Health and Human
Services, and the Railroad Retirement Board provided clarifying and/or
technical comments, which we incorporated as appropriate.

This report was prepared under the direction of Susan J. Irving, Director,
Federal Budget Analysis, Strategic Issues, who can be reached at (202)
512-9142 or [email protected] . Other key contributors are listed in
appendix IV.

David M. Walker Comptroller General of the United States

Illustrative Examples of Triggers and Responses for Case Study
Accounts Appendix I

Addressing growth in mandatory spending is an important but complicated
matter that requires looking below the aggregate and into specific
programs. Mandatory spending is governed by eligibility rules and benefit
formulas, which means that funds are spent as required to meet the needs
of all those who are eligible and wish to participate. Accordingly,
spending in mandatory programs cannot be constrained through the
application of simple caps/limits. Rather, it requires changes in the
underlying benefit structure and design of programs. As a result,
constraints of individual programs that look at the specific economic and
other factors that drive spending are likely to be most effective.

One idea to constrain growth in mandatory programs is to develop triggers
that, when tripped, would cause some automatic cost-cutting or revenue-
increasing response-such as changes in eligibility criteria, benefit
formulas, or fees-automatically to go into effect unless Congress and the
President act to make other changes. An alternative approach would replace
such a "hard" response with a "soft" one such as requiring special
consideration of a program or a proposal for action when the trigger's
threshhold is breached. Examples of soft responses include raising a point
of order, requiring the administering agency to prepare a special report
explaining why the trigger was breached, or submitting a proposal for
reform. Soft responses may be helpful in alerting decision makers of
potential problems but do not ensure that such action is taken.

Especially in designing hard responses, careful consideration must be
given to avoid counteracting the program's goals and objectives. For
example, a rise in the unemployment rate would by design increase outlays
in federal unemployment insurance not only to provide assistance to the
unemployed but also to stabilize the economy. If a trigger were
established that resulted in a contractionary response, it could undermine
these important goals and exacerbate the effects of unemployment on the
economy.

We selected seven mandatory budget accounts to examine in order to inform
our thinking about budget trigger responses and the design issues that
need to be considered. These seven accounts were selected because of their
relatively large 5-year average differences between estimated and actual
outlays. These accounts are the

(1) Commodity Credit Corporation1

o Corn

o Crop Disaster Assistance,

(2) Federal Direct Student Loan Program Account,

(3) Grants to States for Medicaid,

(4) Medicare Part A: Federal Hospital Insurance Trust Fund,

(5) Medicare Part B: Federal Supplementary Medical Insurance Trust Fund,

(6) Rail Industry Pension Fund, and

(7) Unemployment Trust Fund.

In this appendix, for each case study account we present contextual
information such as the administering agency, program description, and
source of funding. Also we provide the agency's explanation of key
differences between estimated and actual outlays and, as appropriate,
other relevant information. Finally, where appropriate we present
illustrative examples of hard responses that could be established to
constrain spending.2 In some cases these illustrative examples involve
revising currently existing triggers and their corresponding actions. In
other cases new triggers and responses are presented. We do not
specifically advocate any of these approaches as Congress would need to
balance the program and national objectives sought with the long-term
fiscal challenges facing our nation. The approaches we present are for
illustrative purposes only to provide a sense of the types of trigger and
resulting actions that could be established.

Account Name

Commodity Credit Corporation Fund-Corn

Administering Organization

Primarily the Farm Service Agency (FSA), U.S. Department of Agriculture

Program Description

The Commodity Credit Corporation (CCC) is a government-owned and
government-operated entity that was created in 1933 to stabilize, support,
and protect farm income and prices. CCC also helps maintain balanced and
adequate supplies of agricultural commodities and aids in their orderly
distribution.

For fiscal years 2000-2002 (under 1996 Farm Bill provisions), CCC provided
corn-related subsidies primarily through two types of payments available
to supplement farmers' incomes: (1) production flexibility payments to
historical producers of corn and (2) nonrecourse loans, which allow
farmers to store production and use loan proceeds to meet cash flow needs
without selling the crop. Ad hoc legislation provided additional payments
in the form of market loss assistance payments to compensate producers for
low prices.

For fiscal years 2003-2004 (under 2002 Farm Bill provisions), CCC provided
corn-related subsidies through three types of payments available to
supplement farmers' incomes: (1) direct payments to historical producers
of corn; (2) countercyclical payments, which provide a safety net in the
event of low crop prices; and (3) nonrecourse loans.

Funding Source

CCC has an authorized capital stock of $100 million held by the United
States and the authority to have outstanding borrowings of up to $30
billion at any one time. Funds are borrowed from the U.S. Treasury.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated outlays for corn differed from actual
outlays by about $1.9 billion per year, or 63.4 percent, in absolute value
terms. However, the actual annual differences varied between an
overestimate of $388 million and an underestimate of $7 billion. Table 2
presents the estimated and actual outlays associated with CCC's corn
program, by fiscal year.

Table 2: Estimated and Actual Corn Outlays, by Fiscal Year

                                        

     Nominal dollars in millions    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                      $3,087        $10,136    $-7,049 
2001                                       4,444          6,297     -1,853 
2002                                       3,013          2,959         54 
2003                                       1,803          1,415        388 
2004                                       2,695          2,504        191 
5-year average dollar difference         $-1,654 
5-year average difference as a            -55.5% 
percent of average estimated                     
outlays                                          
5-year average dollar difference    $1,907 63.4% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of FSA budget data.

Explanation of Key Differences

According to the Farm Service Agency, legislative action and economic
changes were the primary reasons behind differences between estimated and
actual outlays for CCC's corn program during fiscal years 2000 through
2004. In general, weather and natural disasters are the key drivers of
differences between estimated and actual outlays, which are highly
sensitive to changes in the price of corn. Outlays increase when the corn
price decreases. A 1 cent drop in the price of a bushel of corn can lead
to about $85 million increase in countercyclical payments. Participation
also affects costs. Farm program costs depend on market prices and farm
production, which in turn are influenced by world weather, the condition
of the general economy, the foreign and trade policies of the United
States and other food-exporting nations, the rate of inflation, and the
value of the dollar, among other variables. Detailed explanations are
shown in table 3.

Table 3: Explanation of Differences between Estimated and Actual Corn
Outlays

                                        

     Nominal                                                
dollars in                                               
    billions                                                
Fiscal year FSA's explanation  
and dollar    of differences   
differencea    Legislative             Economic              Technical     
2000        Additional $5.1    Loan deficiency payments                    
               billion fixed      were underestimated by    
$-7.0       payments for       $1.6 billion due to a     
               producers of       sharp drop in prices      
               grains and cotton  ($0.20 and $0.25 per      
               were authorized in bushel for 1999 and 2000  
               Oct. 1999 (Pub. L. projections). Remaining   
               106-78 S: 802).    difference due to lower   
                                  loan repayments since     
                                  more loans were repaid at 
                                  lower rates due to weak   
                                  market conditions,        
                                  representing marketing    
                                  loan gains for producers. 
2001        $2.1 billion       Underpayment was          A small drop in   
               Market Loss        moderated by a small      net loan          
$-1.9       Assistance         reduction in loan         expenditures, as  
               payments were      deficiency payments       less corn was     
               authorized in Aug. resulting from a slight   placed under loan 
               2001 (Pub. L.      rise in the average       than projected.   
               107-25 S: 1).      market price and a change 
                                  in the seasonal pattern   
                                  from projections.         
2002                           Three cent per bushel                       
                                  drop in the 2001 price of 
$0.05                          corn, which triggered     
                                  higher loan deficiency    
                                  payments (LDP). As more   
                                  producers opted for LDPs, 
                                  fewer placed corn under   
                                  loan, thus reducing net   
                                  outlays.                  
2003        Mandated policy    Increase in net loan                        
               change saved $1.9  outlays, reflecting a     
$0.39       billion by         change in the loan rates. 
               eliminating        The rate for 2002 and     
               production         2003 corn was assumed at  
               flexibility        $1.67 per bushel under    
               contract payments  previous legislation but  
               unless requested   increased to $1.98 under  
               by producers who   2002 legislation. Thus,   
               are parties to the the face value of loans   
               contract (Pub. L.  made went up.             
               107-171 S: 1107).                            
               This was partially                           
               offset by $1.4                               
               billion for the                              
               new direct payment                           
               program.                                     
2004                           An increase in prices     The CCP decline   
                                  pushed corn above the     outweighed        
$0.19                          countercyclical payment   increases of $130 
                                  (CCP) trigger level, thus million for       
                                  reducing CCPs by $397     direct payments,  
                                  million. The CCP decline  which were due to 
                                  outweighed increases of   higher base acres 
                                  $100 million for LDPs,    than were assumed 
                                  which reflect a decline   before the actual 
                                  in the 2004 crop price,   sign-up.          
                                  raising the LDP rate and  
                                  quantity.                 

Source: Farm Service Agency.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

Illustrative Triggers and Response

The 2002 Farm Bill3 guaranteed historical producers of corn and other
commodities a minimum price per bushel, known as a target price, which
they can expect to earn. To constrain spending, one possible trigger could
be when the target price exceeds the market price by some historically
average percentage, the legislated target price could be reduced. However,
to avoid price shocks to the industry and possible procyclical effects,
the price reduction could be deferred to the following year.

The Farm Bill also established a formula for fixed, direct payments to
historical producers of corn and other commodities. To limit spending on
this income-support program, one idea for a trigger could be to link
direct payments to farm sector production prices. For example, if
production prices drop by more than 3 percent,4 Congress could redefine
the formula to be less generous.

Alternatively, Congress could limit the guarantee of direct payments to
current producers of corn rather than historical producers.

Account Name

Commodity Credit Corporation Fund-Crop Disaster Assistance

Administering Organization

Primarily the Farm Service Agency (FSA), U.S. Department of Agriculture

Program Description

CCC is a government-owned and government-operated entity that was created
in 1933 to stabilize, support, and protect farm income and prices. CCC
also helps maintain balanced and adequate supplies of agricultural
commodities and aids in their orderly distribution.

Crop Disaster Assistance programs reimburse producers for qualifying
losses to agricultural commodities (other than sugar cane or cotton seed)
due to damaging weather or related conditions. The damages must be in
excess of 35 percent of the established price of crops for lost production
or 20 percent for lost quality. Crop disaster programs cover insured,
uninsured, and noninsurable crops. The program has no set funding
limitation, however, payments are limited to $80,000 per person, and
producers with incomes greater than $2.5 million are ineligible. This crop
disaster assistance program is not permanently authorized.

Funding Source

CCC has an authorized capital stock of $100 million held by the United
States and the authority to have outstanding borrowings of up to $30
billion at any one time. Funds are borrowed from the U.S. Treasury.
Although Crop Disaster Assistance programs are provided through
appropriations acts,5 the Department of Agriculture considers and applies
funding for the programs in a manner similar to mandatory programs.
According to an FSA official, funding is provided to all eligible
applications for assistance by prorating available funding if necessary.
The Office of Management and Budget (OMB) also considers crop disaster
assistance programs to be mandatory in that all eligible applicants may
receive benefits.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated outlays for crop disaster assistance
differed from actual outlays by about $1.2 billion per year in absolute
value terms. However, the actual annual differences varied between $230
million and $1.9 billion. Table 4 presents the estimated and actual
outlays associated with CCC's crop disaster assistance programs, by fiscal
year.

Table 4: Estimated and Actual Crop Disaster Assistance Outlays, by Fiscal
Year

                                        

     Nominal dollars in millions                    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                          $0         $1,251    $-1,251 
2001                                           0          1,848     -1,848 
2002                                           0            230       -230 
2003                                           0          1,867     -1,867 
2004                                           0            804       -804 
5-year average dollar difference         $-1,200 
5-year average difference as a               N/A 
percent of average estimated                     
outlays                                          
5-year average dollar difference      $1,200 N/A 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of FSA budget data.

Explanation of Key Differences

According to OMB staff, it is not OMB's policy to include an estimate for
disaster assistance in the President's budget. Instead, these programs are
typically funded through subsequent legislation.

Ideas for Improving the Accuracy of Estimates

Although OMB typically does not include an estimate for crop disaster
assistance in the President's budget, we have reported in the past that
shifting the budget timing to an up-front recognition of emergency costs
through reserves may promote a more comprehensive and transparent debate
over federal budgetary priorities during the regular budget process.6 For
example, we suggested that federal governmentwide emergency reserves could
set aside budget authority in advance for expected yet unpredictable
events as part of the annual resource-allocation process. Another approach
would be to establish agency-specific reserve funds for those agencies
that regularly respond to federal emergencies. Funds would be appropriated
to these agencies on a contingent basis, meaning that certain
agency-specific criteria would have to be met before the funds could be
used. While these approaches are not of the trigger/response variety that
is the subject of this report, they would help accomplish a goal of
constraining spending if the emergency budget authority provided in
advance is assumed to be within a constrained total budget authority.

Account Name

Federal Direct Student Loan Program Account

Administering Organization

Office of Federal Student Aid, U.S. Department of Education

Program Description

The Department of Education (Education) provides financial aid in part to
increase access to college. Education's first direct loans were made in
the fourth quarter of fiscal year 1994.7 Through its William D. Ford
Federal Direct Loan Program (FDLP), students and/or their parents borrow
money directly from the federal government through the vocational,
undergraduate, or graduate schools the students attend. As is the case
under the Federal Family Education Loan Program (FFELP), or "guaranteed"
student loan program, there are four types of direct loans.8

Stafford Loans-variable rate loans available to students. The federal
government pays the interest on behalf of borrowers while the student is
in school, during a 6-month grace period when the student first leaves
school, and during statutory deferment periods related to borrower
unemployment and economic hardship.

Unsubsidized Stafford Loans-variable rate loans to students with the same
terms as Stafford Loans except that the government does not pay interest
costs during in-school, grace, and deferment periods.

PLUS Loans-variable rate loans made to parents. The borrower pays all
interest costs.

Consolidation Loans-borrowers may combine multiple federal student loans
into a single, fixed rate loan. The interest rate is based on the weighted
average of the interest rates in effect on the loans being consolidated or
a fixed percentage.

Funding Source

Education finances FDLP through a combination of appropriations and
borrowing from Treasury. Education receives permanent, indefinite budget
authority for estimated subsidy costs-the amount expected not to be repaid
by borrowers-of its loans. These costs are generally updated, or
reestimated, annually. The portion of direct loans that Education predicts
will ultimately be repaid by borrowers is financed by borrowing from
Treasury and is not considered a cost to the government because it is
expected to be returned to the government in future years.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated outlays for direct student loans
differed from actual outlays by about $2.6 billion per year, or 702
percent, in absolute value terms. However, the actual annual differences
varied between an overestimate of $2.8 billion and an underestimate of
$5.3 billion. A large component of these differences reflects the fact
that initial estimates do not include reestimates of prior year costs,
which are reflected in actual outlays. In addition, initial estimates
reflect proposed policies, many of which were not enacted and so were not
reflected in subsequent actual outlays. Table 5 presents the estimated and
actual outlays associated with the federal direct student loan program, by
fiscal year.

Table 5: Estimated and Actual Direct Student Loan Outlays, by Fiscal Year

                                        

     Nominal dollars in millions    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                        $-42        $-2,862     $2,820 
2001                                         115            257       -142 
2002                                        -635             97       -732 
2003                                        -283          5,055     -5,338 
2004                                        -786          3,246     -4,032 
5-year average dollar difference         $-1,485 
5-year average difference as a            455.2% 
percent of average estimated                     
outlays                                          
5-year average dollar difference     $2,613 702% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Note: A negative outlay amount indicates a positive collection of revenue.
Also, for credit programs, the term actual is misleading because
reestimates will continue until all the loans in that cohort have been
repaid.

