15. BUDGET REFORM PROPOSALS
In April of last year, the Administration sent to the
Congress budget enforcement legislation in the form
of the proposed Spending Control Act of 2004. The Administration
plans to re-propose that legislation with
appropriate revisions. This chapter provides an overview
of that updated legislation, and describes other
budget reform proposals supported by the Administration.
Certain administrative steps are planned to require
agencies to propose offsets for regulatory actions
that would increase mandatory spending.
In addition, the Administration requests that the
Congress include the following budget enforcement proposals
as part of its budget resolution:
• Discretionary caps that include separate defense,
nondefense, highway and mass transit categories.
• Adjustments to the discretionary caps for program
integrity activities.
• Limits on advance appropriations within the discretionary
caps.
• A new scoring rule to ensure that funding shortfalls
do not accumulate in the discretionary Pell
Grant program in future years.
• A separate category for Project BioShield to ensure
that funding is not reduced and used as an
offset for other discretionary spending.
• A pay-as-you-go (PAYGO) requirement for all legislation
that changes mandatory spending.
• A stricter standard for emergency designations
and a requirement that the President and the
Congress concur in those designations.
• Extension of expiring tax provisions in the 2001
and 2003 tax cut bills in the budget resolution
baseline.
• Exclusion of discretionary funding for emergencies
from the budget resolution baseline.
• A point of order against legislation that worsens
the long-term unfunded obligation of major entitlement
programs.
Discretionary Caps
The Administration proposes to set limits for 2005
through 2010 on net discretionary budget authority
(BA) and outlays equal to the levels proposed in the
2006 Budget. Legislation that exceeds the discretionary
caps would trigger a sequester of non-exempt discretionary
programs. Table 15–1 displays the total levels
of discretionary budget authority and outlays proposed
for 2005 through 2010. This approach would put in
place a budget framework for the next five years that
ensures constrained, but reasonable growth in discretionary
programs. For 2005 through 2007, separate defense
(Function 050) and nondefense categories would
be enforced. For 2008–2010, there would be a single
cap for all discretionary spending. In addition, a separate
category for transportation outlays, financed by
dedicated revenues, would be established for 2005
through 2009. The proposal discontinues separate caps
established for conservation programs in 2001 through
an amendment to the Budget Enforcement Act (BEA).
Table 15–1. GENERAL PURPOSE DISCRETIONARY CAPS AND ADJUSTMENTS
(Amounts in billions of dollars)
2005 1 2006 2007 2008 2009 2010
Proposed Discretionary Spending Categories:
Discretionary Category:
Defense Category (Function 050):
Budget authority .................................................................... 420.2 438.8 462.6 NA NA NA
Outlays ................................................................................... 463.5 444.3 446.1 NA NA NA
Nondefense Category:
Budget authority .................................................................... 402.5 400.7 402.2 NA NA NA
Outlays ................................................................................... 427.1 435.5 429.1 NA NA NA
Proposed Cap Adjustments:
SSA Continuing Disability Reviews:
Budget authority ........................................................... NA 0.189 0.203 NA NA NA
Outlays .......................................................................... NA 0.166 0.201 NA NA NA
IRS Tax Enforcement:
Budget authority ........................................................... NA 0.446 0.514 NA NA NA
Outlays .......................................................................... NA 0.415 0.509 NA NA NA
Health Care Fraud and Abuse Control:
Budget authority ........................................................... NA 0.080 0.120 NA NA NA
Outlays .......................................................................... NA 0.080 0.120 NA NA NA
236 ANALYTICAL PERSPECTIVES
Table 15–1. GENERAL PURPOSE DISCRETIONARY CAPS AND ADJUSTMENTS—Continued
(Amounts in billions of dollars)
2005 1 2006 2007 2008 2009 2010
Unemployment Insurance Improper Payments:
Budget authority ........................................................... NA 0.040 0.040 NA NA NA
Outlays .......................................................................... NA 0.034 0.040 NA NA NA
Subtotal, Nondefense Category, with Adjustments:
Budget authority .................................................................... 402.5 401.5 403.1 NA NA NA
Outlays ................................................................................... 427.1 436.1 430.0 NA NA NA
Discretionary Category:
Budget authority .................................................................... NA NA NA 886.6 907.9 919.8
Outlays ................................................................................... NA NA NA 889.3 905.6 971.4
Highway Category:
Outlays ....................................................................................... 32.1 34.4 34.9 36.0 39.3 NA
Mass Transit Category: 2
Outlays ....................................................................................... 7.2 6.9 6.5 6.9 7.0 NA
Total, All Discretionary Categories:
Budget authority ............................................................................. 822.7 840.3 865.7 886.6 907.9 919.8
Outlays ........................................................................................... 929.9 921.7 917.4 932.2 951.9 971.4
Project BioShield Category:
Budget authority ............................................................................. 2.5 .............. .............. .............. 2.2 ..............
