Budget Issues: Capping of Outlays Is Ineffective for Controlling Expenditures

Published by the Government Accountability Office on 1990-09-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


                                                                                                                         .I--                                                                         ~-

                                                                                                                                          BUDGET ISSUES
                                                                                                                                          Capping of Outlays Is
                                                                                                                                          Ineffective for


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                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Accounting and Financial
                   Management Division


                   September 28,199O

                   The Honorable Jim Sasser
                   Chairman, Committee on the Budget
                   United States Senate

                   Dear Mr. Chairman:

                   This report responds to your September 22, 1989, request for informa-
                   tion on capping outlays in the public sector, the administrative and oper-
                   ational mechanisms needed to control such outlay caps, their long-term
                   savings benefits, and their effect on business relationships and the bal-
                   ance of power between the legislative and executive branches of the
                   government on spending matters. Because the term “outlay cap” is not
                   used universally, we have defined it for purposes of this report as a
                   limit imposed by the Congress, the Office of Management and Budget
                   (OMB), or an agency head on the funds an agency and/or a program can
                   expend from appropriated funds in order to control expenditures. This
                   definition excludes the deficit reduction features in the Balanced Budget
                   and Emergency Deficit Control Act of 1985. In this report, we have lim-
                   ited our discussion, with one exception, to caps that are legislatively

                   Outlay caps have had very limited use in public sector budgeting. We
Results in Brief   identified only three legislatively imposed outlay caps on federal pro-
                   grams between 1970 and 1990. In each case, a cap was enacted for a
                   single appropriation account. Furthermore, states use techniques other
                   than outlay caps to control expenditures.

                   Agencies achieved no long-term savings from the three identified outlay
                   caps because their outlays were simply delayed from the fiscal year
                   with the cap to the following year. In addition, the three caps did not
                   affect the balance of power between the legislative and executive
                   branches of government on spending matters. Also, we identified no
                   adverse effects on relationships between the agencies involved and the
                   private sector because the agencies did not have to cancel any contracts
                   or delay orders under existing contracts. In contrast, the Department of
                   Defense’s (DOD) administratively imposed expenditure control measures
                   on selected programs in fiscal year 1988 reportedly had an adverse
                   effect on DOD'S business relationship with some small contractors
                   because it did lead to cancellations and delayed orders.

                   Page 1                                        GAO/AFMD-90-111   Capping Outlays

             Outlay caps could lead to long-term savings only if they permanently
             reduced agency budget authority. Also, a cap could, under certain condi-
             tions, result in additional costs. Outlay caps might adversely affect busi-
             ness relations if they caused agencies to cancel contracts, delay orders,
             or write contracts that permitted delayed payments. In addition, if legis-
             lation exempts an agency from provisions of the Congressional Budget
             and Impoundment Control Act and the,!dPromptPayment Act, it could
             dramatically shift the balance of power over spending priorities from
             the Congress to the executive branch. A DOD appropriation bill con-
             taining this kind of outlay cap was introduced in the 1Olst Congress, but
             the cap was not enacted.

             Based on our review, we believe outlay caps are a costly and ineffective
             way to control federal spending and reduce the deficit. Outlay caps are
             likely to result in administrative inefficiencies and no long-term savings,

             The Congress normally exercises budget control over agencies by con-
Background   trolling the levels and purposes of budget authority made available to
             the agencies’ budget accounts. Budget authority is the authority pro-
             vided in law to enter into obligations which will result in immediate or
             future outlays of governmental funds.’ When legislation provides a cer-
             tain level of budget authority to an account, it may also specify the
             fiscal period over which the budget authority is available for obliga-
             tion-usually    1 fiscal year.2 Any authority not obligated in that period

             In such legislation, the Congress normally does not restrict the outlays
             that an account or agency can make in a given fiscal period. As a result,
             agency officials have some flexibility in timing their obligations and
             resultant outlays. Some congressional committees and agency officials
             have felt that this flexibility is needed to manage the timing of agency
             commitments, contracts, and disbursements to maximize program effi-
             ciency and effectiveness.