Explanation of Key Differences

Because FDLP is a relatively new program, it has a short history of
repayment activity and little historical data are available. Accordingly,
Education initially relied heavily on data from the guaranteed student
loan program to develop estimates for most key cash flow assumptions in
its FDLP cash flow model, which is used to estimate the subsidy cost of
the program. Over the past few years, Education has incorporated FDLP data
into many cash flow assumptions; as more data become available, Education
plans to completely phase out the use of guaranteed loan data for FDLP
assumptions.9

Drops in interest rates have been a key driver behind differences in
estimated versus actual outlays. Not only are loans being paid off at
lower rates than anticipated but the drop in rates has also led to a
dramatic increase in consolidations (which are prepayments). Detailed
explanations are shown in table 6.

Table 6: Explanation of Differences between Estimated and Actual Direct
Student Loan Outlays

                                        

Nominal dollars                                 
     in billions                                   
                   Education's 
                   explanation 
                       of      
                   differences 
Fiscal year and Legislative      Economic               Technical          
       dollar                                      
    differencesa                                   
2000                                            Actual includes about $2.4 
                                                   billion in prior year      
$2.8                                            reestimates of loans made  
                                                   in fiscal years (FY) 1994  
                                                   through 1999. Net downward 
                                                   reestimate of prior        
                                                   cohorts primarily due to   
                                                   revised assumptions about  
                                                   a drop in defaults and an  
                                                   increase in collections.   
                                                   FY 2000 cohort subsidy     
                                                   decreased $442 million.    
                                                   Administrative costs       
                                                   decreased $30 million.     
2001                        Changes in interest Actual includes about $481 
                               rates resulted in   million in prior year      
$-0.14                      $481 million upward reestimates of loans made  
                               reestimate of prior in FYs 1994 through 2000.  
                               year cohorts.       FY 2001 cohort subsidy     
                                                   decreased $432 million.    
                                                   Administrative costs       
                                                   increased $94 million      
2002                        Drop in interest    Administrative costs       
                               rates caused FY     increased $42 million.     
$-0.73                      2002 cohort subsidy 
                               to increase $694    
                               million due to      
                               lower projected     
                               borrower            
                               repayments.         
2003                        Revised assumptions Actual includes about $4.6 
                               on interest rates,  billion for 2-years worth  
$-5.3                       prepayments through of prior-year reestimates  
                               consolidations, and of loans made in FYs 1994  
                               defaults resulted   through 2002. (No          
                               in upward           reestimate was executed in 
                               reestimate of prior FY 2002.) $15 million      
                               year cohorts of     policy proposal to shift   
                               $4.6 billion. FY    administrative expenses to 
                               2003 cohort subsidy a discretionary account    
                               increased $250      not enacted by Congress.   
                               million.            
2004                                            $710 million policy        
                                                   proposal to shift          
$-4.0                                           administrative expenses to 
                                                   a discretionary account    
                                                   not enacted by Congress.   
                                                   About $2.6 billion in      
                                                   upward reestimates of      
                                                   prior year cohorts (loans  
                                                   made during FYs 1994       
                                                   through 2003) reflects     
                                                   technical changes to model 
                                                   assumptions, including     
                                                   higher level of            
                                                   prepayments, which lower   
                                                   future interest income,    
                                                   and higher defaults for    
                                                   borrowers choosing         
                                                   income-contingent loan     
                                                   repayment.                 

Source: Department of Education.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

Illustrative Trigger and Response

Congress could decrease the subsidy cost to the government by, among other
things, increasing the amount of fees borrowers must pay to obtain a loan
or increasing borrowers' interest rate. For example, continued differences
between estimated and actual outlays could be used as a trigger, resulting
in higher origination fees or interest rates for new FDLP loans. In
implementing such a trigger and response, Congress would need to consider
whether FFELP borrowers should similarly be affected. Under current law,
loans made to borrowers, unless otherwise specified, are to have the same
terms, conditions, and benefits and be made available in the same amounts
under both FDLP and FFELP.10

Account Name

Grants to States for Medicaid

Administering Organization

Centers for Medicare & Medicaid Services (CMS), U.S. Department of Health
and Human Services

Program Description

Medicaid is a health-financing program for eligible low-income individuals
and families. Federal statute defines over 50 population groups that are
potentially eligible for states' programs. In general, eligibility is
limited to low-income children, pregnant women, parents of dependent
children, people with disabilities, and the elderly. Although Medicaid is
one federal program, it consists of 56 distinct state-level programs-one
for each state, territory, Puerto Rico, and the District of Columbia.11
Each of the states has a designated Medicaid agency that administers the
program. In accordance with the Medicaid statute and within broad federal
guidelines, each state establishes its own eligibility standards;
determines the type, amount, duration, and scope of covered services; sets
payment rates; and develops its administrative structure.

Funding Source

The federal government matches state Medicaid spending for medical
assistance according to a formula that compares each state's average per
capita income-a proxy reflecting the health of the state's economy and its
response to economic changes-to the national per capita income. Therefore,
states with a high per capita income receive less federal funds than
states with a low per capita income. As economic conditions improve or
decline in a particular state, so does the amount of federal matching
funds granted to that state. The federal share, known as the Federal
Medical Assistance Percentage (FMAP), can range from 50 to 83 percent.
States are required to describe the nature and scope of their programs in
comprehensive written plans submitted to CMS-with federal funding for
state Medicaid services contingent upon CMS approval of the plans. This
approval hinges on whether CMS determines that state plans meet all
applicable federal laws and regulations.

Although the source of Medicaid funding is through an annual appropriation
act, Medicaid is not considered a discretionary spending program. Because
Medicaid is an entitlement created by the operation of law, if Congress
fails to appropriate money necessary to fund payments and benefits,
eligible recipients may seek legal recourse. In such case, necessary
payments may be made through the indefinite judgment fund pursuant to 31
U.S.C. S: 1304.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated Medicaid outlays differed from actual
outlays by about $4.2 billion per year, or 2.9 percent, in absolute value
terms. Actual annual differences ranged from an underestimate of $5.1
billion to an overestimate of $6.3 billion. Table 7 presents the estimated
and actual Medicaid outlays for fiscal years 2000 through 2004.

Table 7: Estimated and Actual Medicaid Outlays, by Fiscal Year

                                        

     Nominal dollars in millions    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                    $114,660       $117,921    $-3,261 
2001                                     124,838        129,374     -4,536 
2002                                     142,423        147,512     -5,089 
2003                                     158,790        160,693     -1,903 
2004                                     182,543        176,231      6,312 
5-year average dollar difference         $-1,695 
5-year average difference as a             -1.2% 
percent of average estimated                     
outlays                                          
5-year average dollar difference     $4,220 2.9% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Explanation of Key Differences

Both legislative and technical factors led to differences in estimated and
actual Medicaid outlays. For example, the Jobs and Growth Tax Relief
Reconciliation Act of 2003,12 which temporarily changed federal matching
rates for benefits and provided fiscal relief to states, affected
estimated Medicaid outlays in both fiscal years 2003 and 2004. Technical
factors included misestimates of medical assistance payments,
administrative costs, vaccines for children, and collections. Also, there
were a number of legislative proposals that were not adopted. It is not
clear if economic factors also contributed to the differences, although it
is likely so given the economic downturn that occurred during this time
period. Changing economic conditions could have led to differences in the
number of individuals eligible for and receiving benefits, and therefore
total program outlays.

According to CMS officials, Medicaid estimates are based primarily on
state estimates and may be adjusted by CMS' Office of the Actuary to
reflect recent trends in how state estimates have changed over time or how
they have compared with actual expenditures in recent years. Agency
officials were unable to accurately identify and quantify the effects of
any of these factors and explained that the difficulty lies with the
variability of program structure across states. Each state is allowed the
discretion to structure and modify its program, including the
establishment of eligibility criteria and payment rates. Similarly, state
legislative actions and economic conditions vary across the country and
could have varying effects on program outlays. Consequently, aggregating
state data into a single Medicaid figure would mask estimating
inaccuracies and challenges since the negative effect in one might be
offset by positive effect in another. In the event that the difference
between estimated and actual spending is very large, CMS said it would
then investigate and seek explanations from the states. Although CMS did
not consider the differences evident throughout the 5-year period we
reviewed to be large enough to prompt such an evaluation, they did provide
some explanation behind misestimates as shown in table 8 below.

Table 8: Explanation of Differences between Estimated and Actual Medicaid
Outlays

                                        

Nominal dollars                                 
     in billions                                   
                    CMS' explanation of   
                        differences       
Fiscal year and      Legislative       Economic         Technical          
       dollar                                      
     differencea                                   
2000                                            Underestimated medical     
                                                   assistance payments by     
-$3.3                                           over $3 billion,           
                                                   administrative costs by    
                                                   $71 million, and vaccines  
                                                   for children by $2         
                                                   million. The resulting     
                                                   outlay underestimate was   
                                                   further increased by a     
                                                   legislative proposal       
                                                   expected to save $161      
                                                   million that had been      
                                                   included in the original   
                                                   estimate but was not       
                                                   accepted.                  
2001                                            Underestimated medical     
                                                   assistance payments by     
-$4.6                                           $7.1 billion and vaccines  
                                                   for children by $357       
                                                   million. These             
                                                   underestimates were        
                                                   partially offset by a $977 
                                                   million overestimate of    
                                                   administrative costs, an   
                                                   underestimate of almost    
                                                   $1.3 billion in            
                                                   collections, and a         
                                                   legislative proposal       
                                                   expected to cost $663      
                                                   million that had been      
                                                   included in the original   
                                                   estimate but was not       
                                                   accepted.                  
2002                                            Underestimated medical     
                                                   assistance payments by     
-$5.1                                           $5.3 billion. This         
                                                   underestimate was          
                                                   partially offset by a $138 
                                                   million underestimate of   
                                                   collections and            
                                                   overestimates of           
                                                   administrative costs and   
                                                   vaccines for children by   
                                                   $722 million and $4        
                                                   million respectively. The  
                                                   resulting outlay           
                                                   underestimate was further  
                                                   increased by a legislative 
                                                   proposal expected to save  
                                                   $606 million that had been 
                                                   included in the original   
                                                   estimate but was not       
                                                   accepted.                  
2003            The Jobs and Growth             Underestimated medical     
                   Tax Relief                      assistance payments by     
-$1.9           Reconciliation Act of           nearly $3 billion and      
                   2003 was enacted in             vaccines for children by   
                   late May 2003, after            $241 million. These        
                   original FY 2003                underestimates were        
                   estimates were made.            partially offset by a $1.1 
                   CMS said this                   billion overestimate of    
                   legislation accounted           administrative costs, a    
                   for approximately $4            $112 million underestimate 
                   billion in                      of collections, and a      
                   unanticipated outlays.          legislative proposal       
                                                   expected to cost $98       
                                                   million that had been      
                                                   included in the original   
                                                   estimate but was not       
                                                   accepted.                  
2004            The Jobs and Growth             Outlays were overestimated 
                   Tax Relief                      as a result of a           
$6.3            Reconciliation Act of           legislative proposal       
                   2003 was enacted in             expected to cost $5.8      
                   late May 2003, after            billion, which had been    
                   original FY 2004                included in the original   
                   estimates were made.            estimate but was not       
                   CMS said this                   adopted, a $1 billion      
                   legislation accounted           overestimate of            
                   for approximately $6            administrative costs, and  
                   billion in                      a $168 million             
                   unanticipated outlays.          underestimate of           
                                                   collections. The resulting 
                                                   outlay overestimate was    
                                                   partially offset by        
                                                   underestimates of medical  
                                                   assistance payments and    
                                                   vaccines for children by   
                                                   $520 million and $133      
                                                   million respectively.      

Source: Centers for Medicare & Medicaid Services.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

Account Name

Federal Hospital Insurance (HI) Trust Fund (Medicare Part A)

Administering Organization

Centers for Medicare & Medicaid Services, U.S. Department of Health and
Human Services

Program Description

The account funds the Medicare Part A program which partially covers the
costs of, among other things, home health care, inpatient care in
hospitals and skilled nursing facilities, and hospice care. Based on their
work history, most U.S. citizens and permanent residents and their spouses
are eligible for Medicare Part A if they are 65 years of age or older.
Also, certain persons under 65 years old who are disabled or have
end-stage renal disease are eligible for coverage. Enrollees or their
spouses who have contributed to Medicare through payroll taxes for at
least 10 years of employment are automatically enrolled at age 65 and need
not pay premiums to receive coverage. Individuals who have not met this
eligibility requirement may pay a monthly premium to purchase Part A
coverage.13

Funding Source

The primary funding source for Medicare Part A comes from payroll taxes.
Other relevant revenue sources include interest on investments in
government securities held by the fund,14 income from taxation of Old Age,
Survivors, and Disability Insurance (Social Security) benefits, and
premiums collected from voluntary participants.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated Medicare Part A outlays differed from
actual outlays by about $5.6 billion per year, or 3.8 percent, in absolute
value terms. Actual annual differences ranged from an underestimate of
$4.3 billion to an overestimate of $15.9 billion. Table 9 presents the
estimated and actual HI outlays for fiscal years 2000 through 2004.

Table 9: Estimated and Actual HI Outlays, by Fiscal Year

                                        

     Nominal dollars in millions                    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                    $143,898       $127,973    $15,925 
2001                                     143,427        140,573      2,854 
2002                                     144,674        145,606       -932 
2003                                     147,295        151,308     -4,013 
2004                                     159,750        164,136     -4,386 
5-year average dollar difference          $1,890 
5-year average difference as a              1.3% 
percent of average estimated                     
outlays                                          
5-year average dollar difference     $5,622 3.8% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Explanation of Key Differences

Both legislative and technical factors led to differences between
estimated and actual HI outlays. For example, the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA)15 led to
greater-than-expected outlays in fiscal year 2004. Technical factors
included difficulty in predicting the behavior of providers under new
payment systems, misestimates of home health transfers to and from the
Supplementary Medical Insurance (SMI) Trust Fund, and misestimates of
service usage. Economic factors, specifically the hospital market basket,
also contributed to differences. The hospital market basket is an input
price index that represents the cost of the mix of goods and services that
comprise routine, ancillary, and special-care unit inpatient hospital
services. Detailed explanations of the differences are shown in table 10.