Memorandum: 2005 Hurricane Supplemental
Budget authority ............................................................................. 11.9 .............. .............. .............. .............. ..............
1 The discretionary budget authority for Division B of the Military Construction Appropriations and Emergency Hurricane Supplemental
Appropriations Act, 2005 (PL 108–324) and for emergencies in the Consolidated Appropriations Act, 2005 (PL 108–447) are displayed
separately on a memorandum line.
2 Includes prior-year outlays from general fund budget authority provided in years prior to 2005. Outlays from general fund budget
authority for 2005 and beyond are included in the Discretionary Category.
Program Integrity Cap Adjustments.—An improper
payment occurs when Federal funds go to the wrong
recipient, the recipient receives an incorrect amount
of funds, or the recipient uses the funds in an improper
manner. Approximately 92 percent of improper payments
are overpayments. The Administration has made
the elimination of improper payments a major focus.
Federal agencies have begun to review Federal programs
to evaluate the risk of improper payments, have
developed measures to assess the extent of improper
payments, and have initiated processes and internal
control improvements to enhance the accuracy and integrity
of payments. For the first time, agencies have
reported the results of these efforts, pursuant to the
Improper Payments Information Act of 2002 (P.L.
107–300).
The results of the agency assessment have been aggregated
into a government-wide report entitled Improving
the Accuracy and Integrity of Federal Payments.
(The full text of the report can be found at http://
www.whitehouse.gov/omb/financial/fia_improper.
html.) In 2004, the agencies reported a total of $45.1
billion in improper payments. This represents a 3.9 percent
improper payment rate. Almost two-thirds of those
improper payments are in four programs: Medicare, Unemployment
Insurance, Supplemental Security Income,
and Old-Age, Survivors, and Disability Insurance.
In the context of the Administration’s efforts to eliminate
improper payments, the Administration is proposing
adjustments for spending above a base level of
funding within the discretionary levels for several program
integrity initiatives, specifically those efforts for
continuing disability reviews (CDRs) in the Social Security
Administration, Internal Revenue Service (IRS) tax
enforcement, the Health Care Fraud and Abuse Control
Program (HCFAC) in the Centers for Medicare and
Medicaid Services and Unemployment Insurance improper
payments in the Department of Labor. These
cap adjustments provide an effective way to ensure that
limited resources are applied to activities that reduce
error and generate program savings.
In the past decade, there have been a variety of successful
efforts to ensure dedicated resources for program
integrity efforts. These efforts include cap adjustment
funding for Social Security continuing disability
reviews and integrity efforts associated with the Earned
Income Tax Credit (EITC). These initiatives have led
to increased savings for the Social Security program
and an increase in enforcement efforts in EITC.
237 15. BUDGET REFORM PROPOSALS
Table 15–2. TRANSPORTATION CATEGORY FOR HIGHWAYS AND MASS TRANSIT SPENDING
(Amounts in billions of dollars)
2004 1 2005 1 2006 2007 2008 2009
Transportation Category:
Highways:
Obligation Limitations ................................................................ 34.6 35.2 35.9 37.3 39.8 45.9
Outlays ....................................................................................... 30.7 32.1 34.4 34.9 36.0 39.3
Mass Transit: 2
Obligation Limitations ................................................................ 5.8 6.7 6.8 6.5 7.0 7.6
Outlays ....................................................................................... 6.8 7.2 6.9 6.5 6.9 7.0
Memorandum:
Discretionary budget authority for mass transit not under the
Transportation Guarantee:
Budget authority ......................................................................... 1.5 1.0 1.0 1.6 1.7 1.9
1 The Administration’s SAFETEA proposal for Highway and Mass Transit programs applies to 2004 through 2009.
2 Includes prior-year outlays from general fund budget authority provided in years prior to 2005. Outlays from general fund budget
authority for 2005 and beyond are included in the Discretionary Category.