             ‘Obligations are the amounts of orders placed, contracta awarded, services received, and similar
             transactions carried out during a given period that will require payments during the same or a future
             period. Outlays are payments, such as checks issued or cash disbursed, made to liquidate obligations.
             2Budget authority may be available for obligation only during a specified fiscal year (annual), a speci-
             fied period of time in excess of 1 fiscal year (multiple-year), or an indefinite period of tie, usually
             until the objectives for which the authority was made available are attained (no-year).

             Page 2                                                          GAO/~111             Capping Outlayr
                        In the late 198Os, however, some legislation and bills deviated from this
                        pattern. Five times, congressional committees introduced legislation con-
                        taining language to place outlay caps on either individual appropriation
                        accounts or entire agency appropriations. Senate Budget Committee
                        staff informed us that this approach was a likely response to the deficit
                        reduction pressures of the 1985 Gramm-Rudman-Hollings legislation,
                        which was amended in 1987. Rather than adjusting the levels of the new
                        appropriations to meet outlay allocations established through the con-
                        gressional budget resolution process, various congressional committees
                        sought to establish outlay caps for certain accounts.

                        The Congress enacted three of the bills with the proposed outlay cap
                        language included. The Supplemental Appropriations Act, 1987 (Public
                        Law lOO-71(101 Stat. 391,405)),imposed an outlay cap on the Eco-
                        nomic Support Fund for fiscal year 1987; the Department of the Interior
                        and Related Agencies Appropriations Act, 1988 (Public Law loo-202
                        (101 Stat. 1329-214,243)), placed a cap on the Strategic Petroleum
                        Reserve Petroleum Account for fiscal year 1988; and the Department of
                        Transportation and Related Agencies Appropriations Act, 1990 (Public
                        Law 101-164 (103 Stat, 1069,1108)), imposed a cap on outlays resulting
                        from the use of fiscal year 1990 Petroleum Account funds.

                        The fiscal year 1990 Departments of Veterans Affairs and Housing and
                        Urban Development appropriations bill (H.R. 2916) proposed another
                        outlay cap for certain National Aeronautics and Space Administration
                        (NASA) programs before October 1, 1990. Like the three outlay caps that
                        were enacted, this proposed cap applied to specific programs rather
                        than the entire agency.

                        A fifth outlay cap was proposed in the fiscal year 1990 appropriations
                        bill (H.R. 3072) for the Department of Defense. Unlike the other four
                        bills that contained outlay caps, the DOD bill would have capped outlays
                        for the entire agency, not just specific programs. The bill proposed
                        giving the Secretary of Defense authority to select, subject to certain
                        limitations, which DOD programs to cap. It also exempted the agency
                        from some provisions of the Congressional Budget and Impoundment
                        Control Act and the Prompt Payment Act. Both the NASA and DOD appro-
                        priation bills were enacted without the capping language.

Objectives; Scope,and   tember 22, 1989, that we (1) identify and describe public sector (federal
Methodology             and state) experience with outlay caps, (2) discuss the administrative

                        Page 3                                        GAO/-90-11    1 Capping Outlays
and operational mechanisms needed for outlay caps, (3) determine
whether outlay caps can result in long-term savings or whether they
merely shift expenditures from one year to the next, (4) ascertain the
effect of outlay caps on business relationships, (6) discuss the potential
legal and administrative considerations arising from executive branch
implementation of outlay caps, especially their potential for changing
the executive and legislative branches’ balance of power, and (6) discuss
the events surrounding fiscal year 1988 DOD expenditure control

To identify and describe outlay caps in the federal government from
fiscal years 1970 through 1990, we conducted legal, literature, and auto-
mated data base searches. We also interviewed Senate Budget Com-
mittee, Congressional Budget Office, Congressional Research Service,
and Office of Management and Budget officials to identify any outlay
caps imposed during this period. We interviewed budget or program offi-
cials at 16 major federal agencies3 to determine whether the agencies or
their programs had experienced legislative outlay caps during the years
covered by our review. We also reviewed the expenditure controls that
the Deputy Secretary of Defense imposed on DOD operations during
fiscal year 1988.

