oversight

Budget Issues: Budget Enforcement Compliance Report

Published by the Government Accountability Office on 1997-01-16.

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

                 United States General Accounting Office

GAO              Report to the Chairman, Committee on
                 the Budget, House of Representatives



January 1997
                 BUDGET ISSUES
                 Budget Enforcement
                 Compliance Report




GAO/AIMD-97-28
                          United States
GAO                       General Accounting Office
                          Washington, D.C. 20548

                          Accounting and Information
                          Management Division

                          B-275751

                          January 16, 1997

                          The Honorable John R. Kasich
                          Chairman
                          Committee on the Budget
                          House of Representatives

                          Dear Mr. Chairman:

                          This report responds to your request that we assess compliance by the
                          Office of Management and Budget (OMB) and the Congressional Budget
                          Office (CBO) with the requirements of the Balanced Budget and Emergency
                          Deficit Control Act of 1985, more commonly known as
                          Gramm-Rudman-Hollings (GRH), as amended. Our assessment covers OMB
                          and CBO reports issued on legislation enacted during the second session of
                          the 104th Congress that ended October 4, 1996.

                          To assess compliance with GRH, we reviewed OMB and CBO reports issued
                          under the act to determine if they reflected all of the act’s requirements.
                          We interviewed OMB and CBO officials to obtain explanations for
                          differences between reports. Background information on the budget
                          enforcement process and the various reports required by the act and
                          details concerning our objective, scope, and methodology are discussed in
                          appendix I.

                          Overall, we found that CBO and OMB substantially complied with the act. We
                          did find three compliance issues and some implementation issues that
                          represent questionable and inconsistent scoring practices. The compliance
                          issues are discussed briefly below and in more detail in appendix II. The
                          implementation issue regarding the scoring of the Federal Agriculture
                          Improvement and Reform Act of 1996 (FAIR) is discussed briefly below
                          and—along with other, less significant, scoring differences—in
                          appendix III.



Compliance Issues

OMB Issued Late Reports   As discussed in appendix II, GRH sets a specific timetable for issuance of
                          CBO and OMB reports. We found two compliance issues regarding timing.




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                           B-275751




                           Because OMB delayed the issuance of its final sequestration report so that it
                           could include estimates of all legislation passed during the second session
                           of the 104th Congress, it did not issue the report within 15 days of the end
                           of the congressional session as required by section 254(a). Since the last
                           pay-as-you-go (PAYGO) legislation passed by the Congress was not sent to
                           the President for signature until after the 15-day deadline, OMB was faced
                           with the choice between a timely report that did not include all legislation
                           and a complete report issued late. Although not consistent with the law,
                           OMB’s decision to delay the report so it could be complete does not seem
                           unreasonable to us especially since the Omnibus Consolidated
                           Appropriations Act (OCAA), enacted during the 104th Congress, required
                           that PAYGO balances for 1997 be set at zero—i.e., that no balance be carried
                           over to offset the costs of future legislation.1 Given this requirement, OMB
                           decided it was important that the final report reflect all PAYGO legislation.
                           Since we believe that the main purpose of the final report should be to
                           determine whether a sequester is necessary based on all legislation
                           enacted during a session of the Congress, it would be appropriate to
                           consider changing the timing of the report.

                           Second, OMB did not issue most of its appropriation and PAYGO scoring
                           reports within 5 days of enactment as required by law. Our analysis of 101
                           scorekeeping reports issued by OMB for legislation enacted during the
                           second session of the 104th Congress showed that 72 (71 percent) of them
                           were issued more than 5 days after enactment. Although issuance ranged
                           from 2 to 34 days after enactment, the time averaged 7.5 days and
                           88 percent were issued within 10 days. This differs from the most recent
                           years in which most of OMB’s scoring reports were issued within 5 days.
                           While CBO does not have a specified number of days as its requirement for
                           report issuance, it has averaged about the same number of days as OMB in
                           reporting on enacted legislation.


Matter for Congressional   The Congress may wish to consider changing the required timing of OMB’s
Consideration              final sequestration report to link its issuance to the completion of
                           Presidential action on all legislation passed during a session of the
                           Congress.

                           1
                            GRH as amended by the Budget Enforcement Act (BEA) provides that if in the aggregate PAYGO
                           legislation increases the deficit in the current or budget year, there is a sequester. Section 4001 of the
                           Omnibus Consolidated Appropriations Act (P.L. 104-208) requires that if the balance for fiscal year
                           1997 is not an increase in the deficit (i.e., if no sequester is required) then the day following the
                           issuance of OMB’s final sequestration report, the scorecard balance for fiscal year 1997 be set at zero.
                           OMB reported that, on the day after submission of its final sequestration report, $6.3 billion in savings
                           would be removed from the PAYGO scorecard for fiscal year 1997 and will not be available to offset
                           future legislation.