Additional spending on program integrity initiatives
has proven to reduce erroneous payments in these programs.
For example, the Social Security Administration
reports that every $1 expended on CDRs has produced
a $10 return to taxpayers. The Administration’s proposed
adjustments for program integrity activities will
total $755 million in budget authority in 2006 and $877
million in budget authority in 2007.
Transportation Category.—The Administration’s proposal
for discretionary caps includes separate categories
for spending on Federal Highway and Mass Transit
programs. The Transportation levels will be financed
by dedicated revenues over the six-year period from
2004 through 2009. This structure is consistent with
the estimates provided in the 2006 Budget. Table 15–2
displays the Administration’s Transportation proposal.
The proposal discontinues the annual adjustment reflecting
updated revenue estimates that was in the previous
authorization, the Transportation Equity Act for
the 21st Century (TEA–21).
Advance Appropriations.—An advance appropriation
becomes available one or more years beyond the year
for which its appropriations act is passed. BA is recorded
in the year the funds become available and not
in the year of enactment. Too often, advance appropriations
have been used to expand spending levels by shifting
budget authority from the budget year into the
subsequent year and then appropriating the BA freed
up under the budget year discretionary cap to other
programs. The effect of these advance appropriations
is to limit the amount of discretionary BA available
in subsequent years, thereby reducing future funding
options available to both Congress and the President.
From 1993 to 1999, an average of $2.3 billion in discretionary
budget authority was advance appropriated
each year. In 1999, advance appropriations totaled $8.9
billion and increased to $23.4 billion in 2000.
Because this budget practice distorts the debate over
Government spending and misleads the public about
spending levels in specific accounts, the President’s
budget proposals and the 2002 Congressional Budget
Resolution capped advance appropriations at the
amount advanced in the previous year. By capping advance
appropriations, increases in these and other programs
can be budgeted and reflected in the year of
their enactment. This year, the Administration proposes
that total advance appropriations, excluding Project
BioShield, continue to be capped in 2006 through 2010.
Instead of capping total advance appropriations at the
2002 level, the Administration will propose a cap on
advance appropriations of $22,602 million. This is the
level of advance appropriations provided for 2007 in
the President’s 2006 Budget.
In addition, the Administration will also score the
second—year effect of appropriations language that
delays obligations of mandatory budget authority as advance
appropriations that count against the discretionary
caps. Appropriations acts often include provisions
that delay obligations of mandatory BA from one
year to the next. The first year is appropriately scored
as a discretionary savings because it is included in
an appropriations act and it reduces spending in that
year. However, this is usually a temporary delay, and
the funds become available for spending in the second
year. Under this proposal, the second-year impact
would be treated as an advance appropriation and
scored against the discretionary caps. This will correct
an inconsistency in the current practice where savings
are scored in the first year, but the second year impact
is reclassified in the subsequent budget as mandatory
and not scored against the discretionary caps.
To enforce the level of advance appropriations, the
discretionary cap proposal provides that total funding
for advance appropriations (including obligation delays)
provided in an appropriations act for 2006 through 2010
that is in excess of the Administration’s limit on advance
appropriations of $22,602 million will count
against the discretionary cap in the year enacted, not
against the year the funds first become available.
Federal Pell Grants.—The Pell Grant program provides
grant aid to more than five million postsecondary
students each year to help pay for their education. Pell
238 ANALYTICAL PERSPECTIVES
Grant funding is discretionary and is provided through
the annual appropriations process. If a Pell-eligible student
enrolls in school, however, he or she is automatically
eligible for a need-based award up to the maximum
award set in appropriations (currently $4,050).