To obtain information on state experiences with outlay caps, we inter-
viewed officials of the National Association of State Budget Officers. We
also reviewed our prior reports and other documents containing infor-
mation on this subject.

To determine the administrative and operational mechanisms required
for outlay caps, we reviewed the legislative language of the three
enacted outlay caps as well as the provisions of the two bills containing
outlay caps which were not adopted. We interviewed officials at the
Department of Energy and the Agency for International Development
(AID) to determine how they had administered the three outlay caps and
their views of what additional measures and costs might be incurred if
such caps were used more extensively.

To identify potential long-term savings resulting from outlay caps, we
examined documentation regarding the timing of Energy and AID pro-
gram outlays on which caps had been imposed and determined whether

3Weselected the largest federal departments and agencies for our work. They were the Departments
of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Housing and
Urban Development, Interior, Justice, Labor, State, Trsnsportation, Treasury, and Veterans Affairs
and the National Aeronautics and Space Administration.

Page 4                                                       GAO/AFMD-fbO-111     Capping Outlays

                          any savings had been realized. We confirmed this information by inter-
                          viewing agency officials.

                          To determine the effect of outlay caps on business relations with the
                          private sector, we reviewed federal legislation and regulations that deal
                          with (1) compensating vendors for contracts cancelled by the federal
                          government, (2) placing orders, and (3) delaying payments. We inter-
                          viewed Energy and AID officials to determine whether any transactions
                          had been cancelled or delayed because of the caps.

                          Finally, we analyzed the five capping bills to determine if they would
                          have shifted some budgetary prerogatives from the legislative to the
                          executive branch.

                          We discussed this report with OMB, Energy, and AID officials and have
                          included their views where appropriate. Our work was conducted in
                          Washington, D.C., at the headquarters of the federal agencies mentioned
                          above from November 1989 through June 1990.

                          We determined that the Congress has established caps in a limited
Public Sector             number of cases; as a result, the federal government has little applicable
Experience With           experience in using outlay caps to control outlays. States generally rely
                          on a variety of other practices to control outlays.
Outlay Caps Is Limited

Few Federal Outlay Caps   During fiscal years 1970 through 1990, the Congress enacted three
                          outlay caps on two federal programs-the Economic Support Fund for
Imposed                   fiscal year 1987 and the Strategic Petroleum Reserve Petroleum Account
                          for fiscal years 1988 and 1990. The agencies involved complied with the
                          outlay caps for fiscal years 1987 and 1988 and planned to administer
                          the fiscal year 1990 cap. The details of these three outlay caps are
                          described below.

Economic Support Fund     The Economic Support Fund account is administered by AID. The
                          account is the funding source for direct loans, grants, and contributions
                          to selected countries that support U.S. efforts and interests in strategic
                          regions of the world. The Congress generally provides annual appropria-
                          tions for this account and limits the time available for obligating the
                          funds to 2 years.

                          Page 6                                        GAO/AFMD-90-111   Capping Outlays

                              In fiscal year 1987, the Supplemental Appropriations Act, 1987 (Public
                              Law lOO-71(101 Stat. 391,406)), transferred $300 million from various
                              DOD appropriation accounts to the Economic Support Fund for economic
                              assistance projects in Guatemala, Costa Rica, Honduras, El Salvador,
                              and Belize. The legislation contained two stipulations related to the cap:
                              (1) the $300 million would remain available for obligation until Sep-
                              tember 30, 1987, and (2) no more than $87 million of that total could be
                              outlayed prior to October 1,1987.

                              This legislation to transfer funds and concurrently create the outlay cap
                              became effective on July 11,1987, about 2-l/2 months before the end of
                              the fiscal year to which the cap applied. A review of agency budget doc-
                              uments showed that the agency obligated the entire $300 million before
                              the fiscal year ended and began outlaying it the following year.