Table 10: Explanation of Differences between Estimated and Actual HI
Outlays

                                        

     Nominal                   
dollars in                  
    billions                   
                    CMS'       
               explanation of  
                 differences   
Fiscal year   Legislative         Economic               Technical         
and dollar                                       
differencea                                      
2000                                             Overestimated benefit     
                                                    payments by $10.1         
$15.9                                            billion, which CMS        
                                                    attributed to its         
                                                    difficulty in predicting  
                                                    the behavior of providers 
                                                    under new payment systems 
                                                    for skilled nursing       
                                                    facility (SNF) services   
                                                    and home health services. 
                                                    Also, a $6.6 billion      
                                                    overestimate of home      
                                                    health transfers to the   
                                                    SMI fundb further widened 
                                                    the gap between estimated 
                                                    and actual outlays. CMS   
                                                    attributed this to        
                                                    discrepancies in          
                                                    implementing the payment  
                                                    system, particularly by   
                                                    home health agencies.     
                                                    Specifically, the cap on  
                                                    average per-beneficiary   
                                                    home health expenditures  
                                                    was treated as an         
                                                    absolute cap, thereby     
                                                    cutting services to       
                                                    patients requiring        
                                                    numerous visits per       
                                                    episode of care. This     
                                                    resulted in unexpected    
                                                    additional savings. The   
                                                    resulting outlay          
                                                    overestimate was          
                                                    partially offset by a     
                                                    legislative proposal      
                                                    expected to save $808     
                                                    million that had been     
                                                    included in the original  
                                                    estimate but was not      
                                                    accepted.                 
2001                                             Overestimated benefit     
                                                    payments by almost $3.9   
$2.9                                             billion, which CMS        
                                                    attributed to the         
                                                    discrepancy between what  
                                                    they assumed service      
                                                    usage to be and actual    
                                                    usage. Overestimates of   
                                                    $242 million in home      
                                                    health transfers to the   
                                                    SMI fund and $84 million  
                                                    in quality improvement    
                                                    organizations (QIO)c      
                                                    further added to the      
                                                    difference. The resulting 
                                                    outlay overestimate was   
                                                    partially offset by a     
                                                    $1.2 billion quinquennial 
                                                    adjustment as required by 
                                                    lawd and a legislative    
                                                    proposal expected to save 
                                                    $185 million that had     
                                                    been included in the      
                                                    original estimate but was 
                                                    not adopted.              
2002                                             Underestimated benefit    
                                                    payments by $2.3 billion, 
-$0.9                                            which CMS attributed to   
                                                    the discrepancy between   
                                                    what they assumed service 
                                                    usage to be and actual    
                                                    usage. The resulting      
                                                    outlay underestimate was  
                                                    partially offset by       
                                                    overestimates of $1.3     
                                                    billion and $77 million   
                                                    in home health transfers  
                                                    to the SMI fund and QIOs  
                                                    respectively.             
2003                        Inpatient hospital   Inpatient hospital        
                               expenditures were    expenditures were higher  
-$4.0                       higher than expected than expected also        
                               due to a             because of a hospital     
                               higher-than-expected case mix increase. Case   
                               "market basket"      mix refers to the average 
                               payment update.      complexity of inpatient   
                               Market basket refers admissions for Medicare   
                               to the input price   beneficiaries. Payments   
                               index based on the   are based on the type of  
                               cost of a particular case, so if the mix of    
                               type of health       cases changes, payments   
                               provider (e.g.,      also change. Expenditures 
                               hospital, skilled    were also higher because  
                               nursing facility,    expected SNF resource     
                               home health agency)  utilization group (RUG)   
                               to provide services  refinements were not      
                               to patients. By law  made, which would have    
                               these indexes are    reduced payments. SNFs    
                               used to update       received higher payments  
                               Medicare payments.   due to the introduction   
                                                    of a new administrative   
                                                    policy to adjust payment  
                                                    updates for past          
                                                    differences between       
                                                    actual and estimated      
                                                    market basket increases.  
                                                    The $7.3 billion          
                                                    underestimate in benefit  
                                                    payments was further      
                                                    increased by an $18       
                                                    million underestimate of  
                                                    administrative costs, but 
                                                    was partially offset by   
                                                    overestimates of $2.8     
                                                    billion in home health    
                                                    transfers to the SMI      
                                                    fund, $43 million in      
                                                    QIOs, and a legislative   
                                                    proposal expected to cost 
                                                    $410 million that was     
                                                    included in the original  
                                                    estimate but was not      
                                                    adopted.                  
2004        Underestimated                       Once again, expected SNF  
               benefit                              RUG refinements were not  
-$4.4       payments by                          made, resulting in        
               $4.3 billion.                        higher-than-estimated     
               CMS attributed                       expenditures. Hospice     
               this to several                      expenditures were also    
               MMA provisions                       higher than estimated.    
               that were                            The $4.3 billion          
               enacted and                          underestimate in benefit  
               implemented                          payments was further      
               after original                       increased by              
               estimates were                       underestimates of $23     
               made, which led                      million in QIOs and $17   
               to higher                            million in administrative 
               actual                               costs.                    
               expenditures.                        
               In particular,                       
               payments to                          
               private health                       
               plans                                
               contracting                          
               with Medicare                        
               were increased                       
               substantially                        
               as were                              
               payments to                          
               rural health                         
               providers.                           

Source: Centers for Medicare & Medicaid Services.

Notes: Primary drivers of outlay differences are marked in bold. In 2003
it was unclear which factor most significantly affected the difference. In
that case, there is no primary driver marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

bHome health agency transfers occur between the HI and SMI trust funds and
total billions of dollars throughout the 5-year period. However, the
positive variance in one fund is equally offset by the negative variance
in the other. As a result, when the Medicare trust funds are taken
together, this intertrust fund activity has no cumulative impact on the
federal surplus/deficit.

cQuality improvement organizations are groups of practicing doctors and
other health care experts paid by the federal government to check and
improve the care given to Medicare patients.

dSection 217(g) of the Social Security Act provides for periodic transfers
between the general fund of the Treasury and the HI trust fund, if needed
to adjust prior payments for the costs arising from wage credits granted
for military service before 1957.

Currently Existing Program Trigger and Response

MMA established a trigger with a soft response to constrain growth in
Medicare; it requires the President to submit a proposal to Congress for
action if the Medicare Trustees determine in 2 consecutive years that the
general revenue share16 of Medicare is projected to exceed 45 percent
during a 7-year projection period. To date, this threshold has not been
breached and thus no response has been triggered. According to the 2005
Medicare Trustees' report, the trigger is expected to be breached in 2012,
which falls within the 7-year projection period that will be covered in
the 2006 Medicare Trustees' report. If the 45 percent threshold is
projected to be breached again in the next consecutive 7-year projection
period, the President will be required to propose legislation, within 15
days of submitting the fiscal year 2009 budget, to respond to the funding
warning.

Illustrative Trigger and Response

Using the trigger of general revenue exceeding 45 percent in 2 consecutive
years during a 7-year period, hard responses could also be developed.
Possible responses are to adjust taxes, benefit formulas, or eligibility
criteria. For example, Medicare payroll taxes could automatically be
increased unless Congress took action to prevent the increase.
Alternatively, reaching the trigger could cause automatic changes to
benefit formulas or eligibility criteria, or a combination of benefit
changes and tax increases. Of course congressional action could change the
automatic response if it was deemed inappropriate at that time.

Account Name

Federal Supplementary Medical Insurance (SMI) TrustFund (Medicare Part B)

Administering Organization

Centers for Medicare & Medicaid Services, U.S. Department of Health and
Human Services

Program Description

This account, also known as Medicare Part B, partially covers the cost of
doctors' services, clinical laboratory services, outpatient hospital
services, some physical and occupational therapy services, and some home
health care. Eligibility requirements for Medicare Part B are similar to
those for Part A. However, unlike for Medicare Part A, enrollment is
voluntary. Enrollees must pay a monthly premium to receive Part B
coverage. In 2005, premiums were $78.20 per month and the deductible was
$110. Premium and deductible rates may change every year.

Most Part B services are paid based on a fee schedule. Physicians, the
largest Part B service type, are paid under the sustainable growth rate
(SGR) system,17 which determines the increase in payments per service for
the physician fee schedule for each year based on a statutory formula.
Under the SGR system, actual physician-related spending is compared with
target physician-related spending levels. If actual spending exceeds
target spending, then future physician fee schedule updates are reduced.

Funding Source

SMI is financed from general revenues (approximately 75 percent) and
beneficiary premiums (approximately 25 percent).

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated Medicare Part B outlays differed from
actual outlays by about $6.4 billion per year, or 6.1 percent, in absolute
value terms. Actual annual differences ranged from an underestimate of
$13.4 billion to an overestimate of $4.6 billion. Table 11 presents the
estimated and actual SMI outlays by fiscal year.

Table 11: Estimated and Actual SMI Outlays, by Fiscal Year

                                        

     Nominal dollars in billions    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                     $91,795        $87,216     $4,579 
2001                                      96,372         97,531     -1,159 
2002                                     107,830        107,113        717 
2003                                     108,416        121,816    -13,400 
2004                                     119,353        131,632    -12,279 
5-year average dollar difference         $-4,308 
5-year average difference as a             -4.1% 
percent of average estimated                     
outlays                                          
5-year average dollar difference     $6,427 6.1% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Congress has overridden the statutory updates for the 2003, 2004, and 2005
physician fee schedules. Although the SGR system called for negative
updates in these years, Congress instead granted increases in physician
payments per service. For several years the law was changed to specify
higher spending for physicians after the budget estimates were already
done. Consequently, this contributed to actual outlays that were higher
than estimated.

Explanation of Key Differences

Both legislative and technical factors led to differences between
estimated and actual SMI outlays. For example, the Consolidated
Appropriations Resolution of 2003 and MMA led to greater-than-expected
outlays for spending for physicians' services. Technical factors included
delayed implementation and difficulty in predicting the behavior of
providers under a new outpatient hospital prospective payment system,
misestimates of home health transfers to and from the HI fund, and
misestimates of service usage. Similar to the HI fund, changes in the
hospital market basket also contributed to differences. Detailed
explanations of the differences are shown in table 12.

Table 12: Explanation of Differences between Estimated and Actual SMI
Outlays

                                        

     Nominal                     
dollars in                    
    billions                     
               CMS' explanation  
                of differences   
Fiscal year    Legislative          Economic              Technical        
and dollar                                         
differencea                                        
2000                                               Benefit payments were   
                                                      $11.6 billion lower     
$4.6                                               than expected, which    
                                                      CMS attributed to the   
                                                      delayed implementation  
                                                      and difficulty in       
                                                      predicting the behavior 
                                                      of providers under a    
                                                      new outpatient hospital 
                                                      prospective payment     
                                                      system. The system was  
                                                      being created from      
                                                      scratch and little      
                                                      research had been done  
                                                      on what type of system  
                                                      would work best.        
                                                      Original projections    
                                                      had an earlier start    
                                                      date, which caused      
                                                      higher expenditures to  
                                                      be estimated. This      
                                                      overestimate was        
                                                      further increased by    
                                                      overestimates of $90    
                                                      million and $17 million 
                                                      in transfers to         
                                                      Medicaid and QIOs       
                                                      respectively. The       
                                                      resulting overestimate  
                                                      was partially offset by 
                                                      a $6.6 billion          
                                                      overestimate of home    
                                                      health transfers        
                                                      received from the HI    
                                                      fund and a legislative  
                                                      proposal expected to    
                                                      save $570 million that  
                                                      had been included in    
                                                      the original estimate   
                                                      but was not adopted.    
2001                                               Most of the difference  
                                                      is attributed to a      
-$1.2                                              legislative proposal    
                                                      expected to save $685   
                                                      million that was not    
                                                      adopted. Benefit        
                                                      payments were $241      
                                                      million greater than    
                                                      expected, which CMS     
                                                      attributed to the       
                                                      discrepancy between     
                                                      what they assumed       
                                                      service usage to be and 
                                                      actual usage. In        
                                                      addition, home health   
                                                      transfers received from 
                                                      the HI fund were $242   
                                                      million less than       
                                                      expected.               
2002                                               Most of the difference  
                                                      resulted from a $2.1    
$0.7                                               billion overestimate of 
                                                      benefit payments, which 
                                                      CMS attributed to the   
                                                      discrepancy between     
                                                      what they assumed       
                                                      service usage to be and 
                                                      actual usage. This      
                                                      overestimate was        
                                                      partially offset by a   
                                                      $1.3 billion            
                                                      overestimate of home    
                                                      health transfers        
                                                      received from the HI    
                                                      fund and a $42 million  
                                                      underestimate of        
                                                      transfers to Medicaid.  
2003        Consolidated      A higher hospital    The underestimate of    
               Appropriations    market basket (as    benefit payments was    
-$13.4      Resolution 2003   mentioned in the     further increased by a  
               was passed after  Medicare Part A      $112 million            
               the original      section) also caused underestimate of        
               budget estimates, higher-than-expected transfers to Medicaid,  
               which caused a    outpatient hospital  but was partially       
               substantially     expenditures.        offset by a legislative 
               higher physician                       proposal expected to    
               fee update than                        cost $70 million that   
               estimated in the                       was not adopted and a   
               projections.                           $16 million             
                                                      overestimate in QIOs.   
2004        As noted in the                        The underestimate of    
               Medicare Part A                        benefit payments was    
-$12.3      section, MMA was                       further increased by a  
               passed in 2003                         $168 million            
               and some of its                        underestimate of        
               provisions were                        transfers to Medicaid,  
               implemented in                         but was partially       
               2004, causing                          offset by a legislative 
               higher private                         proposal expected to    
               plan and rural                         cost $55 million that   
               provider                               was included in the     
               expenditures.                          original estimate but   
               Also, the                              not adopted.            
               physician fee                          
               update was much                        
               higher than had                        
               been originally                        
               estimated due to                       
               the MMA                                
               legislation that                       
               was enacted after                      
               the 2004 budget                        
               estimates were                         
               made.                                  
               Consequently,                          
               benefit payments                       
               were $12.2                             
               billion greater                        
               than expected.                         

Source: Centers for Medicare & Medicaid Services.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

Currently Existing Program Triggers and Responses

Congress has established two triggers with soft and hard responses to
constrain growth in SMI. First, under the SGR system, if actual
physician-related spending exceeds target physician-related spending then
future physician fee schedule updates are reduced. Because the actual
versus target spending comparison is cumulative, future fee updates are
reduced to lower future actual spending below future target spending until
total cumulative actual spending is the same as total cumulative target
spending. Although the SGR system was designed to encourage fiscal
discipline, Congress has chosen to modify or override this constraint a
number of times. We have previously reported on concerns about the SGR
system and

considerations for reform.18 Second, MMA established a trigger with a soft
response; it requires the President to submit a proposal to Congress for
action if the Medicare Trustees determine in 2 consecutive years that the
general revenue share of Medicare is projected to exceed 45 percent during
a 7-year projection period. To date, this threshold has not been breached
and thus no response has been triggered. As mentioned in the Medicare Part
A section of this appendix, the trigger is expected to be breached in
2012, which falls within the specified 7-year projection period that will
be covered in the 2006 Medicare Trustees' report. If the 45 percent
threshold is projected to be breached again in the next consecutive 7-year
projection period, the President will be required to propose legislation,
within 15 days of submitting the fiscal year 2009 budget, to respond to
the funding warning.

Illustrative Trigger and Response

Using the trigger of general revenue exceeding 45 percent in 2 consecutive
years during a 7-year period, hard responses could also be developed.
Possible responses are to adjust premiums,19 benefit formulas, or
eligibility criteria. For example, Part B premiums could automatically be
increased unless Congress took action to prevent the increase.
Alternatively, reaching the trigger could cause automatic changes to
benefit formulas or eligibility criteria, or a combination of benefit
changes and premium increases. Of course congressional action could change
the automatic response if it was deemed inappropriate at that time.

Account Name

Rail Industry Pension Fund

Administering Organization

Railroad Retirement Board (RRB)

Program Description

The RRB administers a Federal retirement-survivor benefit program for the
nation's railroad workers and their families, under the Railroad
Retirement Act. In connection with this retirement program, the RRB has
administrative responsibilities under the Social Security Act for certain
benefit payments and railroad workers' Medicare coverage.