Pell Grant cost estimates are based on the February
Budget’s technical and economic assumptions; the
Budget includes both the cost estimate for the budget
year and revised cost estimates for prior years. In recent
years, Pell Grant appropriations have been insufficient
to cover program costs, creating an estimated $4.3
billion funding shortfall through the 2005–2006 award
year.
In the FY 2006 Budget, the Administration is proposing
a comprehensive package of reforms to the Federal
student aid programs, including Pell Grants. In
Pell, the Budget proposes to increase the $4,050 maximum
award by $100 in FY 2006 and $500 over the
next five years. The Budget also proposes to retire the
estimated $4.3 billion funding shortfall in Pell through
the 2005–2006 award year. The Budget requests mandatory
budget authority for the additional funding from
these Pell Grant proposals, which are offset by reforms
to the Federal student loan programs that increase benefits
to students while making these programs more
cost effective. This mandatory funding for Pell Grants
is contingent on adoption of the scoring rule discussed
below, which will prevent future underfunding of Pell
Grant program costs.
The Pell Grant program would remain discretionary.
With the exception of the proposed funding to increase
the maximum award by $500 over the next five years,
the Administration would oppose efforts to convert Pell
Grants into a mandatory program. Discretionary funding
would still be required to support the cost of a
$4,050 Pell Grant maximum award. Additional discretionary
appropriations would also be needed to support
any cost increases in the base Pell Grant program—
due to increased enrollment, maximum award increases
provided in appropriations, or other policy changes.
To ensure that funding shortfalls do not accumulate
in the Pell Grant program in future years, the Administration
is proposing to score appropriations at the
amount needed to fully fund the award level set in
appropriations acts, if the amount appropriated is insufficient
to fully fund all awards. This amount would
be increased to cover any funding shortfalls from previous
years and reduced by any surpluses carried over
from previous years. If the amount appropriated exceeded
the estimated full cost, the amount appropriated
would be scored against that year, and the surplus
would carry over as a credit against the following year’s
cost estimate. The new scoring rule would only apply
to Pell Grant costs beginning with the 2006–2007
award year. The existing shortfall would be funded as
described above.
The Pell Grant scoring rule is a necessary component
of the Administration’s student aid reforms. It will ensure
that Pell Grants costs are fully funded each year,
which means that funding shortfalls will be paid for
and will not accumulate in future years. The Administration
believes that mandatory funding should not be
used for Pell Grants unless this new budget scoring
rule is in place.
Project BioShield Category.—The Administration proposes
to create a separate BEA category for budget
authority for Project BioShield, which received an advance
appropriation for 2005 of $2.5 billion and for
2009 of $2.2 billion in P.L. 108–90, the 2004 Department
of Homeland Security Appropriations Act. Because
the success of this program in providing for the
development of vaccines and medications for biodefense
depends on an assured funding availability, it is critical
that this funding not be diverted to other purposes.
The Administration’s proposal to create a separate category
will help ensure that funding for this program
is not reduced and used as an offset for other discretionary
spending.
Pay-As-You-Go (PAYGO) Extension
The Administration proposes to subject all legislation
that changes mandatory spending to a pay-as-you-go
requirement, so that such legislation, in total, does not
increase the deficit. This proposal is modeled after the
PAYGO requirement in the BEA, except that it does
not apply to tax legislation. It also does not permit
mandatory spending increases to be offset by tax increases.
The Administration does not support increasing
the tax burden on the American people and, therefore,
proposes to remove tax legislation from the PAYGO
calculation.
The five-year impact of any proposals affecting mandatory
spending would continue to be scored. Table
15–3 displays the President’s mandatory spending proposals.
Legislation that exceeds the pay-as-you-go requirement
in the current year and the budget year
would trigger a sequester of direct spending programs.
The 2006 Budget identifies as ‘‘PAYGO’’ only legislative
proposals that change mandatory spending.