Strategic Petroleum Reserve   The Strategic Petroleum Reserve Petroleum Account is administered by
Petroleum Account             the Department of Energy. This account is used to finance the acquisi-
                              tion, transportation, and storage of petroleum in the Strategic Petroleum
                              Reserve, as well as its drawdown and distribution. For fiscal year 1988,
                              the Department of the Interior and Related Agencies Appropriations
                              Act, 1988 (Public Law loo-202 (101 Stat. 1329-214,243)), provided the
                              account $439 million in current budget authority for these purposes.
                              However, the act limited outlays from these funds to no more than
                              $256 million for the fiscal year. Energy officials obligated the fiscal year
                              1988 appropriations as they became available. To comply with the cap,
                              the agency restricted 1988 outlays for these obligations to the level man-
                              dated in the legislation.

                              The fiscal year 1990 Department of Transportation and Related Agen-
                              cies Appropriations Act (Public Law 101-164 (103 Stat. 1069,1108)),
                              also established an outlay cap for this account. It imposed a cap on the
                              Petroleum Account’s original fiscal year 1990 appropriations-which
                              were contained in the Department of the Interior and Related Agencies
                              Appropriations Act (Public Law lOl-121(103 Stat. 701,731))-by        lim-
                              iting fiscal year 1990 outlays from that year’s appropriations to no more
                              than $147 million. The agency planned to implement the fiscal year
                              1990 outlay cap as it did the fiscal year 1988 outlay cap-by ensuring
                              that outlays resulting from fiscal year 1990 budget authority do not
                              exceed the legislated limits.

                              Page 6                                         GAO/~90411     Capping Outlays

States Use Other Methods   States do not use outlay caps to limit expenditures. Rather, many states
                           have balanced budget requirements which they implement by providing
to Control Outlays         the governor or legislature with the authority and techniques to control

                           We have previously reported4 and confirmed in recent contacts with the
                           National Association of State Budget Officers that states have differing
                           balanced budget requirements. Of the 49 states with such requirements,
                           some require the governor to submit a balanced budget, some require
                           the legislature to enact a balanced budget, and others require the year to
                           end in balance. Most of the requirements apply to the operating compo-
                           nent of state budgets, not the capital investment segment.

                           Furthermore, states have access to a variety of techniques to achieve
                           balanced positions which are not available to the President of the
                           United States. Some state governors have authority to unilaterally
                           impound previously appropriated funds, while others have line-item
                           veto authority to eliminate or modify programs or activities adopted by
                           the legislature. Also, some governors may reduce program expenditures
                           if there is a statewide revenue shortfall. For example, the Michigan con-
                           stitution requires the governor, with the consent of the legislature, to
                           reduce expenditures whenever state revenues are lower than estimated.

                           Other states have contingency plans to reduce spending. In Minnesota,
                           for example, a balanced budget requirement is enforced through a series
                           of “trigger” actions the governor is statutorily required to take. The
                           governor is first required to use the Budget and Cash Flow Reserve
                           Account (“rainy day fund”). If this is not sufficient, the governor must
                           take a number of actions to raise funds and curtail spending. If the
                           above measures are still insufficient, the governor and legislature can
                           and have raised taxes to make up for the potential deficit, even though
                           this is not one of the trigger actions specified in the statute.

                           4Budget Issues: State Balanced Budget Practices (GAO/AFMD+X-22BR, December 10,1086) and
                           Budget Issues: Overview of State and Federal Debt (GAO/AFMD-8&11BR, January 27,1088).

                           Page 7                                                  GAO/AFMD-90411     Capping Outlays

                      The federal agencies administering the three outlay caps in our study
Agencies Had No       did not encounter major technical or administrative problems in imple-
Problems              menting the caps. Since each outlay cap involved only an individual
Implementing Outlay   appropriations account, it did not require any measurable changes in
                      financial management systems or accounting practices. The agencies
Caps                  controlled the outlays by delaying the payments made on obligations to
                      the next fiscal year.