Under the Railroad Retirement Act, retirement and disability annuities are
paid to railroad workers with at least 10 years of service, or 5 years if
performed after 1995. Annuities are also payable to spouses and divorced
spouses of retired workers and to widow(er)s, surviving divorced spouses,
remarried widow(er)s, children, and parents of deceased railroad workers.
Qualified railroad retirement beneficiaries are covered by Medicare in the
same way as Social Security beneficiaries.

Railroad retirement benefits are calculated under a two-tier formula. Tier
I is based on combined railroad retirement and Social Security credits,
using Social Security benefit formulas. Tier II is based on railroad
service only and is similar to the defined benefit pensions paid
over-and-above Social Security benefits in other industries. In addition,
some annuitants may also be qualified for supplemental benefits and vested
dual benefits. Cost-of-living adjustments on the Tier I portion of
annuities are paid similarly to those for Social Security. However, the
adjustment for the Tier II portion is limited to 32.5 percent of the
previous year's increase in the Consumer Price Index. Supplemental
annuities and vested dual benefits are not subject to cost-of-living
adjustments.

Funding Source

Payroll taxes paid by railroad employers and their employees are the
primary source of funding for the railroad retirement benefit program.
Corresponding to the two-tier benefit structure, railroad retirement taxes
are levied on a two-tier basis. Railroad retirement Tier I payroll taxes
are coordinated with Social Security taxes so that employees and employers
pay Tier I taxes at the same rate as Social Security taxes. In addition,
both employees and employers pay Tier II taxes, which are used to finance
railroad retirement benefit payments over-and-above Social Security
equivalent levels. These Tier II taxes are based on the ratio of certain
asset balances to the sum of benefit payments and administrative expenses.

While the railroad retirement system has remained separate from the Social
Security system, the two systems are closely coordinated with regard to
earnings credits, benefit payments, and taxes. The financing of the two
systems is linked through a financial interchange under which, in effect,
the portion of railroad retirement annuities that is equivalent to Social
Security benefits is coordinated with the Social Security system. The
purpose of this financial coordination is to place the Social Security
trust funds in the same position they would be in if railroad service were
covered by the Social Security program instead of the railroad retirement
program.

Starting in fiscal year 2002, revenues in excess of benefit payments are
invested to provide additional trust fund income. The National Railroad
Retirement Investment Trust (NRRIT), established by the Railroad
Retirement and Survivors' Improvement Act of 2001, manages and invests
railroad retirement assets. The trust is a tax-exempt entity independent
from the federal government. Railroad retirement funds are invested in
nongovernmental assets, as well as in governmental securities. Prior to
the Act, investment of Railroad Retirement Account assets was limited to
U.S. government securities.

Additional trust fund income is derived from revenues from federal income
taxes on railroad retirement benefits, and appropriations from general
Treasury revenues provided after 1974 as part of a phase-out of certain
vested dual benefits.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated outlays from the Rail Industry
Pension Fund differed from actual outlays by about $4.1 billion per year,
or 125.7 percent, in absolute value terms. The actual annual differences
between estimated and actual outlays varied between an overestimate of $77
million and an underestimate of about $17.9 billion. The majority of the
underestimate was a result of legislation that resulted in funds being
transferred out of the account and into a nongovernmental investment trust
fund. Table 13 presents the estimated and actual outlays associated with
the Rail Industry Pension Fund, by fiscal year.

Table 13: Estimated and Actual Rail Industry Pension Fund Outlays, by
Fiscal Year

                                        

     Nominal dollars in millions                    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                      $3,038         $2,961        $77 
2001                                       3,044          2,967         77 
2002                                       3,078          4,814     -1,736 
2003                                       3,416         21,326    -17,910 
2004                                       3,639          4,225       -586 
5-year average dollar difference         $-4,016 
5-year average difference as a           -123.8% 
percent of average estimated                     
outlays                                          
5-year average dollar difference   $4,077 125.7% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Explanation of Key Differences

The discrepancies between estimated and actual outlays in fiscal years
2002 through 2004 can be attributed to the enactment of the Railroad
Retirement and Survivors' Improvement Act of 2001, which was signed into
law on December 21, 2001. This legislation lowered eligibility
requirements for annuitants and eliminated reductions that previously
applied to annuities of 30-year employees retiring between ages 60 and 62.
The law also lowered the minimum eligibility requirement to receive
regular annuities from 10 to 5 years of service after 1995 and increased
the Tier II amount paid to a widow(er) from 50 percent to 100 percent.
Additionally, the maximum limit on monthly railroad retirement benefits
was eliminated. The law reduced the Tier II tax rate on rail employers in
2002 and 2003, and in 2004 provided automatic Tier II tax rate adjustments
for both employers and employees. Lastly, funds in excess of those needed
for current payment of benefits and administrative expenses were
transferred to the National Railroad Retirement Investment Trust.

Agency officials indicated that the level of employment in the rail
industry is the most difficult factor to predict when estimating revenue
because it directly affects payroll tax income. Employment only affects
estimates in the long term, not short term. When reporting budget
estimates to OMB, the agency uses middle-range estimates that assume
employment will decrease gradually over time. Additionally, financial
interchanges of the estimated allocation of benefits between the Railroad
Retirement Account and Social Security Equivalent Benefit Account make it
difficult to estimate exact outlays as they are continually changing. A
detailed explanation of the differences is shown in table 14.

Table 14: Explanation of Differences between Estimated and Actual Rail
Industry Pension Fund Outlays

                                        

Nominal dollars                                      
     in billions                                        
                      RRB's explanation of     
                           differences         
Fiscal year and         Legislative         Economic       Technical       
       dollar                                           
     differencea                                        
2000                                                 Difference results    
                                                        from changes in the   
$0.08                                                estimated allocation  
                                                        of benefits between   
                                                        the Railroad          
                                                        Retirement Account    
                                                        and Social Security   
                                                        Equivalent Benefit    
                                                        Account. The actual   
                                                        allocation of         
                                                        benefits between      
                                                        these accounts for a  
                                                        given calendar year   
                                                        is not known until    
                                                        the financial         
                                                        interchange           
                                                        determination is      
                                                        completed some 16     
                                                        months after the end  
                                                        of a calendar year    
                                                        (which implies about  
                                                        19 months after the   
                                                        end of the fiscal     
                                                        year ending in the    
                                                        given calendar year). 
2001                                                 Difference results    
                                                        from changes in the   
$0.08                                                estimated allocation  
                                                        of benefits between   
                                                        the Railroad          
                                                        Retirement Account    
                                                        and Social Security   
                                                        Equivalent Benefit    
                                                        Account.              
2002            The number of retirements            The original outlay   
                   increased due to the                 estimates are for     
$-1.7           enactment of the Railroad            benefit payments      
                   Retirement and Survivors'            only.                 
                   Improvement Act of 2001,             
                   which lowered eligibility            
                   requirements for annuitants          
                   and eliminated reductions            
                   that previously applied to           
                   annuities of 30-year                 
                   employees retiring at age            
                   60. The Act also lowered             
                   the minimum eligibility              
                   requirement to receive               
                   regular annuities from 10            
                   to 5 years of service after          
                   1995 and increased the Tier          
                   II amount paid to a                  
                   widow(er) from 50 percent            
                   to 100 percent.                      
                   Additionally, the maximum            
                   limit on monthly railroad            
                   retirement benefits was              
                   eliminated. The Act reduced          
                   the Tier II tax rate on              
                   rail employers in 2002 and           
                   2003, and in 2004 provided           
                   automatic Tier II tax rate           
                   adjustments for both                 
                   employers and employees.             
                   Funds in excess of those             
                   required for current                 
                   payment of benefits and              
                   administrative expenses,             
                   $1.432 billion, were                 
                   transferred to the NRRIT.            
2003            The number of retirements            The original outlay   
                   increased due to the                 estimates are for     
$-17.9          enactment of the Railroad            benefit payments      
                   Retirement and Survivors'            only.                 
                   Improvement Act of 2001.             
                   Funds in excess of those             
                   required for current                 
                   payment of benefits and              
                   administrative expenses,             
                   $17.75 billion, were                 
                   transferred to the NRRIT.            
2004            Funds in excess of those             The original outlay   
                   required for current                 estimates are for     
$-0.59          payment of benefits and              benefit payments      
                   administrative expenses,             only.                 
                   $586 million, were                   
                   transferred to the NRRIT.            

Source: Railroad Retirement Board.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

Illustrative Trigger and Response

If actual outlays exceeded estimates by more than the historical average,
Congress could reduce retirement benefits across the board. For example,
if estimated outlays historically differed from actual outlays by a
specified percent, increases in outlays above that specified percent could
automatically result in an across-the-board increase in retirement
contributions or a cut in retirement benefits. To determine an appropriate
threshold, rail officials would need to look at long-term historical
differences to minimize the effects of events such as the legislative
change in fiscal years 2002 and 2003.

Account Name

Unemployment Trust Fund

Administering Organization

Employment and Training Administration, U.S. Department of Labor

50 states, District of Columbia, Puerto Rico, and the Virgin Islands

Program Description

Unemployment insurance is designed to serve as a "counter-cyclical" remedy
to the effects of recessions by putting more dollars in the pockets of the
labor force, thereby increasing the demand for goods and services and
stabilizing the U.S. economy.

The Unemployment Trust Fund (UTF) finances unemployment insurance-a joint
federal-state program that provides temporary cash benefits to eligible
workers who become unemployed through no fault of their own and helps to
stabilize the economy in times of economic recession. Guided by federal
law, unemployed workers must meet certain criteria set by their state in
order to receive these benefits. Unemployment insurance is administered by
state employees under state law.

Extended benefits are paid during periods of high state unemployment.
Extended benefits are financed one-half by state payroll taxes and
one-half by the federal unemployment payroll tax. The federal tax also
pays for the cost of federal and state administration of unemployment
insurance, labor-market information programs, veterans' employment
services, and 97 percent of the costs of the employment service. States
may receive repayable advances from the UTF when their balances in the
fund are insufficient to pay benefits.

Federal unemployment payroll taxes accumulate in three accounts: (1) the
Employment Security Administration Account (ESAA), which covers both
federal and state administrative costs; (2) the Extended Unemployment
Compensation Account (EUCA), which covers the federal share of extended
unemployment benefits and has been used to fund temporary extended
unemployment compensation benefits; and (3) the Federal Unemployment
Account (FUA), which funds loans to insolvent state accounts. There is a
statutory ceiling on the size of each of these accounts, the amounts of
which are calculated each September. The ceiling for the ESAA account is
40 percent of the appropriated amounts during the fiscal year for which
the ceiling is being calculated. For the EUCA and FUA accounts, this
ceiling is 0.5 percent of the total covered wages in the prior calendar
year.

Funding Source

The UTF is funded by employer contributions (payroll taxes) and benefit
reimbursements from nonprofit entities and governmental units that are
paid in lieu of payroll taxes. The UTF may receive repayable advances from
the general fund of the Treasury when it has insufficient balances to make
advances to states or to pay the federal share of extended benefits.

The UTF invests its receipts in U.S. government securities and then draws
on them when the government needs to pay unemployment benefits and/or
cover administrative costs. In addition, the Treasury maintains a trust
fund account for each state that it can use to build up reserves in times
of economic stability. Forty-nine states have triggers that automatically
raise state employer taxes when UTF balances fall below a specific level.

States finance the costs of regular unemployment insurance benefits and
their half of the permanent Extended Benefits Program with employer
payroll taxes imposed on at least the first $7,000 paid annually to each
employee.

Differences between Estimated and Actual Outlays

Based on a 5-year average, estimated outlays from the UTF differed from
actual outlays by about $9.4 billion per year, or 29.6 percent, in
absolute value terms. However, the actual annual differences varied
between an overestimate of about $5 billion and an underestimate of about
$22 billion. Table 15 presents the estimated and actual outlays associated
with the unemployment program by fiscal year.

Table 15: Estimated and Actual Unemployment Trust Fund Outlays, by Fiscal
Year

                                        

     Nominal dollars in millions                    
             Fiscal year            Original outlay Actual outlays Difference 
                                           estimate                
2000                                     $25,773        $20,790     $4,983 
2001                                      24,708         27,989     -3,281 
2002                                      28,443         50,841    -22,398 
2003                                      40,795         54,617    -13,822 
2004                                      39,830         42,525     -2,695 
5-year average dollar difference         $-7,443 
5-year average difference as a            -23.3% 
percent of average estimated                     
outlays                                          
5-year average dollar difference    $9,436 29.6% 
(absolute value) 5-year                          
percentage difference (absolute                  
value)                                           

Source: GAO analysis of President's budget data.

Explanation of Key Differences

Because the overall unemployment rate increased over the 5 fiscal years,
actual UTF outlays also increased as would be expected. UTF outlays are
highly sensitive to changes in the unemployment rate. For example, between
2000 and 2001 the 17.5 percent increase in the unemployment rate was
associated with a 34.6 percent increase in actual UTF outlays. This
relationship is best illustrated by referring to figure 8.

Figure 8: Percent Change in Unemployment Rate versus Percent Change in
Actual UTF Outlays

Between 2001 and 2002, UTF outlays increased 81.6 percent in response to a
23.4 percent increase in the unemployment rate. In 2002, part of the
outlay increase was due to legislation extending federally-funded
unemployment insurance benefits through the Temporary Employment
Compensation Act of 2002 (TEUC) which resulted in unanticipated UTF
outlays. The unemployment rate continued to rise during this time as
130,000 workers were displaced after the events on September 11, 2001, and
the economic recession persisted. Between 2002 and 2003, TEUC benefits
were extended and the unemployment rate continued to increase but did so
at a decreasing rate. The 3.4 percent increase in the unemployment rate
and the subsequent extension of TEUC led to the 7.4 percent increase in
UTF outlays. Between 2003 and 2004, the unemployment rate decreased by 8.3
percent and outlays decreased by about 22 percent. Table 16 presents the
Department of Labor's (Labor) explanation for differences between
estimated and actual outlays.

Table 16: Explanation of Differences between Estimated and Actual
Unemployment Trust Fund Outlays

                                        

Nominal dollars                     
     in billions                       
                   Labor's explanation 
                     of differences    
Fiscal year and     Legislative               Economic           Technical 
       dollar                                                       
    differencesa                                                    
2000                                An overestimate of the                 
                                       unemployment rate (5 percent 
$5.0                                estimated versus 4 percent   
                                       actual) explained $4.7       
                                       billion of the difference.   
2001                                An underestimate of the                
                                       recipiency rateb (38 percent 
$-3.3                               estimated versus 42 percent  
                                       actual) explained $2.9       
                                       billion of the difference.   
                                       The recipiency rate          
                                       increased from 37 percent    
                                       the prior year, which is     
                                       typical for a recession, but 
                                       was unanticipated.c          
2002            TEUCd enactment     A 1.1 percent underestimate            
                   resulted in $7.9    of the unemployment rate due 
$-22.4          billion of          to recession resulted in a   
                   unanticipated       $6.6 billion difference.     
                   outlays.            Underestimates of the        
                                       recipiency rate and the      
                                       average weekly benefit       
                                       accounted for about $4.8     
                                       billion and $2.4 billion in  
                                       outlays, respectively.e      
2003            TEUC extension      An underestimate of the                
                   resulted in $11     unemployment rate accounted  
$-13.9          billion of          for an additional $2.9       
                   unanticipated       billion.                     
                   outlays.                                         
2004            TEUC extension      Overestimates of the         
                   resulted in $4.3    recipiency rate and average  
$-2.7           billion of          weekly benefit partly offset 
                   unanticipated       the TEUC extension.          
                   outlays.                                         

Source: Department of Labor.