239 15. BUDGET REFORM PROPOSALS
Table 15–3. PAYGO PROPOSALS
(Cost/Savings(–) in millions of dollars)
2005 2006 2007 2008 2009 2010 2005–10
Outlay Effects of Tax Proposals 1 ................................................................................. .......... –16 3,607 5,594 6,738 7,380 23,303
Pension Benefit Guaranty Corporation Reform 1 .......................................................... .......... –2,195 –3,702 –3,495 –3,226 –2,916 –15,534
Medicaid and State Children’s Health Insurance Program .......................................... 225 1,112 –1,549 –3,699 –4,214 –4,417 –12,542
User Fee Proposals ....................................................................................................... .......... –824 –1,384 –1,482 –1,617 –1,593 –6,900
Student Loan Reforms and Pell Grant Increase .......................................................... 557 –1,172 –2,001 –1,752 –1,337 –986 –6,691
Byrd Amendment Repeal .............................................................................................. .......... –1,608 –1,615 –1,624 –855 –865 –6,567
Extension of Spectrum Auction Authority ..................................................................... .......... ............ ............ 1,083 –2,156 –3,239 –4,312
Commodity Credit Corporation and Crop Insurance .................................................... .......... –587 –991 –982 –738 –674 –3,972
Allowing Power Marketing Administrations to Charge Market Rates .......................... .......... –40 –157 –446 –1,145 –1,406 –3,194
Southern Nevada Land Sales ....................................................................................... .......... –227 –418 –636 –641 –642 –2,564
Temporary Assistance for Needy Families Reauthorization ........................................ 100 277 329 352 361 357 1,776
Arctic National Wildlife Refuge, lease bonuses ............................................................ .......... ............ –1,201 –1 –101 –1 –1,304
Other Proposals ............................................................................................................. –62 –66 36 127 257 688 980
Total ........................................................................................................................... 820 –5,346 –9,046 –6,961 –8,674 –8,314 –37,521
Total, 2005 and 2006 ................................................................................................ .......... –4,526 ............ ............ ............ ............ ..............
1 Affects both receipts and outlays. Only the outlay effect is shown here.
Include Stricter Standard For Emergency
Designation in the BEA
When the BEA was created, it provided a ‘‘safety
valve’’ to ensure that the fiscal constraint envisioned
by the BEA would not prevent the enactment of legislation
to respond to unforeseen disasters and emergencies
such as Operation Desert Storm, the series of hurricanes
that struck Florida this fall, or the terrorist attacks
of September 11, 2001. If the President and the
Congress separately designated a spending or tax item
as an emergency requirement, the BEA held these
items harmless from its enforcement mechanisms. Initially,
this safety valve was used judiciously, but in
later years its application was expanded to circumvent
the discretionary caps by declaring spending for ongoing
programs as ‘‘emergencies.’’
The Administration proposes to include in the BEA
a definition of ‘‘emergency requirement’’ that will ensure
high standards are met before an event is deemed
an ‘‘emergency’’ and therefore exempt. This definition
should include the following elements: the requirement
is a necessary expenditure that is sudden, urgent, unforeseen,
and not permanent. These elements, all of
which would be used for defining something as an
emergency, are defined as follows:
• necessary expenditure–an essential or vital expenditure,
not one that is merely useful or beneficial;
• sudden–quickly coming into being, not building
up over time;
• urgent–pressing and compelling, requiring immediate
action;
• unforeseen–not predictable or seen beforehand as
a coming need (an emergency that is part of the
average annual level of disaster assistance funding
would not be ‘‘unforeseen’’); and
• not permanent–the need is temporary in nature.
This definition codifies the criteria for an emergency
that have been the standard for a number of years.
It is designed to preclude funds from being declared
an emergency for events that occur on an annual or
recurring basis. For example, even though it is not
possible to predict the specific occurrence of fires, tornados,
hurricanes, and other domestic disasters, it is
reasonable to assume that a combination of domestic
disasters will occur in any given year that require funding
equal to the five-year average for disaster relief.
Funding at this five-year average, therefore, should not
be considered an emergency under this definition. On
the other hand, the five-year average for domestic disasters
will not accommodate the level of funding necessary
to address a large and relatively infrequent domestic
disaster, like the series of hurricanes that struck
Florida this past fall. Under this definition for emergencies,
spending for extraordinary events could be
classified as emergency funding. In the end, classification
of certain spending as an emergency depends on
common sense judgment, made on a case-by-case basis,
about whether the totality of facts and circumstances
indicate a true emergency.