                      However, this experience cannot be generalized to a more comprehen-
                      sive application of outlay caps. If an outlay cap had been applied to an
                      entire bureau or agency, more extensive changes would have been
                      required to ensure adherence to spending guidelines for multiple appro-
                      priation accounts and programs. Currently, the agencies’ systems and
                      practices are not adapted to control outlays for such accounts and

                      Regardless of the number of accounts or programs covered by an outlay
                      cap, its basic purpose is to lower expenditures. Accordingly, an initial
                      step in managing outlay caps involves using outlay forecasting methods
                      to predict “spendout rates.” In general, this entails analyzing agency
                      historical data to determine (1) the percentage of obligations made
                      during a fiscal year that result in outlays during that period or (2) the
                      average time interval between entering into obligations and making
                      related payments (outlays) to satisfy contractual or program require-
                      ments. Once this is known, agencies can estimate how much they can
                      obligate and still comply with the outlay cap. However, the outlay rates
                      for some programs, such as disaster and emergency assistance, are natu-
                      rally volatile, which makes estimating rates difficult.

                      Using these spendout rates, agencies can establish maximum obligation
                      limits that are intended to keep outlay levels below the ceiling for the
                      fiscal year covered by the outlay cap. In addition, agencies subject to
                      outlay caps need to have effective techniques for monitoring total out-
                      lays and current outlay rates to determine whether they need to slow
                      the obligation rate or potentially deobligate some amounts, if possible, to
                      avoid exceeding outlay limits, Automated systems, which currently
                      focus on obligation levels, may need to be modified to monitor outlay
                      levels for the pertinent accounts or programs. However, several agency
                      budget officials told us that it would be costly and unproductive to
                      establish special systems to control outlays.

                      Page 8                                        GAO/AFMD-Will   Capping Outhy~

                      Our analysis determined that the three outlay caps discussed in this
Outlay Caps Did Not   report did not reduce total program costs. In each instance, outlays that
Produce Long-term     might otherwise have occurred during the fiscal year to which the cap
Savings               had been applied were merely delayed until the following year. No con-
                      tracts were cancelled and no amounts previously obligated were deobli-
                      gated. Since there was no change in budget authority available for
                      obligation, agencies were permitted to spend the same total amounts.

                      Furthermore, an outlay cap could, in certain cases, result in unintended
                      or additional costs. For instance, if an outlay cap causes outlays to be
                      delayed until late in the fiscal year or the following year, higher unit
                      costs could result from prices rising during the delay. This occurred in
                      the case of the fiscal year 1988 outlay cap on the Strategic Petroleum
                      Reserve Petroleum Account. Our examination of agency budget docu-
                      ments showed that the agency could not outlay the full amount of the
                      1988 appropriations when the average 1988 price per barrel was $16.
                      When the agency took possession of the oil and outlayed the cash in
                      1989, it had to pay $17 per barrel.

                      Similarly, additional costs could occur if agencies do not effectively con-
                      trol the rate of obligations. For example, if agencies determine that the
                      amount obligated during the period covered by the cap will result in out-
                      lays exceeding the specified limit for the period, they may choose to
                      cancel orders or contracts (that is, deobligate funds). In that situation,
                      federal procurement law may dictate that the vendors be compensated
                      for certain costs.

                      Applying outlay caps to procurement-related appropriation accounts on
                      a regular basis could also result in increased costs instead of budget sav-
                      ings. For instance, an outlay cap could force government contracts to
                      contain explicit limits on when cash is disbursed. To cover the undis-
                      bursed portion of the contract, contractors could borrow funds or sell
                      the contract to a financial institution. In each case, the result would be
                      the equivalent of government-guaranteed financing at rates of interest
                      substantially above Treasury rates. Conceivably, contractors would pass
                      on the higher rates to the government in the form of higher bids on con-
                      tracts. If it became routine to place outlay caps on major procurement
                      accounts such as those found in NASA and DOD, such financing arrange-
                      ments could become a normal part of doing business, and securities
                      backed by pools of the undisbursed portion of contracts would become a
                      realistic possibility.