Notes: Primary drivers of outlay differences are marked in bold.

aA negative difference means that actual outlays were higher than
originally estimated. A positive difference means that actual outlays were
less than originally estimated.

bThe recipiency rate refers to the number of benefit claims and, more
specifically, is the ratio of the insured unemployed (claimants) to the
total number of unemployed. The rate tends to vary between 35 and 45
percent.

cAccording to the CRS, the terrorist attacks of September 11, 2001 are
directly attributed to displacing 130,000 employees.

dThe Temporary Extended Unemployment Compensation Act (TEUC), as amended,
temporarily extended unemployment benefits from March 2002 through
December 2004.

eDepartment of Labor officials did not include the $8 billion Reed
Distribution in 2002 as part of the explanation of the difference between
estimated and actual outlays in fiscal year 2002 because it was considered
an intragovernmental transfer and was not recorded until the states used
the money held in the U.S. Treasury. Reed Distributions to states'
accounts occur when funds accumulating in federal unemployment accounts
reach statutorily set limits.

Illustrative Triggers and Responses

Currently, when funds accumulating in federal unemployment accounts reach
statutorily set limits, a distribution of the "excess" funds from the UTF
to individual states' accounts in the U.S. Treasury is automatically
triggered based on each state's share of covered wages. These
distributions are known as "Reed Distributions."20 Congress can also
legislatively trigger a special distribution21 as it did in March 2002,
which provided $8 billion in distributions to all 50 states, the District
of Columbia, Puerto Rico, and the Virgin Islands and extended UTF benefits
up to an additional 13 weeks longer than the maximum 26 weeks previously
allowed by most states.

One potential option to constrain federal spending would be to increase
the statutory cap on federal unemployment accounts, thus making it more
difficult to trigger Reed Distributions to states. By making it more
difficult to trip the trigger, funds could continue to build during
economic prosperity and be available to states when truly needed to
counter rising unemployment.

A different alternative for constraining growth would be to establish a
trigger using a measure of economic prosperity-such as GDP growth in a
specified number of consecutive quarters. If this trigger was reached,
federal unemployment taxes would automatically increase, allowing trust
fund balances to rise. To avoid procyclical effects, these taxes could be
automatically reduced again using periods of rising unemployment or
recession as the trigger for that action.

Analysis of Total Outlays, Receipts, and Fiscal Position Appendix II

While the focus of this report is on budget triggers as they relate to
selected case study accounts, we have included our analysis of aggregate
receipts, outlays, and surplus/deficit measures to provide broader
context. Findings related to our seven case study accounts and the reasons
for differences between estimated and actual outlays are discussed in the
body of this report. More detailed summaries of each account are included
in appendix I.

Aggregate Mandatory Spending Estimates Were Close to Actual Outlays but
Large Differences Appear at the Account Level

In the aggregate, original estimates of total mandatory spending were
fairly close to actual results, however large discrepancies were evident
at the account level. During fiscal years 2000 through 2004, estimated
total mandatory outlays differed from actuals by no more than about 2
percent, or $24 billion. However at the account level, average estimated
and actual outlays varied greatly. While the largest difference was in the
Interest on the Public Debt account-a result of other changes-other
accounts also showed significant changes between estimated and actual
outlays. Alternatively, there are many mandatory accounts with virtually
no differences between estimated and actual outlays. The variation among
individual accounts was not apparent at the aggregate level because the
combination of positive and negative differences offset each other.

Figure 9 shows that total spending on mandatory programs was expected to
rise throughout the 5-year period and that resulting outlays were just
slightly higher than expected.

Figure 9: Estimated and Actual Total Mandatory Outlays for FYs 2000-2004,
constant 2004 dollars

Although aggregate estimates were close to actual estimates, the continued
actual and forecasted growth in mandatory programs has raised concerns
about the government's long-term fiscal outlook. Addressing growth in
mandatory spending is an important but complicated matter that requires
looking below the aggregate and into specific programs.

Differences between Estimated and Actual Mandatory Outlays Had Limited
Effect on the Unified Deficit/Surplus

The unified budget deficit/surplus measures federal fiscal position, that
is, the difference between total annual receipts and outlays. Not
surprisingly, the relatively small differences between total estimated and
actual mandatory outlays had a limited effect on the unified budget
surplus/deficit. In most cases throughout fiscal years 2000 through 2004,
the difference between estimated and actual mandatory outlays accounted
for approximately 7 percent or less of the difference between the
estimated and actual fiscal position. Despite the fact that mandatory
outlays were close to expectations, surplus/deficit measures proved
difficult to estimate throughout the 5-year period, primarily because of
misestimates of federal receipts.1

During fiscal years 2000 through 2004, deficit/surplus projections were
generally more optimistic than reality. Figure 10 illustrates the
estimated and actual fiscal position (surplus/deficit) throughout the
5-year period. Although increasing surpluses were projected for the first
three years followed by growing deficits, actual results show that the
nation's fiscal position in fact declined throughout the 5-year timeframe.
In addition, projections for fiscal years 2003 and 2004 show that the
deficit was expected to grow but not to the magnitude that ultimately
resulted.

Figure 10: Estimated and Actual Surplus/Deficit, Fiscal Years 2000-2004,
constant 2004 dollars

The fiscal position represents the difference between total federal
revenues and outlays in a given year. Although mandatory spending
constitutes more than half of total federal spending, misestimates of the
amount of mandatory spending did not contribute significantly to the
differences between the predicted and actual fiscal position. According to
the detailed receipt and outlay data shown in table 17, the mandatory
outlay difference in most cases accounted for less than 7 percent of the
difference between the estimated and actual fiscal position with one
exception. In fiscal year 2001, the mandatory outlay estimating error had
a larger than usual effect-approximately 29 percent-on the fiscal position
estimating error. While this particular year stands out in the analysis,
it is a reasonable result given that the total amount of error in
surplus/deficit projections was much smaller-approximately 30 percent or
$60 billion-compared with any other year during the 5-year period. For
example, a $242 billion surplus was projected for 2002 when in fact the
nation's fiscal position changed from surplus to deficit, resulting in a
$165 billion deficit for that year.2 This discrepancy represented a
misestimate of approximately 168 percent. In both fiscal years 2001 and
2002, mandatory outlay estimates differed from actual outlays by
approximately 2 percent. This relatively small difference accounted for
over one quarter of the resulting error in the surplus projection for 2001
because the difference between estimated and actual receipts also was
relatively small. It accounted for less than one-tenth of the total error
in the fiscal position projection for 2002 because the difference between
estimated and actual receipts was much larger. Effects similar to the
latter occurred more frequently throughout the 5-year period, indicating
that estimation errors in mandatory outlays had a limited effect on fiscal
position.

Table 17: Aggregate Estimated and Actual Outlays and Receipts for Fiscal
Years 2000-2004

                                        

    Constant 2004 dollars                               
         in billions                                    
                           Original   Actual Difference Percent of Percent of 
                           estimate                       original difference 
                                                          estimate 
Fiscal Year 2000        
Receipts                $2,055.7 $2,210.9    -$155.3      -7.6%     119.7% 
Outlays                  1,927.6  1,953.1      -25.5       -1.3       19.7 
Discretionary spending     645.7    671.2      -25.4       -3.9       19.6 
Mandatory spending       1,093.7  1,085.0        8.6        0.8       -6.6 
Offsetting receipts        -46.8    -46.5       -0.3        0.7        0.3 
Net interest               234.9    243.3       -8.4       -3.6        6.5 
Surplus/Deficit           $128.1   $257.8    -$129.7    -101.3%     100.0% 
Fiscal Year 2001        
Receipts                $2,154.1 $2,124.4      $29.7       1.4%      49.9% 
Outlays                  1,957.8  1,987.7      -29.9       -1.5      -50.1 
Discretionary spending     676.3    692.7      -16.4       -2.4      -27.6 
Mandatory spending       1,107.6  1,125.1      -17.5       -1.6      -29.4 
Offsetting receipts        -48.4    -50.1        1.7       -3.5        2.9 
Net interest               222.2    220.0        2.2        1.0        3.8 
Surplus/Deficit           $196.3   $136.7      $59.6      30.3%     100.0% 
Fiscal Year 2002        
Receipts                $2,296.5 $1,941.7     $354.7      15.4%      87.0% 
Outlays                  2,054.2  2,107.1      -52.8       -2.6      -13.0 
Discretionary spending     724.7    769.4      -44.6       -6.2      -11.0 
Mandatory spending       1,184.1  1,208.2      -24.1       -2.0       -5.9 
Offsetting receipts        -51.8    -49.7       -2.1        4.0       -0.5 
Net interest               197.1    179.1       18.0        9.1        4.4 
Surplus/Deficit           $242.2  -$165.3     $407.6     168.3%     100.0% 
Fiscal Year 2003        
Receipts                $2,093.5 $1,821.9     $271.6      13.0%      89.3% 
Outlays                  2,175.4  2,207.8      -32.4       -1.5      -10.7 
Discretionary spending     806.5    843.7      -37.2       -4.6      -12.2 
Mandatory spending       1,260.0  1,263.2       -3.2       -0.3       -1.0 
Offsetting receipts        -75.7    -55.6      -20.1       26.6       -6.6 
Net interest               184.7    156.5       28.2       15.3        9.3 
Surplus/Deficit           -$81.9  -$386.0     $304.0    -371.0%     100.0% 
Fiscal Year 2004        
Receipts                $1,922.0 $1,880.1      $42.0       2.2%      40.1% 
Outlays                  2,229.4  2,292.2      -62.8       -2.8      -59.9 
Discretionary spending     818.8    895.4      -76.6       -9.4      -73.1 
Mandatory spending       1,287.9  1,295.1       -7.2       -0.6       -6.9 
Offsetting receipts        -53.7    -58.5        4.8       -8.9        4.6 
Net interest               176.4    160.2       16.2        9.2       15.5 
Surplus/Deficit          -$307.4  -$412.1     $104.7     -34.1%     100.0% 

Source: GAO analysis of President's budget data.

In contrast, revenue estimate inaccuracies proved to have a greater effect
on projections of the nation's fiscal position. Throughout the 5-year
period, total estimated outlays differed from actual outlays by no more
than 3 percent while total estimated receipts differed from actual
receipts by up to 15 percent in absolute value terms. This suggests that
revenue, rather than outlay estimates, led most significantly to the
discrepancies in surplus/deficit projections. Figure 11 shows the total
estimated and actual federal receipts in dollar terms for each year we
reviewed.3

Figure 11: Total Estimated and Actual Receipts, Fiscal Years 2000-2004,
constant 2004 dollars

As mentioned earlier in this report, the greatest revenue estimating
errors occurred in 2000, 2002, and 2003, which correlate with the years in
which the fiscal position projections were the most inaccurate. For
example, in fiscal year 2002, an approximate 2.6 percent underestimate in
total outlays coupled with an approximate 15.4 percent overestimate of
receipts translated into a large shift in fiscal position from surplus to
deficit. Similar effects occurred in 2000 and 2003. As shown in table 18,
the driving source of revenue misestimates in any given year varied, but
individual and corporate income taxes often proved difficult to estimate.

Table 18: Revenue Estimates and Actual Results by Source and Fiscal Year

                                        

     Constant 2004 dollars in                                      
             millions                                              
       Component of revenue       Original     Actual Actual minus Percent of 
                                  estimate                original   original 
Fiscal Year 2000             
Individual income taxes        $982,250 $1,096,574    -$114,324     -11.6% 
Corporate income taxes          206,721    226,298      -19,578       -9.5 
Social insurance taxes and      694,901    712,721      -17,820       -2.6 
contributions                                                   
Excise taxes                     76,312     75,180        1,132        1.5 
Estate and gift taxes            29,445     31,670       -2,225       -7.6 
Customs duties                   20,048     21,740       -1,692       -8.4 
Miscellaneous receipts           45,991     46,753         -762       -1.7 
Total                        $2,055,668 $2,210,937    -$155,269      -7.6% 
Fiscal Year 2001             
Individual income taxes      $1,037,459 $1,060,855     -$23,396      -2.3% 
Corporate income taxes          207,799    161,181       46,618       22.4 
Social insurance taxes and      727,707    740,389      -12,682       -1.7 
contributions                                                   
Excise taxes                     81,805     70,663       11,143       13.6 
Estate and gift taxes            34,465     30,300        4,165       12.1 
Customs duties                   22,267     20,665        1,602        7.2 
Miscellaneous receipts           42,590     40,341        2,249        5.3 
Total                        $2,154,093 $2,124,393      $29,699       1.4% 
Fiscal Year 2002             
Individual income taxes      $1,130,332   $899,356     $230,977      20.4% 
Corporate income taxes          229,239    155,117       74,122       32.3 
Social insurance taxes and      760,476    734,241       26,234        3.4 
contributions                                                   
Excise taxes                     77,557     70,190        7,367        9.5 
Estate and gift taxes            30,070     27,773        2,297        7.6 
Customs duties                   23,614     19,491        4,123       17.5 
Miscellaneous receipts           45,165     35,547        9,618       21.3 
Total                        $2,296,452 $1,941,715     $354,737      15.4% 
Fiscal Year 2003             
Individual income taxes      $1,028,676   $811,304     $217,372      21.1% 
Corporate income taxes          210,047    134,701       75,346       35.9 
Social insurance taxes and      765,831    728,793       37,038        4.8 
contributions                                                   
Excise taxes                     70,552     69,022        1,530        2.2 
Estate and gift taxes            23,509     22,446        1,063        4.5 
Customs duties                   20,244     20,303          -58       -0.3 
Miscellaneous receipts          -25,371     35,308      -60,679      239.2 
Total                        $2,093,489 $1,821,877     $271,612      13.0% 
Fiscal Year 2004             
Individual income taxes        $849,880   $808,959      $40,921       4.8% 
Corporate income taxes          169,060    189,371      -20,311      -12.0 
Social insurance taxes and      764,548    733,407       31,141        4.1 
contributions                                                   
Excise taxes                     70,905     69,855        1,050        1.5 
Estate and gift taxes            23,379     24,831       -1,452       -6.2 
Customs duties                   20,713     21,083         -370       -1.8 
Miscellaneous receipts           38,540     32,565        5,975       15.5 
Total                        $1,937,025 $1,880,071      $56,954       2.9% 

Source: GAO analysis of President's budget data.