In addition, the Administration proposes that the definition
of an emergency requirement also encompass
contingency operations that are national security related.
Contingency operations that are national security
related include both defense operations and foreign assistance.
Military operations and foreign aid with costs
that are incurred regularly should be a part of base
funding and, as such, are not covered under this definition.
The Administration proposal also would require that
the President and Congress concur in designating an
emergency for each spending proposal covered by a designation.
This would protect against the ‘‘bundling’’ of
non-emergency items with true emergency spending. If
the President determines that specific proposed emergency
designations do not meet this definition, he would
not concur in the emergency designation and no discretionary
cap adjustment or PAYGO exemption would
apply.
240 ANALYTICAL PERSPECTIVES
Baseline
The Administration proposes several changes to Section
257 of the BEA, which establishes the requirements
for the baseline:
• Assume extension of all expiring tax provisions
in the Economic Growth and Tax Relief Reconciliation
Act of 2001 and certain provisions in the
Jobs and Growth Tax Relief Reconciliation Act of
2003. This proposal is consistent with the BEA
baseline rules for expiring mandatory spending
and for excise taxes dedicated to a trust fund.
Except for a few relatively small mandatory programs,
the BEA assumes that mandatory spending
and excise taxes dedicated to a trust fund
will be reauthorized and extends them in the baseline.
The 2001 Act and 2003 Act provisions were
not intended to be temporary, and not extending
them in the baseline raises inappropriate procedural
road blocks to extending them at current
rates.
• Add a provision to exclude discretionary funding
for emergencies from the baseline. Instead, the
baseline would include emergency funding only for
the year in which it was enacted. The current
requirement is for the discretionary baseline estimates
for the budget year and the outyears to
assume the current year appropriated level, adjusted
for inflation. This is reasonable for ongoing
programs, where the need is expected to continue
into the future. For emergencies, since the need
should be for a short duration, the baseline rules
build unnecessary funding into the baseline estimates
for the years after the need has been addressed
and passed. In effect, the current rule biases
the baseline in favor of higher discretionary
spending.
• Correct the overcompensation of baseline budgetary
resources for pay raise-related costs due to
the way in which these costs are inflated. The
current requirement, which provides a full year’s
funding for pay raises in the budget year and
beyond, was written when Federal pay raises were
scheduled to take effect on October 1, at the start
of each fiscal year. However, this requirement is
now inappropriate because the effective date for
pay raises is now permanently set by law as the
first pay period in January. By treating pay raises
that begin on January 1 as if they take effect
for the entire fiscal year, the baseline overstates
the cost of providing a constant level of services.
• Eliminate the adjustments for expiring housing
contracts and social insurance administrative expenses.
Most multi-year housing contracts have
expired or have been addressed since the BEA
was first enacted in 1990, so the adjustment is
no longer needed. The adjustment for social insurance
administrative expenses is also inconsistent
with the baseline rules for other accounts that
fund the costs of administration. These programs
should not be singled out for preferential treatment.
Long-term Unfunded Obligations
The Administration proposes new measures to prevent
enactment of legislation that worsens the longterm
unfunded obligations of Federal entitlement programs.
As discussed in Chapter 13 of this volume,
‘‘Stewardship,’’ spending by the Government’s major entitlement
programs, particularly Social Security and
Medicare, is projected to rise in the next few decades
to levels that cannot be sustained, either by those programs’
own dedicated financing or by general revenues.
The Administration’s proposed measures would prevent
further legislative increases in the long-run fiscal imbalance.
Congress has already acted to require a more comprehensive
review of the Medicare program’s finances
and to require the Medicare trustees to issue a warning
when general revenue Medicare funding is projected
to exceed 45 percent of Medicare’s total expenditures.
The Budget proposes to build on this reform by establishing
a new enforcement measure to analyze the longterm
impact of legislation on the unfunded obligations
of major entitlement programs and to make it more
difficult to enact legislation that would expand the unfunded
obligations of these programs over the long-run.
These measures would highlight proposed legislative
changes that appear to cost little in the short run but
result in large increases in the spending burdens
passed on to future generations.