                      Page 9                                         GAO/AFMD-99-111   Capphq   Outlays

                    Nevertheless, outlay caps could generate long-term savings if they lead
                    to lower obligation levels than would have occurred otherwise. For
                    example, they could authorize the executive branch to impound funds as
                    necessary to implement the cap. However, this could be accomplished
                    more directlyrand    in accordance with congressional priorities-by
                    simply reducing agency budget authority in the authorization and
                    appropriation processes.

                    Outlay caps did not affect business relations because the agencies
Outlay Caps Could   involved did not have to cancel any contracts or orders. However, had it
Affect Business     been necessary to deobligate funds, cancel contracts, or reduce previous
Relationships       orders, this could have adversely affected business and other relation-
                    ships where outside parties rely heavily on federal contracts and
                    accordingly need a stable financial relationship with the government.
                    Standard cancellation penalty clauses are meant to compensate the
                    affected vendors in the event of cancelled procurements. However, it is
                    difficult to determine the extent to which such actions would reduce
                    vendors’ willingness to compete for future business, thus shrinking the
                    competitive base and possibly increasing future prices. Outlay caps
                    could affect business relationships if they become standard practice and
                    create uncertainty about the timing of payments to contractors.

                    The Congressional Budget and Impoundment Control Act of 1974
Outlay Caps Could   restricts an agency’s ability to unilaterally control outlays through the
Affect Balance of   impoundment of funds appropriated by the Congress. While the execu-
Fiscal Power        tive branch presently has some discretion in the expenditure of appro-
                    priated funds, it cannot unilaterally establish spending limits that are
                    below the funding levels expressed in the appropriation acts. With the
                    three outlay caps in our study, the enacting legislation specified the
                    spending limits, the budget authority they applied to, and the time
                    frame covered. The agencies were legally required to implement the
                    caps, but they had some discretion in the timing of the obligations.

                    The balance of power between the legislative and executive branches
                    would have been changed if the Congress had enacted the outlay cap
                    proposed in H.R. 3072, which was introduced in the House during the
                    1Olst Congress. The proposal would have capped outlays for all 1990
                    DOD appropriations, and it would have authorized the Secretary of
                    Defense to select (with some exceptions) the programs on which the cap
                    would be applied. Also, the proposed language would have exempted

                    Page 10                                       GAO/APMD-SO-111   Capping Outlays

                       DOD   from provisions of the Congressional Budget and Impoundment Con-
                       trol Act and the Prompt Payment Act. It would have allowed DOD to
                       postpone contract payments due in the last month of fiscal year 1990
                       until the first month of the following fiscal year. Further, DOD would not
                       have had to pay interest on such deferred payments for up to 30 days
                       after the due date, as is normally required by the Prompt Payment Act
                       (31 USC. 3902) If this language had been included in DOD’S fiscal year
                       1990 appropriations act, it would have dramatically shifted the respon-
                       sibility for establishing some DOD spending priorities from the Congress
                       to the executive branch. It would have lessened congressional control
                       and oversight of DOD expenditures and increased the Secretary’s discre-
                       tion in determining agency operations and budget priorities.

                       For many years, the Congress and the President have jointly shared the
                       nation’s budgetary processes and decision-making responsibilities. With
                       few exceptions, neither has been allowed to unilaterally establish bud-
                       getary policy or take action without the express consent of the other
                       branch. Bills such as H.R. 3072 would alter this relationship by giving
                       one branch more influence over budget matters than the other. To avoid
                       such shifts of power, we believe that it is important that the existing
                       shared relationship between the two branches be continued.