Mandatory Budget Accounts Appendix III

Table 19: Budget Accounts with Greater than 50 percent Mandatory Outlays

                                        

Dollars in                                                     
    millions                                                      
     Obs. #            Agency                   Account           5-year avg. 
                                                                       dollar 
                                                                       change 
                                                                    (absolute 
                                                                       value) 
1          Treasury                 Interest on Treasury debt      $20,016 
                                       securities (gross)         
2          Veterans Affairs         Disability compensation          9,977 
                                       benefits*                  
3          Labor                    Unemployment trust fund          9,436 
4          Veterans Affairs         Compensation*                    7,423 
5          Agriculture              Commodity Credit                 6,944 
                                       Corporation fund           
6          Health and Human         Federal supplementary            6,427 
              Services                 medical insurance trust    
                                       fund                       
7          Health and Human         Federal hospital insurance       5,622 
              Services                 trust fund                 
8          Office of Personnel      Employees health benefits        5,065 
              Management               fund*                      
9          Health and Human         Grants to States for             4,220 
              Services                 Medicaid                   
10         Railroad Retirement      Rail industry pension fund       4,077 
              Board                                               
11         Health and Human         Payments to health care          3,800 
              Services                 trust funds                
12         Housing and Urban        FHA-mutual mortgage              2,892 
              Development              insurance program account* 
13         Veterans Affairs         Pensions benefits*               2,528 
14         Education                Federal direct student           2,370 
                                       loan program account       
15         Health and Human         Immediate helping hand           2,240 
              Services                 prescription drug plan*    
16         Postal Service           Postal Service fund              2,129 
17         Housing and Urban        FHA-mutual mortgage and          2,067 
              Development              cooperative housing        
                                       insurance funds            
                                       liquidating account        
18         Agriculture              Food stamp program               2,058 
19         Treasury                 Temporary State fiscal           2,000 
                                       assistance fund*           
20         Social Security          Federal old-age and              1,979 
              Administration           survivors insurance trust  
                                       fund                       
21         Office of Personnel      Payment to civil service         1,862 
              Management               retirement and disability  
                                       fund                       
22         Allowances               Bipartisan economic              1,600 
                                       security plan*             
23         Treasury                 Payment where child credit       1,582 
                                       exceeds liability for tax  
24         Education                Federal family education         1,573 
                                       loan program account       
25         Federal Communications   Universal service fund           1,539 
              Commission                                          
26         Health and Human         Temporary assistance for         1,322 
              Services                 needy families             
27         Health and Human         Allowance for Medicare           1,200 
              Services                 modernization*             
28         Justice                  September 11th victim            1,192 
                                       compensation (general      
                                       fund)*                     
29         Social Security          Payments to social               1,168 
              Administration           security trust funds       
30         Labor                    Advances to the                  1,154 
                                       Unemployment trust fund    
                                       and other* funds           
31         Treasury                 Refunding internal revenue       1,153 
                                       collections, interest      
32         Office of Personnel      Government payment for           1,081 
              Management               annuitants, employees      
                                       health benefits            
33         Treasury                 Payment where earned             1,004 
                                       income credit exceeds      
                                       liability for tax          
34         Office of Personnel      Civil service retirement           988 
              Management               and disability fund        
35         Labor                    Black lung disability              987 
                                       trust fund                 
36         Housing and Urban        FHA-general and special            964 
              Development              risk insurance funds       
                                       liquidating account        
37         Health and Human         State children's health            922 
              Services                 insurance fund             
38         Transportation           Compensation for air               910 
                                       carriers*                  
39         Social Security          Federal disability                 865 
              Administration           insurance trust fund       
40         International Assistance Foreign military sales             850 
              Programs                 trust fund                 
41         Federal Deposit          Bank insurance fund*               844 
              Insurance Corporation                               
42         Treasury                 Payment to the Resolution          799 
                                       Funding Corporation        
43         International Assistance United States quota,               793 
              Programs                 International Monetary     
                                       Fund*                      
44         Federal Communications   Spectrum auction program           785 
              Commission               account*                   
45         Education                Federal family education           778 
                                       loan liquidating account   
46         Office of Personnel      Employees and retired              775 
              Management               employees health benefits  
                                       funds*                     
47         Social Security          Supplemental security              759 
              Administration           income program             
48         Agriculture              Rural electrification and          681 
                                       telecommunications         
                                       liquidating account        
49         Justice                  Immigration support*               652 
50         Small Business           Business loan program              625 
              Administration           account*                   
51         Treasury                 Interest paid to credit            625 
                                       financing accounts         
52         Justice                  Crime victims fund                 609 
53         Veterans Affairs         Housing program account            594 
54         Labor                    Pension benefit guaranty           581 
                                       corporation fund           
55         Treasury                 Claims, judgments, and             569 
                                       relief acts                
56         Agriculture              Commodity Credit                   553 
                                       Corporation export loans   
                                       program account            
57         Housing and Urban        FHA-mutual mortgage                543 
              Development              insurance capital reserve  
                                       account*                   
58         Housing and Urban        FHA-general and special            536 
              Development              risk program account*      
59         Export-Import Bank of    Export-Import Bank loans           516 
              the United States        program account*           
60         Health and Human         Child care entitlement to          499 
              Services                 States                     
61         Treasury                 Federal Financing Bank             488 
62         Homeland Security        Citizenship and                    471 
                                       Immigration Services*      
63         Agriculture              Agricultural credit                467 
                                       insurance fund program     
                                       account*                   
64         Treasury                 Exchange stabilization             440 
                                       fund                       
65         Justice                  Immigration services*              418 
66         Labor                    Reemployment accounts*             400 
67         Health and Human         Payments to States for             392 
              Services                 foster care and adoption   
                                       assistance                 
68         Other Defense Civil      Payment to Department of           390 
              Programs                 Defense Medicare-eligible  
                                       retiree health care fund*  
69         Other Defense Civil      Payment to military                376 
              Programs                 retirement fund            
70         Railroad Retirement      National railroad                  367 
              Board                    retirement investment      
                                       trust*                     
71         Railroad Retirement      Railroad social security           363 
              Board                    equivalent benefit account 
72         Other Defense Civil      Department of Defense              361 
              Programs                 Medicare-Eligible retiree  
                                       health care fund*          
73         Labor                    Welfare to work jobs               353 
74         Homeland Security        Retired Pay*                       352 
75         Department of            Allied contributions and           346 
              Defense-Military         cooperation account        
76         Veterans Affairs         Education benefits                 324 
77         Tennessee Valley         Tennessee Valley Authority         323 
              Authority                fund                       
78         Small Business           Disaster loans program             319 
              Administration           account*                   
79         Energy                   Bonneville Power                   317 
                                       Administration fund        
80         Department of            Pentagon reservation               317 
              Defense-Military         maintenance revolving      
                                       fund*                      
81         Other Defense Civil      Military retirement fund           312 
              Programs                                            
82         Department of            Iraq relief and                    310 
              Defense-Military         reconstruction fund, Army* 
83         Agriculture              Federal crop insurance             310 
                                       corporation fund           
84         Labor                    Payments to the                    305 
                                       Unemployment trust fund*   
85         Federal Deposit          Savings association                295 
              Insurance Corporation    insurance fund*            
86         Health and Human         Payments to States for             284 
              Services                 child support enforcement  
                                       and family support         
                                       programs                   
87         Interior                 Mineral leasing and                279 
                                       associated payments        
88         Treasury                 Air transportation                 273 
                                       stabilization program      
                                       account*                   
89         Homeland Security        National Flood Insurance           269 
                                       Fund*                      
90         Interior                 Interior Franchise Fund*           260 
91         Agriculture              Farm security and rural            254 
                                       investment programs*       
92         Agriculture              Funds for strengthening            241 
                                       markets, income, and       
                                       supply (section 32)        
93         Health and Human         Allowance for transitional         240 
              Services                 Medicare low-income drug   
                                       assistance*                
94         Federal Emergency        National flood insurance           227 
              Management Agency        fund*                      
95         Housing and Urban        Guarantees of                      223 
              Development              mortgage-backed securities 
                                       liquidating account*       
96         Veterans Affairs         Vocational rehabilitation          202 
                                       and employment benefits*   
97         Department of            National defense stockpile         197 
              Defense-Military         transaction fund*          
98         National Credit Union    Credit union share                 195 
              Administration           insurance fund             
99         Federal Deposit          FSLIC resolution fund              189 
              Insurance Corporation                               
100        Export-Import Bank of    Export-Import Bank of the          188 
              the United States        United States liquidating  
                                       account                    
101        Office of Personnel      Employees life insurance           187 
              Management               fund                       
102        Education                Federal student loan               182 
                                       reserve fund*              
103        Agriculture              Rural electrification and          180 
                                       telecommunications loans   
                                       program account*           
104        Transportation           Coast Guard military               178 
                                       retirement fund*           
105        Agriculture              Child nutrition programs           177 
106        Health and Human         Social services block              177 
              Services                 grant                      
107        Treasury                 Payment where health care          177 
                                       credit exceeds liability   
                                       for tax*                   
108        Transportation           Retired pay*                       174 
109        Agriculture              Rural development                  174 
                                       insurance fund liquidating 
                                       account                    
110        Labor                    Energy employees                   160 
                                       occupational illness       
                                       compensation fund*         
111        Labor                    Federal unemployment               159 
                                       benefits and allowances    
112        Veterans Affairs         Supply fund*                       159 
113        Health and Human         Ricky Ray hemophilia               150 
              Services                 relief fund*               
114        Transportation           Payment to Coast Guard             147 
                                       military retirement fund*  
115        Social Security          Payment to social security         146 
              Administration           trust funds post-1956      
                                       military service wage      
                                       credits*                   
116        Agriculture              Forest Service trust funds         139 
117        Agriculture              Rural housing insurance            131 
                                       fund liquidating account   
118        Treasury                 Restitution of forgone             129 
                                       interest*                  
119        International Assistance Economic assistance loans          127 
              Programs                 liquidating account        
120        Agriculture              Agricultural credit                125 
                                       insurance fund liquidating 
                                       account                    
121        Interior                 Tribal special fund                123 
122        Interior                 Working capital fund*              118 
123        Housing and Urban        Housing for the elderly or         118 
              Development              handicapped fund           
                                       liquidating account        
124        District of Columbia     Federal payment to the             117 
                                       District of Columbia       
                                       pension fund               
125        Agriculture              Forest Service permanent           116 
                                       appropriations             
126        Small Business           Disaster loan fund                 116 
              Administration           liquidating account        
127        Health and Human         Payment to the Ricky Ray           116 
              Services                 hemophilia relief fund*    
128        Farm Credit System       Financial Assistance               116 
              Financial Assistance     Corporation assistance     
              Corporation              fund liquidating account   
129        Transportation           Ocean freight differential         115 
130        Legislative Branch       Payments to copyright              113 
                                       owners                     
131        Veterans Affairs         Housing liquidating                104 
                                       account                    
132        Treasury                 Contribution for annuity           103 
                                       benefits*                  
133        Social Security          Special benefits for                95 
              Administration           disabled coal miners*      
134        Labor                    Special benefits for                94 
                                       disabled coal miners*      
135        International Assistance Foreign military loan               93 
              Programs                 liquidating account        
136        Treasury                 Treasury forfeiture fund*           88 
137        Small Business           Business loan fund                  87 
              Administration           liquidating account        
138        Labor                    Special benefits                    86 
139        International Assistance Overseas Private                    86 
              Programs                 Investment Corporation     
                                       program account*           
140        Interior                 Miscellaneous permanent             82 
                                       payment accounts           
141        Agriculture              Commodity Credit                    81 
                                       Corporation guaranteed     
                                       loans liquidating account  
142        Treasury                 Payment of anti-terrorism           80 
                                       judgments*                 
143        Judicial Branch          Judiciary filing fees               80 
144        Education                Rehabilitation services             79 
                                       and disability research    
145        Treasury                 Payment where alternative           76 
                                       to failing school credit   
                                       exceeds liability for tax* 
146        International Assistance Foreign military financing          70 
              Programs                 loan program account*      
147        Veterans Affairs         National service life               70 
                                       insurance fund             
148        Treasury                 Internal revenue                    68 
                                       collections for Puerto     
                                       Rico                       
149        Corps of Engineers-Civil Rivers and harbors                  67 
              Works                    contributed funds          
150        Health and Human         Retirement pay and medical          67 
              Services                 benefits for commissioned  
                                       officers                   
151        Transportation           Miscellaneous trust funds           65 
152        United Mine Workers of   United Mine Workers of              63 
              America Benefit Funds    America combined benefit   
                                       fund                       
153        Agriculture              Healthy investments in              63 
                                       rural environments*        
154        Railroad Retirement      Federal payments to the             61 
              Board                    railroad retirement        
                                       accounts                   
155        Transportation           Maritime guaranteed loan            60 
                                       (Title XI) program         
                                       account*                   
156        Agriculture              Rural telephone bank                60 
                                       liquidating account        
157        General Services         General supply fund*                60 
              Administration                                      
158        Veterans Affairs         Burial benefits*                    59 
159        Treasury                 Continued dumping and               56 
                                       subsidy offset*            
160        Transportation           Aviation insurance                  56 
                                       revolving fund*            
161        Agriculture              Fund for rural America              55 
162        Agriculture              Payments to states                  54 
                                       stabilization*             
163        Health and Human         Program management*                 52 
              Services                                            
164        Veterans Affairs         Burial benefits and                 51 
                                       miscellaneous assistance*  
165        Treasury                 Refunds, transfers, and             51 
                                       expenses of operation,     
                                       Puerto Rico*               
166        Federal Communications   Pioneer's preference                50 
              Commission               settlement*                
167        Treasury                 Restoration of lost                 49 
                                       interest, Medicare trust   
                                       funds*                     
168        Corps of Engineers-Civil Revolving fund*                     48 
              Works                                               
169        Agriculture              Expenses, Public Law 480,           48 
                                       foreign assistance         
                                       programs, Agriculture      
                                       liquidating account        
170        Agriculture              Expenses and refunds,               48 
                                       inspection and grading of  
                                       farm products*             
171        Justice                  Working capital fund*               48 
172        Department of            Army conventional                   48 
              Defense-Military         ammunition working capital 
                                       fund*                      
173        United States Enrichment United States Enrichment            47 
              Corporation Fund         Corporation Fund*          
174        Health and Human         Public Health Service               47 
              Services                 Commissioned Corps         
                                       retirement fund*           
175        Department of            Surcharge collections,              46 
              Defense-Military         sales of commissary        
                                       stores, Defense*           
176        Interior                 Recreation fee permanent            45 
                                       appropriations             
177        Housing and Urban        Working capital fund*               44 
              Development                                         
178        Health and Human         Transitional drug                   43 
              Services                 assistance, Federal        
                                       supplementary medical      
                                       insurance trust fund*      
179        Treasury                 Confiscated and vested              42 
                                       Iraqi property and assets* 
180        Labor                    Administrative expenses,            40 
                                       Energy employees           
                                       occupational illness       
                                       compensation fund*         
181        Interior                 Lower Colorado River Basin          40 
                                       development fund           
182        Treasury                 Federal Reserve Bank                38 
                                       reimbursement fund         
183        Legislative Branch       Government Printing Office          38 
                                       revolving fund             
184        Justice                  Public safety officers'             37 
                                       benefits*                  
185        Interior                 Permanent operating funds           37 
186        Department of State      Working capital fund*               36 
187        Treasury                 Financial agent services*           36 
188        Commerce                 Census working capital              36 
                                       fund*                      
189        Justice                  Federal Prison Industries,          36 
                                       Incorporated*              
190        Federal Deposit          Federal deposit insurance           36 
              Insurance Corporation    fund*                      
191        Interior                 Upper Colorado River Basin          35 
                                       fund*                      
192        Farm Credit System       Farm credit system                  35 
              Insurance Corporation    insurance fund             
193        Health and Human         Payment to health care              35 
              Services                 trust funds for post-1956  
                                       military service wage      
                                       credits*                   
194        Justice                  Assets forfeiture fund              35 
195        Health and Human         Health care fraud and               34 
              Services                 abuse control account      
196        Health and Human         Health education                    33 
              Services                 assistance loans program   
                                       account*                   
197        International Assistance Housing and other credit            33 
              Programs                 guaranty programs          
                                       liquidating account        
198        Agriculture              Initiative for future               33 
                                       agriculture and food       
                                       systems*                   
199        Justice                  Radiation exposure                  32 
                                       compensation trust fund*   
200        Homeland Security        Boat Safety*                        30 
201        Agriculture              Payments to States,                 29 
                                       northern spotted owl       
                                       guarantee, Forest Service* 
202        Treasury                 Working capital fund*               29 
203        Corps of Engineers-Civil Coastal wetlands                    29 
              Works                    restoration trust fund     
204        Transportation           Boat safety*                        28 
205        Other Defense Civil      Contributions*                      28 
              Programs                                            
206        Homeland Security        Oil Spill Recovery*                 28 
207        Transportation           Oil spill recovery*                 28 
208        Interior                 Tribal trust fund                   27 
209        Interior                 Compact of free                     27 
                                       association                
210        Commerce                 Promote and develop                 26 
                                       fishery products and       
                                       research pertaining to     
                                       American fisheries         
211        Health and Human         Payment to Public Health            26 
              Services                 Service Commissioned Corps 
                                       retirement system*         
212        Central Intelligence     Payment to Central                  26 
              Agency                   Intelligence Agency        
                                       retirement and disability  
                                       system fund                
213        Housing and Urban        Low-rent public                     25 
              Development              housing-loans and other    
                                       expenses                   
214        Environmental Protection Re-registration and                 24 
              Agency                   expedited processing       
                                       revolving fund*            
215        Health and Human         HHS service and supply              23 
              Services                 fund*                      
216        Interior                 Abandoned mine reclamation          23 
                                       fund*                      
217        Federal Emergency        Disaster assistance direct          23 
              Management Agency        loan program account*      
218        Justice                  Fees and expenses of                23 
                                       witnesses                  
219        Judicial Branch          Judiciary information               22 
                                       technology fund            
220        Health and Human         Vaccine injury                      22 
              Services                 compensation program trust 
                                       fund                       
221        Interior                 Natural resource damage             22 
                                       assessment fund            
222        Agriculture              Miscellaneous trust funds*          21 
223        Health and Human         Promoting safe and stable           21 
              Services                 families                   
224        Interior                 Payments to the United              21 
                                       States territories, fiscal 
                                       assistance                 
225        Agriculture              McGovern-Dole                       20 
                                       international food for     
                                       education and child        
                                       nutrition program*         
226        Treasury                 Assessment funds                    20 
227        Transportation           Essential air service and           20 
                                       rural airport improvement  
                                       fund*                      
228        Housing and Urban        Revolving fund                      18 
              Development              (liquidating programs)*    
229        Agriculture              Perishable Agricultural             18 
                                       Commodities Act fund       
230        International Assistance Urban and environmental             18 
              Programs                 credit program account*    
231        Justice                  Commissary funds, Federal           18 
                                       prisons (trust revolving   
                                       fund)*                     
232        Veterans Affairs         Veterans special life               18 
                                       insurance fund             
233        Agriculture              Working capital fund*               17 
234        Federal Emergency        Flood map modernization             17 
              Management Agency        fund*                      
235        Agriculture              Trade adjustment                    16 
                                       assistance for farmers*    
236        Interior                 Federal aid in wildlife             16 
                                       restoration                
237        Homeland Security        Refunds, transfers, and             16 
                                       expenses of operation,     
                                       Puerto Rico*               
238        Agriculture              Milk market orders                  16 
                                       assessment fund*           
239        Health and Human         Health education                    15 
              Services                 assistance loans           
                                       liquidating account        
240        Transportation           Right-of-way revolving              15 
                                       fund liquidating account   
241        Justice                  Payment to radiation                15 
                                       exposure compensation      
                                       trust fund*                
242        Interior                 Working capital fund                15 
243        Railroad Retirement      Railroad unemployment               15 
              Board                    insurance trust fund       
244        Department of            Other DOD trust funds               14 
              Defense-Military                                    
245        Veterans Affairs         Franchise fund*                     14 
246        Treasury                 Office of Thrift                    14 
                                       Supervision*               
247        Justice                  Diversion control fee               14 
                                       account                    
248        General Services         Panama Canal revolving              14 
              Administration           fund*                      
249        National Science         Donations                           13 
              Foundation                                          
250        Farm Credit System       Financial assistance                13 
              Financial Assistance     corporation trust fund*    
              Corporation                                         
251        District of Columbia     District of Columbia                12 
                                       Federal pension liability  
                                       trust fund                 
252        Interior                 Colorado River dam fund,            12 
                                       Boulder Canyon project     
253        Interior                 Sport fish restoration              12 
254        Treasury                 Presidential election               12 
                                       campaign fund*             
255        United Mine Workers of   United Mine Workers of              12 
              America Benefit Funds    America 1992 benefit plan  
256        Department of State      Payment to Foreign Service          12 
                                       retirement and disability  
                                       fund                       
257        Health and Human         Miscellaneous trust funds           11 
              Services                                            
258        Commerce                 Emergency steel guaranteed          11 
                                       loan program account*      
259        Health and Human         State grants and                    11 
              Services                 demonstrations*            
260        Health and Human         Children's research and             10 
              Services                 technical assistance       
261        Agriculture              Rural strategic investment          10 
                                       program grants*            
262        Health and Human         Contingency fund*                   10 
              Services                                            
263        Federal Emergency        National flood mitigation           10 
              Management Agency        fund*                      
264        Agriculture              Rural economic development          10 
                                       grants                     
265        Interior                 Everglades watershed                10 
                                       protection*                
266        Interior                 Other permanent                     10 
                                       appropriations             
267        Health and Human         Vaccine injury                       9 
              Services                 compensation*              
268        Federal Emergency        Disaster assistance direct           9 
              Management Agency        loan liquidating account*  
269        Interior                 Interior Franchise Fund*             9 
270        Federal Deposit          Office of Inspector                  9 