First, the Administration proposes a point of order
against legislation which worsens the long-term unfunded
obligation of major entitlements. The specific
programs covered would be those programs with long
term actuarial projections, including Social Security,
Medicare, Federal civilian and military retirement, veterans
disability compensation, and Supplemental Security
Income. Additional programs would be added once
it becomes feasible to make long-term actuarial estimates
for those programs.
Second, the Administration proposes new reporting
requirements to highlight legislative actions worsening
unfunded obligations. These requirements would require
the Administration, as part of the President’s
Budget, to report on any enacted legislation in the past
year that worsens the unfunded obligations of the specified
programs.
Line-Item Veto
A perennial criticism of the Federal Government is
that spending and tax legislation contain too many provisions
benefiting a relative few which would likely not
become law if considered as a stand-alone bill. The
persistence of special interest items diverts resources
from higher priority programs and erodes the confidence
of citizens in Government. Appropriations bills,
especially those considered at the end of the congressional
session, often attract special interest spending
items that could not be enacted on their own.
241 15. BUDGET REFORM PROPOSALS
The President proposes that Congress correct this
state of affairs by providing him and future Presidents
with a line item veto that would withstand constitutional
challenge. From the Nation’s founding, Presidents
have exercised the authority to not spend appropriated
sums. However, Congress sought to curtail this
authority in 1974 through the Impoundment Control
Act, which restricted the President’s authority to decline
to spend appropriated sums. Although the Line
Item Veto Act of 1996 attempted to give the President
the authority to cancel spending authority and special
interest tax breaks, the U.S. Supreme Court found that
law unconstitutional. The President’s proposal would
correct the constitutional flaw in the 1996 Act.
Specifically, the President proposes a line-item veto
linked to deficit reduction. This proposal would give
the President the authority to defer new spending
whenever the President determines the spending is not
an essential Government priority. All savings from the
line-item veto would be used for deficit reduction, and
they could not be applied to augment other spending.
Other Budget Reform Proposals
Joint Budget Resolution.—A joint budget resolution
would set the overall levels for discretionary spending,
mandatory spending, receipts, and debt in a simple document
that would have the force of law. Under the
current process, the Congress annually adopts a ‘‘concurrent
resolution,’’ which does not require the President’s
signature and does not have the force of law.
A joint budget resolution could be enforced by sequesters
requiring automatic across-the-board cuts to offset
any excess spending, similar to the BEA. It would bring
the President into the process at an early stage, require
the President and the Congress to reach agreement
on overall fiscal policy before individual tax and spending
bills are considered, and it would give the budget
resolution the force of law.
Biennial Budgeting and Appropriations.—Only twice
in the last 50 years have all appropriation bills been
enacted by the beginning of the fiscal year. Because
Congress must enact these bills each year, it cannot
devote the time necessary to provide oversight and fully
address problems in Federal programs. The preoccupation
with these annual appropriations bills frequently
precludes review and action on authorization legislation
and on the growing portion of the Budget that is permanently
funded under entitlement laws. According to the
Congressional Budget Office, the Congress has appropriated
about $170 billion for fiscal year 2005 for programs
and activities whose authorizations of appropriations
have expired.
In contrast, a biennial budget would allow lawmakers
to devote more time every other year to ensuring that
taxpayers’ money is spent wisely and efficiently. In addition,
Government agencies would receive more stable
funding, which would facilitate longer range planning
and improved fiscal management. Under the President’s
proposal for a biennial budget, funding decisions would
be made in odd-numbered years, with even numbered
years devoted to authorizing legislation.
Government Shutdown Prevention.—For 23 out of the
past 24 years, Congress has not finished its work by
the October 1st deadline, the beginning of the new fiscal
year. When Congress fails to enact appropriations
bills, it funds the Government through ‘‘continuing resolutions’’
(CRs), which provide temporary funding authority
for Government activities usually at current levels
until the final appropriations bills are signed into
law.