                       In addition to reviewing legislatively imposed outlay caps, we examined,
DefenseDepartment      at your request, the administratively imposed expenditure controls the
Ekpenditure Controls   agency head placed on selected DOD programs during fiscal year 1988.
Created Problems for   The 1987 budget summit agreement established nonbinding budget
SomeContractors        outlay targets for DOD and other federal agencies for fiscal year 1988. In
                       April 1988, DOD officials noticed that actual outlays for March and April
                       of the fiscal year exceeded their planned budget outlay targets by $1.6
                       billion and $1 billion, respectively. To reduce the outlays to levels con-
                       sistent with the budget targets, the Deputy Secretary of Defense insti-
                       tuted expenditure controls by delaying equipment purchases, restricting
                       new contracts in nonessential research and development programs,
                       restricting in-house facility maintenance, delaying all Industrial Fund
                       purchases of capital assets and certain contractual actions, limiting
                       gross disbursements, discontinuing overtime, and imposing hiring limits.

                       When the expenditure control measures went into effect on May 20,
                       1988, they reportedly created problems in the private sector for DOD
                       contractors, particularly for small businesses with limited financial
                       resources, The action prompted numerous letters to the agency from

                       Page 11                                       GAO/AF’M.D~111   Capping Outlaya


             small defense contractors and congressional correspondence written on
             behalf of constituents. While the letters generally acknowledged the
             need to control defense outlays to remain within the budget targets,
             they also charged that the action taken was biased against small busi-
             nesses engaged in DOD contracts. The correspondence warned that con-
             tinued delays of professional and technical service contracts would
             result in the loss of employees and technical skills and would adversely
             affect the nation’s technological and industrial base.

             The DOD expenditure controls also caused concern in the Congress. In a
             June 1988 congressional hearing before the Acquisition Policy Panel of
             the House Committee on Armed Services, the Chairman advised DOD
             officials that the impoundment control provisions of the Congressional
             Budget and Impoundment Control Act of 1974 require the executive
             branch to (1) promptly carry out programs with appropriated funds or,
             if prompt execution is to be delayed, (2) submit a message to the Con-
             gress proposing deferral or the rescission of the funds. The hearing
             noted that DOD had not submitted a deferral or rescission message on its
             May 1988 expenditure control actions.

             The expenditure controls DOD instituted to control fiscal year 1988 out-
             lays did not result in long-term savings for the affected programs. At the
             end of the fiscal year, DOD officials estimated that actual outlays
             exceeded the planned outlay levels by about $4 billion DOD officials
             believe that this overage might have been avoided if controls over out-
             lays had been in place and operational at the beginning of the fiscal

             Statutory outlay caps have not been an effective and efficient means of
Conclusion   controlling outlays, and they may lead to a significant shift of power
             between the branches. We oppose the use of such caps to control federal

             We are sending copies of this report to the Senate and House Committees
             on Appropriations; the Senate Committee on Governmental Affairs; the
             House Committee on Government Operations; the House Committee on
             the Budget; the Director, Congressional Budget Office; the Director,
             Office of Management and Budget; and other interested parties.

             Page 12                                      GAO/AFMD-90-111   Capping Outlays

    This report was prepared under the direction of James L. Kirkman,
    Director, Budget Issues, who may be reached on (202) 276-9673 if you
    or your staff have any questions. Other major contributors are listed in
    appendix I.

    Sincerely yours,

    Donald H. Chapin
    Assistant Comptroller General

    Page 13                                      GAO/AFMD-W111   Capping Outlays
Appendix I

Major Contributors to This Report

                        Charles W. Culkin, Jr., Senior Assistant Director, (202) 275-1981
Accounting and          Phillis L. Riley, Evaluator-in-Charge
Financial Management    Joseph G. Heisler, Staff Accountant
                        Nell E. George, Staff Accountant
Division, Washington,

                        Mark C. Speight, Attorney
Office of the General

                        Page 14                                      GAO/APMD9&111   Capping Outlays
Page 15   GAO/AFMD-W111   Capping Outlayc~
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              Dec. 10, 1986).

              Budget Issues: Overview of State and Federal Debt (GAO/AFMD-88-~LBR,
              Jan. 27,1988)

(eaaow)       Page 16                                     GAO/AJTMD-!30-111 Capping Outlays
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