              Insurance Corporation    General                    
271        Veterans Affairs         Post-Vietnam era veterans            9 
                                       education account          
272        Federal Retirement       Program expenses                     9 
              Thrift Investment Board                             
273        Interior                 Assistance to territories*           9 
274        Commerce                 Working capital fund*                8 
275        Department of            Buildings maintenance                8 
              Defense-Military         fund*                      
276        Department of State      Miscellaneous trust funds            8 
277        Interior                 Helium fund                          8 
278        Other Defense Civil      Education benefits fund              8 
              Programs                                            
279        Justice                  Independent counsel                  8 
280        Corps of Engineers-Civil Washington aqueduct*                 8 
              Works                                               
281        Interior                 Reclamation trust funds*             8 
282        Agriculture              Rural cooperative                    8 
                                       development grants*        
283        Energy                   Emergency fund, Western              8 
                                       Area Power Administration* 
284        United Mine Workers of   Federal payment to United            8 
              America Benefit Funds    Mine Workers of America    
                                       combined benefit fund*     
285        Agriculture              Rural business investment            7 
                                       program account*           
286        Education                College housing and                  7 
                                       academic facilities loans  
                                       liquidating account        
287        Interior                 Miscellaneous trust funds*           7 
288        Veterans Affairs         Service-disabled veterans            7 
                                       insurance fund             
289        Legislative Branch       Gift and trust fund                  7 
                                       accounts                   
290        Agriculture              Local television loan                7 
                                       guarantee program account* 
291        Housing and Urban        Community development loan           7 
              Development              guarantees liquidating     
                                       account*                   
292        Transportation           Working Capital Fund*                7 
293        Department of State      Foreign Service retirement           7 
                                       and disability fund        
294        Public Company           Public Company Accounting            7 
              Accounting Oversight     Oversight Board*           
              Board                                               
295        Agriculture              Miscellaneous trust funds            7 
296        Department of            Foreign national employees           7 
              Defense-Military         separation pay             
297        Transportation           Federal ship financing               7 
                                       fund liquidating account   
298        Interior                 Cooperative fund (Papago)*           6 
299        Commerce                 Coastal zone management              6 
                                       fund                       
300        Energy                   Continuing fund,                     6 
                                       Southeastern Power         
                                       Administration*            
301        International Assistance Overseas Private                     6 
              Programs                 Investment Corporation     
                                       liquidating account*       
302        Housing and Urban        Rental housing assistance            6 
              Development              fund*                      
303        Interior                 Miscellaneous trust funds            6 
304        Treasury                 Federal interest                     6 
                                       liabilities to States      
305        Department of            Voluntary separation                 5 
              Defense-Military         incentive fund             
306        Labor                    Special workers'                     5 
                                       compensation expenses      
307        Health and Human         State grants and                     5 
              Services                 demonstrations*            
308        Housing and Urban        Community development loan           5 
              Development              guarantees program         
                                       account*                   
309        Interior                 Miscellaneous permanent              5 
                                       appropriations             
310        Interior                 Contribution for annuity             5 
                                       benefits*                  
311        Health and Human         Job opportunities and                5 
              Services                 basic skills training      
                                       program*                   
312        Veterans Affairs         Miscellaneous veterans               5 
                                       housing loans program      
                                       account*                   
313        Agriculture              Miscellaneous contributed            5 
                                       funds*                     
314        Commerce                 Economic development                 5 
                                       revolving fund liquidating 
                                       account*                   
315        Commerce                 Environmental improvement            5 
                                       and restoration fund*      
316        Veterans Affairs         Veterans reopened                    5 
                                       insurance fund             
317        Agriculture              Conservation reserve                 4 
                                       program*                   
318        Veterans Affairs         Canteen service revolving            4 
                                       fund*                      
319        Legislative Branch       U.S. Capitol Preservation            4 
                                       Commission*                
320        Commerce                 Federal ship financing               4 
                                       fund fishing vessels       
                                       liquidating account*       
321        Interior                 Payments for trust                   4 
                                       accounting deficiencies*   
322        National Credit Union    Operating fund*                      4 
              Administration                                      
323        Railroad Retirement      Supplemental annuity                 4 
              Board                    pension fund*              
324        Agriculture              National Sheep Industry              4 
                                       Improvement Center*        
325        Agriculture              Road and trail fund*                 4 
326        Commerce                 Payments to NOAA                     4 
                                       commissioned officer corps 
                                       retirement fund*           
327        Treasury                 Administering the public             4 
                                       debt*                      
328        International Assistance Loan guarantees to Israel            4 
              Programs                 program account*           
329        Agriculture              Renewable energy program             4 
                                       account*                   
330        District of Columbia     Federal payment for water            4 
                                       and sewer services*        
331        Department of            Host nation support fund             4 
              Defense-Military         for relocation             
332        Standard Setting Body    Payment to standard                  4 
                                       setting body*              
333        Agriculture              Miscellaneous contributed            3 
                                       funds                      
334        Interior                 Bureau of Reclamation loan           3 
                                       liquidating account        
335        General Services         Disposal of surplus real             3 
              Administration           and related personal       
                                       property                   
336        Legislative Branch       Gifts and donations                  3 
337        Commerce                 National Oceanic and                 3 
                                       Atmospheric Administration 
                                       Commissioned Officer Corps 
                                       retirement*                
338        Treasury                 Informant payments*                  3 
339        Legislative Branch       Judiciary office building            3 
                                       development and operations 
                                       fund*                      
340        Department of State      Foreign Service national             3 
                                       separation liability trust 
                                       fund                       
341        Treasury                 Refunds, transfers and               3 
                                       expenses, Unclaimed and    
                                       abandoned goods*           
342        Agriculture              Wetlands reserve program             3 
343        Agriculture              Expenses and refunds,                3 
                                       inspection and grading of  
                                       farm products              
344        Transportation           Operations and maintenance           3 
                                       (Harbor services fee       
                                       collections)*              
345        Veterans Affairs         General post fund,                   3 
                                       national homes             
346        Judicial Branch          Judicial officers'                   3 
                                       retirement fund            
347        National Archives and    National archives gift               3 
              Records Administration   fund*                      
348        Office of Personnel      Government payment for               3 
              Management               annuitants, employee life  
                                       insurance                  
349        Vietnam Education        Vietnam debt repayment               3 
              Foundation               fund*                      
350        Agriculture              Miscellaneous contributed            2 
                                       funds                      
351        Commerce                 Damage assessment and                2 
                                       restoration revolving fund 
352        Housing and Urban        Manufactured home                    2 
              Development              inspection and monitoring* 
353        Interior                 Migratory bird                       2 
                                       conservation account       
354        Interior                 Indian direct loan program           2 
                                       account*                   
355        Transportation           Operations and                       2 
                                       maintenance*               
356        General Services         Expenses of transportation           2 
              Administration           audit contracts and        
                                       contract administration    
357        International Assistance Miscellaneous trust funds,           2 
              Programs                 AID*                       
358        Commerce                 Fisheries finance program            2 
                                       account*                   
359        Department of            Other DOD trust revolving            2 
              Defense-Military         funds*                     
360        Health and Human         Medical facilities                   2 
              Services                 guarantee and loan fund    
361        Veterans Affairs         Service members' group               2 
                                       life insurance fund*       
362        Farm Credit              Revolving fund for                   2 
              Administration           administrative expenses*   
363        Federal Housing Finance  Federal housing finance              2 
              Board                    board*                     
364        Judicial Branch          Registry Administration              2 
365        Legislative Branch       Compensation of members              2 
                                       and related administrative 
                                       expenses                   
366        Small Business           Pollution control                    2 
              Administration           equipment fund liquidating 
                                       account*                   
367        Corps of Engineers-Civil Permanent appropriations             2 
              Works                                               
368        Corps of Engineers-Civil Payment to South Dakota              2 
              Works                    terrestrial wildlife       
                                       habitat restoration trust  
                                       fund*                      
369        Commerce                 Limited access system                2 
                                       administration fund*       
370        Homeland Security        US Customs Refunds,                  2 
                                       Transfers and Expenses,    
                                       Unclaimed and Abandoned    
                                       Goods*                     
371        Agriculture              Wildlife habitat                     2 
                                       incentives program         
372        Veterans Affairs         Insurance benefits                   2 
373        District of Columbia     Federal payment to the               2 
                                       District of Columbia       
                                       judicial retirement and    
                                       survivors annuity fund*    
374        Morris K. Udall          Environmental dispute                2 
              Scholarship and          resolution fund*           
              Excellence in National                              
              Environmental Policy                                
              Foundation                                          
375        Agriculture              Farm storage facility                2 
                                       loans program account*     
376        Department of            Miscellaneous special                2 
              Defense-Military         funds*                     
377        Housing and Urban        Elderly vouchers*                    2 
              Development                                         
378        Department of State      International litigation             2 
                                       fund                       
379        Interior                 National Indian Gaming               2 
                                       Commission, Gaming         
                                       activity fees              
380        Treasury                 Interest on uninvested               2 
                                       funds                      
381        Transportation           Railroad rehabilitation              2 
                                       and improvement            
                                       liquidating account        
382        Environmental Protection Abatement, control, and              2 
              Agency                   compliance direct loan     
                                       liquidating account*       
383        Panama Canal Commission  Panama Canal Commission              2 
                                       dissolution fund*          
384        Interior                 White Earth settlement               1 
                                       fund                       
385        Interior                 Indian loan guaranty and             1 
                                       insurance fund liquidating 
                                       account*                   
386        Transportation           Emergency preparedness               1 
                                       grants                     
387        Legislative Branch       Congressional use of                 1 
                                       foreign currency, House of 
                                       Representatives            
388        Agriculture              Rural communication                  1 
                                       development fund           
                                       liquidating account*       
389        Commerce                 Franchise fund*                      1 
390        Justice                  United States trustee                1 
                                       system fund*               
391        Interior                 Revolving fund for loans             1 
                                       liquidating account        
392        Interior                 National forests fund,               1 
                                       Payment to States          
393        Interior                 Recreational fee program             1 
394        Interior                 Miscellaneous trust funds            1 
395        Treasury                 Federal tax lien revolving           1 
                                       fund*                      
396        International Assistance Microenterprise and small            1 
              Programs                 enterprise development     
                                       program account*           
397        Interior                 Contributed funds                    1 
398        Interior                 Miscellaneous permanent              1 
                                       appropriations             
399        Treasury                 Check forgery insurance              1 
                                       fund                       
400        Treasury                 Payment to terrestrial               1 
                                       wildlife habitat           
                                       restoration trust fund*    
401        District of Columbia     District of Columbia                 1 
                                       judicial retirement and    
                                       survivors annuity fund     
402        Environmental Protection Abatement, control, and              1 
              Agency                   compliance loan program    
                                       account*                   
403        Harry S. Truman          Harry S. Truman memorial             1 
              Scholarship Foundation   scholarship trust fund     
404        James Madison Memorial   James Madison Memorial               1 
              Fellowship Foundation    Fellowship trust fund      
405        Legislative Branch       John C. Stennis Center for           1 
                                       Public Service Training    
                                       and Development trust fund 
406        National Archives and    National archives trust              1 
              Records Administration   fund*                      
407        Agriculture              Agricultural resource                1 
                                       conservation demonstration 
                                       program account*           
408        Agriculture              Rural economic development           1 
                                       loans program account*     
409        Housing and Urban        Manufactured housing fees            1 
              Development              trust fund*                
410        Labor                    Panama Canal Commission              1 
                                       compensation fund          
411        Department of State      Miscellaneous trust funds,           1 
                                       information and exchange   
                                       programs*                  
412        Interior                 Operation and maintenance            1 
                                       of quarters                
413        Veterans Affairs         Special therapeutic and              1 
                                       rehabilitation activities  
                                       fund*                      
414        Equal Employment         EEOC education, technical            1 
              Opportunity Commission   assistance, and training   
                                       revolving fund*            
415        International Assistance Peace Corps miscellaneous            1 
              Programs                 trust fund                 
416        Judicial Branch          Judicial survivors'                  1 
                                       annuities fund             
417        Legislative Branch       Congressional use of                 1 
                                       foreign currency, Senate   
418        Social Security          Special benefits for                 1 
              Administration           certain World War II       
                                       veterans*                  
419        Appalachian Regional     Miscellaneous trust funds            1 
              Commission                                          
420        Broadcasting Board of    Foreign Service national             1 
              Governors                separation liability trust 
                                       fund*                      
421        Christopher Columbus     Christopher Columbus                 1 
              Fellowship Foundation    Fellowship Foundation*     
422        Agriculture              Limitation on inspection             1 
                                       and weighing services      
                                       expenses*                  
423        Agriculture              Rural development loan               1 
                                       fund liquidating account   
424        Agriculture              Biomass research and                 1 
                                       development*               
425        Energy                   Payments to States under             1 
                                       Federal Power Act          
426        Health and Human         Revolving fund for                   1 
              Services                 certification and other    
                                       services*                  
427        Labor                    Working capital fund*                1 
428        Interior                 Range improvements                   1 
429        Interior                 Cooperative endangered               1 
                                       species conservation fund* 
430        Interior                 Everglades restoration               1 
                                       account                    
431        Interior                 Leases of lands acquired             1 
                                       for flood control,         
                                       navigation, and allied     
                                       purposes                   
432        Interior                 Contributed funds*                   1 
433        Treasury                 Payment of Government                1 
                                       losses in shipment*        
434        Treasury                 Terrorism insurance                  1 
                                       program*                   
435        Transportation           Amtrak corridor                      1 
                                       improvement loans          
                                       liquidating account*       
436        Federal Emergency        National insurance                   1 
              Management Agency        development fund*          
437        International Assistance Property management fund*            1 
              Programs                                            
438        International Assistance Foreign Service national             1 
              Programs                 separation liability trust 
                                       fund                       
439        Judicial Branch          Gifts and donations,                 1 
                                       Federal Judicial Center    
                                       Foundation                 
440        Legislative Branch       Senate revolving funds*              1 
441        Morris K. Udall          Morris K. Udall                      1 
              Scholarship and          Scholarship and Excellence 
              Excellence in National   in National Environmental  
              Environmental Policy     Policy Foundation*         
              Foundation                                          
442        Other Defense Civil      White House commission on            1 
              Programs                 the national moment of     
                                       remembrance*               
443        Telecommunications       Telecommunications                   1 
              Development Fund         development fund*          
444        Agriculture              Distance learning,                   0 
                                       telemedicine, and          
                                       broadband program*         
445        Agriculture              Rural economic development           0 
                                       loans liquidating account* 
446        Agriculture              Facilities acquisition and           0 
                                       enhancement fund*          
447        Housing and Urban        Homeownership assistance             0 
              Development              fund*                      
448        Housing and Urban        Consolidated fee fund*               0 
              Development                                         
449        Department of State      International Center,                0 
                                       Washington, D.C.*          
450        Interior                 Donations and contributed            0 
                                       funds*                     
451        Treasury                 Collection Contractor                0 
                                       Support*                   
452        Veterans Affairs         United States Government             0 
                                       life insurance fund        
453        Veterans Affairs         Medical facilities                   0 
                                       revolving fund*            
454        Veterans Affairs         Veterans extended care               0 
                                       revolving fund*            
455        International Assistance Kuwait civil                         0 
              Programs                 reconstruction trust fund* 
456        Judicial Branch          United States Court of               0 
                                       Federal Claims Judges'     
                                       retirement fund            
457        Legislative Branch       Compensation of members,             0 
                                       Senate                     
458        Legislative Branch       Tax Court judges survivors           0 
                                       annuity fund*              
459        Agriculture              Emergency boll weevil loan           0 
                                       program account*           
460        Agriculture              Gifts and bequests                   0 
461        Agriculture              Apple loans program                  0 
                                       account*                   
462        Agriculture              Rural community fire                 0 
                                       protection grants*         
463        Agriculture              National sheep industry              0 
                                       improvement center         
                                       revolving fund*            
464        Agriculture              Land acquisition                     0 
                                       reinvestment fund*         
465        Energy                   Continuing fund,                     0 
                                       Southwestern Power         
                                       Administration*            
466        Energy                   Advances for cooperative             0 
                                       work*                      
467        Housing and Urban        Interstate land sales*               0 
              Development                                         
468        Department of State      Foreign service national             0 
                                       defined contributions      
                                       retirement fund*           
469        Department of State      USIA Foreign Service                 0 
                                       national separation        
                                       liability trust fund*      
470        Interior                 Dutch John community                 0 
                                       assistance*                
471        Transportation           Saint Lawrence Seaway                0 
                                       Development Corporation*   
472        Transportation           Minority business resource           0 
                                       center program*            
473        Federal Financial        Registry fees                        0 
              Institutions Examination                            
              Council Appraisal                                   
              Subcommittee                                        
474        International Assistance Private sector revolving             0 
              Programs                 fund liquidating account*  
475        Japan-United States      Japan-United States                  0 
              Friendship Commission    Friendship trust fund      
476        National Credit Union    Community development                0 
              Administration           credit union revolving     
                                       loan fund*                 
477        Other Defense Civil      Wildlife conservation                0 
              Programs                                            
478        Other Defense Civil      Soldiers' and airmen's               0 
              Programs                 home revolving fund*       
479        Other Defense Civil      White House commission on            0 
              Programs                 the national moment of     
                                       remembrance*               
480        Allowances               Contingent offset for the            0 
                                       refundable portion of the  
                                       health care tax credit*    
481        Barry Goldwater          Barry Goldwater                      0 
              Scholarship and          Scholarship and Excellence 
              Excellence in Education  in Education Foundation    
              Foundation                                          
482        Agriculture              P.L. 480 title I food for            0 
                                       progress credits, program  
                                       account*                   
483        Commerce                 Gifts and bequests                   0 
484        Department of            Concurrent receipt accrual           0 
              Defense-Military         payments to the Military   
                                       Retirement Fund*           
485        Department of            Restoration of the Rocky             0 
              Defense-Military         Mountain Arsenal*          
486        Education                Reading excellence*                  0 
487        Education                School construction*                 0 
488        Education                Class size reduction and             0 
                                       teacher financing*         
489        Education                Perkins loan revolving               0 
                                       fund*                      
490        Education                Federal family education             0 
                                       loan insurance fund*       
491        Health and Human         State legalization impact            0 
              Services                 assistance grants*         
492        Health and Human         Health maintenance                   0 
              Services                 organization loan and loan 
                                       guarantee fund*            
493        Homeland Security        Disaster assistance direct           0 
                                       loan program account*      
494        Housing and Urban        Empowerment                          0 
              Development              zones/enterprise           
                                       communities*               
495        Justice                  Civil liberties public               0 
                                       education fund*            
496        Labor                    Foreign labor                        0 
                                       certification processing*  
497        Interior                 Bureau of Reclamation loan           0 
                                       program account*           
498        Interior                 Miscellaneous permanent              0 
                                       appropriations*            
499        Interior                 Payment to tribe, Lower              0 
                                       Brule Sioux Trust Fund*    
500        Interior                 Miscellaneous Indian trust           0 
                                       payments*                  
501        Interior                 Operation and maintenance            0 
                                       of quarters*               
502        Interior                 Operation and maintenance            0 
                                       of quarters*               
503        Interior                 Fee collection support,              0 
                                       national park system*      
504        Interior                 National park renewal                0 
                                       fund*                      
505        Interior                 Concessions improvement              0 
                                       accounts*                  
506        Interior                 Park concessions franchise           0 
                                       fees*                      
507        Interior                 African elephant                     0 
                                       conservation fund*         
508        Interior                 Miscellaneous permanent              0 
                                       appropriations*            
509        Treasury                 Payment to Justice, FIRREA           0 
                                       related claims*            
510        Treasury                 Payments to the farm                 0 
                                       credit system financial    
                                       assistance corporation     
                                       liquidating account*       
511        Treasury                 Miscellaneous activities             0 
                                       to be authorized in        
                                       tobacco legislation*       
512        Treasury                 Miscellaneous permanent              0 
                                       appropriations*            
513        Transportation           Railroad rehabilitation              0 
                                       and improvement program*   
514        Transportation           Aviation user fees                   0 
515        Veterans Affairs         Veterans housing benefit             0 
                                       program fund*              
516        Veterans Affairs         Reinstated entitlement               0 
                                       program for survivors      
                                       under P.L. 97-377*         
517        Veterans Affairs         Miscellaneous veterans               0 
                                       housing loans guaranteed   
                                       loan financing account*    
518        Veterans Affairs         Medical care cost recovery           0 
                                       fund*                      
519        District of Columbia     District of Columbia                 0 
                                       Federal pension fund*      
520        District of Columbia     Federal payment for water            0 
                                       and sewer services*        
521        Environmental Protection Revolving fund for                   0 
              Agency                   certification and other    
                                       services*                  
522        General Services         Working capital fund*                0 
              Administration                                      
523        General Services         Acquisition workforce                0 
              Administration           training fund*             
524        General Services         Pennsylvania Avenue                  0 
              Administration           activities*                
525        General Services         Land acquisition and                 0 
              Administration           development fund*          
526        International Assistance Payment to the Foreign               0 
              Programs                 Service retirement and     
                                       disability fund            
527        Judicial Branch          Payment to judiciary trust           0 
                                       funds                      
528        Legislative Branch       Gifts and donations*                 0 
529        Legislative Branch       United States Capitol                0 
                                       Police memorial fund*      
530        National Aeronautics and National Space Grant                 0 
              Space Administration     Program*                   
531        National Aeronautics and Science, space, and                  0 
              Space Administration     technology education trust 
                                       fund                       
532        Other Independent        Foreign service national             0 
              Agencies                 separation liability trust 
                                       fund*                      
533        Other Independent        Miscellaneous trust funds*           0 
              Agencies                                            
534        Tennessee Valley         Tennessee Valley Authority           0 
              Authority                Office of the Inspector    
                                       General*                   
              Total                                                  $162,987 