If Congress does not pass a CR or the President
does not sign it, the Federal Government must shut
down. Important Government functions should not be
held hostage simply because of an impasse over temporary
funding bills. In the responsible process the
President envisions, there should be a back-up plan
to avoid the threat of a Government shutdown, although
the expectation is that appropriations bills still
would pass on time as the law requires. Under the
President’s proposal, if an appropriations bill is not
signed by October 1 of the new fiscal year, funding
would be automatically provided at the lower of the
President’s Budget or the prior year’s level.
Reserve for Fully Accruing Federal Employees’ Retirement.—
Both the President’s 2003 and 2004 Budgets
proposed to correct a long-standing understatement of
the true cost of thousands of government programs.
For some time, the cost of benefits accruing under the
Federal Employee’s Retirement System (FERS) and
Military Retirement System (MRS) and a portion of
the accruing benefits of the old Civil Service Retirement
System (CSRS) have been properly allocated to the affected
salary and expense accounts, but the remainder
(a portion of CSRS, other small retirement systems,
and all civilian and military retiree health benefits)
has been charged to central accounts. The full cost of
accruing benefits should be allocated to the affected
salary and expense accounts, so that budget choices
for program managers and budget decision makers are
not distorted by understated cost information. The Administration
recommends that this be re-examined and
proposes to work with the Congress to develop a solution
that addresses the concerns raised by Congress
and others with the Administration’s previous proposals.
The 2005 Budget included a very limited proposal
that would require the Patent and Trademark Office
(PTO), a fully fee-funded agency, to use the fees it
collects to cover the current accruing cost of post-retirement
annuities, and health and life insurance benefits.
Congress enacted this provision for 2005, and the 2006
Budget proposes that this PTO provision be made permanent.
Similarly, the Postal Civil Service Retirement
System Funding Reform Act of 2003 (P.L. 108–18) requires
the Postal Service to cover the full accruing cost
of post-retirement annuities for its CSRS employees.
In addition, the 2006 Budget proposes to use the pension
savings provided to the Postal Service by P.L.
108–18 that would otherwise be held in escrow in 2006
242 ANALYTICAL PERSPECTIVES
and beyond, to put the Postal Service on a path that
fully funds its substantial retiree health benefits liabilities.
Results Commission/Sunset Commission.—The Federal
government’s ability to serve the American people
is often hampered by poorly designed programs or uncoordinated,
overlapping programs trying to achieve the
same objective. Overlapping jurisdictions in the Executive
Branch and Congress provide daunting hurdles to
legislative remedies to the poor performance of duplicative
programs. Because the potential for savings and
productivity are great, the Administration is proposing
two mechanisms for realizing the opportunity to improve
performance and control cost in a systematic and
expedited fashion.
The Administration plans to propose legislation that
gives the President the authority to propose Results
Commissions. These commissions would consider and
revise Administration proposals to improve the performance
of programs or agencies by restructuring or consolidating
them. Congress would approve individual Results
Commissions to address single program or policy
areas where duplication and the overlapping jurisdictions
of Executive Branch agencies or Congressional
committees hinder reform. Proposals approved by the
commission would then be approved by the President
and considered by Congress under expedited procedures.
The Administration also proposes a Sunset Commission
to provide a process by which programs undergo
the regular scrutiny brought about by having to defend
their existence. Programs would be reviewed according
to a schedule enacted by Congress. The Commission
would consider proposals to retain, restructure, or terminate
programs. Programs would automatically terminate
according to the schedule unless Congress took
some action to reauthorize them.
Administrative Actions
Budget Discipline for Agency Administrative Actions.—
A significant amount of Federal policy is made
via administrative action, which can increase Federal
spending, often on the order of tens of billions of dollars
in entitlement programs such as Medicare or Medicaid.
Although known costs are incorporated into the Budget
baselines of various programs, agencies frequently
launch unplanned for and costly proposals. Often, these
costs are not reflected in the baseline, or are not accompanied
by other actions that would pay for the proposed
change. This results in increased spending and deficits.
Support for restoring a PAYGO requirement for mandatory
spending is integral to the Administration’s commitment
to reducing the deficit and enforcing fiscal discipline.
Toward that end, the Office of Management
and Budget plans to establish an internal review process
that requires agencies, when proposing substantial
administrative decisions that increase mandatory
spending, to propose other offsetting administration decisions
that reduce mandatory spending.