Source: GAO analysis of President's budget data.

Note: The shaded rows indicate the 7 case study accounts discussed in
appendix I. Accounts with fewer than 5 years of data are denoted with an
"*."

GAO Contact and Acknowledgments Appendix IV

Susan J. Irving, (202) 512-9142, [email protected]

In addition to the individual named above, Christine Bonham, Assistant
Director, as well as Carol Henn, Richard Krashevski, Leah Nash, Sheila
Rajabiun, Paul Posner, and Stephanie Wade made key contributions to this
report.

(450410)

www.gao.gov/cgi-bin/getrpt? GAO-06-276 .

To view the full product, including the scope

and methodology, click on the link above.

For more information, contact Susan J. Irving, 202-512-9142,
[email protected].

Highlights of GAO-06-276 , a report to Congress

January 2006

MANDATORY SPENDING

Using Budget Triggers to Constrain Growth

Prepared as part of GAO's basic statutory responsibility for monitoring
the condition of the nation's finances, the objectives of this report were
to (1) determine the feasibility of designing and using trigger mechanisms
to constrain growth in mandatory spending programs and (2) provide an
analysis of the factors that led to differences between estimated and
actual outlays in seven mandatory budget accounts during fiscal years 2000
through 2004.

What GAO Recommends

To promote explicit scrutiny of significant growth in mandatory accounts,
as mandatory spending programs are created, reexamined, or reauthorized,
Congress should consider incorporating budget triggers that would signal
the need for action. Further, it should determine whether in some cases it
might be appropriate to consider automatically causing some action to be
taken when the trigger is exceeded. Once a trigger is tripped, Congress
could either accept or reject all or a portion of a proposed response to
the spending growth. The Office of Management and Budget and agencies
responsible for the seven case study accounts either did not have comments
or provided comments that were clarifying and/or technical in nature,
which were incorporated as appropriate.

One idea to constrain growth in mandatory programs is to develop
program-specific triggers that, when tripped, prompt a response. A trigger
could result in a "hard" or automatic response, unless Congress and the
President acted to override or alter it. Alternatively, reaching a trigger
could require a "soft" response, such as a report on the causes of the
overage, development of a plan to address it, or an explicit and formal
decision to accept or reject a proposed action or increase. By identifying
significant increases in the spending path of a mandatory program
relatively early and acting to constrain it, Congress may avert larger
financial challenges in the future. However, both in establishing triggers
and in designing the subsequent responses, the integrity of program goals
needs to be preserved. In addition, tax expenditures operate like
mandatory programs but do not compete in the annual appropriations
process. The analysis GAO applied to spending in this report would also be
useful in examining tax expenditures.

The budget experts GAO consulted had mixed views of triggers. Proponents
of triggers noted that mandatory spending is currently unconstrained and a
mechanism that causes decision makers to at least periodically reevaluate
spending is better than allowing spending to rise unchecked. Others,
however, expressed considerable skepticism about the effectiveness of
triggers; many felt they would either be circumvented or ignored. While
GAO appreciates the views expressed by budget experts, in our opinion
establishing budget triggers warrants consideration in efforts to
constrain significant and largely unchecked growth in mandatory programs.
However, recognizing the natural tension in balancing both long-term
fiscal challenges and other public policy goals, each program needs to be
considered individually to ensure that any responses triggered strike the
appropriate balance between the long-term fiscal challenge and the program
goals.

To better understand growth in mandatory spending and thus inform GAO's
thinking on triggers, for seven case study accounts GAO categorized the
reasons provided by agencies for differences between estimated and actual
outlays during a 5-year period as the result of legislative, economic, or
technical changes. Out of 40 differences, subsequent legislation was the
primary reason for 19, economic changes for 7, and technical changes for
13. In many cases, a combination of these factors caused the differences.

Conceptual Differences between Hard and Soft Responses
*** End of document. ***