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                           B-275751




PAYGO Scorecard Charged    In two separate acts (the Personal Responsibility and Work Opportunity
for Discretionary Cap      Reconciliation Act of 1996 and the Contract With America Advancement
Adjustment                 Act), the Congress authorized the appropriation of additional
                           administrative funds for continuing disability reviews (which are scored
                           against the discretionary caps) with the intention of reducing overall PAYGO
                           outlays. The acts also provided that the discretionary caps be increased by
                           the amount appropriated.

                           In scoring the Personal Responsibility and Work Opportunity
                           Reconciliation Act, OMB charged to the PAYGO scorecard an amount equal to
                           the discretionary cap adjustment provided for in the law, as if it were
                           direct spending.2 However, it does not meet the definition of direct
                           spending. There is no provision in either GRH or in the scorekeeping
                           guidelines3 allowing an increase in the discretionary caps to be offset by
                           recording it as a PAYGO cost. And long-standing practice has been not to do
                           so. OMB correctly scored similar provisions in the Contract With America
                           Advancement Act. By scoring the Personal Responsibility and Work
                           Opportunity Reconciliation Act as it did, OMB ensured that the potential
                           increase in discretionary spending was offset by recording it as a PAYGO
                           cost. We have previously commented4 on the need to consider when and
                           under what circumstances such breaches of the wall between
                           discretionary and PAYGO categories make sense. Both of these issues are
                           discussed more fully in appendix II.


Matter for Congressional   To enhance its ability to accommodate shifts in spending priorities, the
Consideration              Congress may wish to consider specifying the circumstances and
                           conditions under which tradeoffs between mandatory and discretionary
                           spending are permitted.




                           2
                            The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 increased the
                           previously-authorized discretionary cap adjustment for Social Security Administration continuing
                           disability reviews. OMB showed this increase as an increase in PAYGO outlays, thus in effect “charging
                           PAYGO” for a change in an appropriation ceiling.
                           3
                            The Statement of Managers contains certain scorekeeping guidelines agreed to by the budget
                           committees, CBO, and OMB. Although section 251(d) of GRH anticipates development of scorekeeping
                           guidelines, these guidelines may not always be consistent with a strict interpretation of the law.
                           4
                            Letter to Chairmen and Ranking Members of House Committees on Government Operations and on
                           the Budget and of Senate Committees on Governmental Affairs and on the Budget on possible changes
                           to BEA (B-247667, May 19, 1993). Also, Budget Process: Evolution and Challenges
                           (GAO/T-AIMD-96-129, July 11, 1996).



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                           B-275751




                           We also found an implementation issue relating to PAYGO estimates for the
Implementation             Federal Agriculture Improvement and Reform Act of 1996 (FAIR) which,
Issues                     while not an issue of compliance with the act, represents questionable and
                           inconsistent scoring practices. Details of this issue, discussed below, and
                           other, less significant, scoring differences for the Small Business Job
                           Protection Act of 1996 and the Personal Responsibility and Work
                           Opportunity Reconciliation Act of 1996 are provided in appendix III.

                           The Congress typically has passed 5-year farm bills providing lower crop
                           support levels than would be paid under 1949 permanent agriculture law.
                           The 1990 farm act expired on December 31, 1995, but FAIR was not signed
                           into law until April 4, 1996.

                           Under longstanding practice, both OMB and CBO have included the most
                           recent act in their baselines.5 However, rather than scoring FAIR against the
                           most recent legislation for all years, OMB scored against the 1949 act for
                           crop year 1996 and against the 1990 act for all other years in its baseline.
                           Although OMB cited a court case as justification for its scoring of FAIR, our
                           view of that case is that it does not support OMB’s position. In contrast to
                           OMB, CBO, which was also aware of the court decision, scored against the
                           1990 act for all years. If OMB had scored FAIR as CBO did, an offset would
                           have been required to avoid a PAYGO sequester. In its Final Sequestration
                           Report, CBO noted that if it used the starting balances in OMB’s preview
                           report and its own estimates of the effects of legislation enacted since
                           then, a sequestration would be required in 1997. According to CBO, this
                           different outcome from OMB’s final report is because OMB and CBO differed
                           in their estimates of the PAYGO effects of FAIR.

                           Other implementation issues related to discretionary spending include
                           differences in OMB and CBO treatment for adjustments to the discretionary
                           caps and scoring estimates for appropriations actions. These are discussed
                           fully in appendix IV.


Matter for Congressional   The Congress may wish to consider clarifying section 257(b) to explicitly
Consideration              require the most recently expiring provisions of law for programs with
                           current year outlays greater than $50 million be used to construct the
                           baseline.




                           5
                            Section 257(b)(2) requires that, in constructing the baseline, no program with estimated current-year
                           outlays greater than $50 million shall be assumed to expire in the budget year or outyears.



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B-275751




We provided a draft of this report to OMB and CBO officials for their review.
OMB officials declined to provide comments. CBO officials agreed with our
presentation of their views and the facts as presented. We incorporated
their comments where appropriate.

Copies of this report are being provided to the Director of the Office of
Management and Budget, the Director of the Congressional Budget Office,
the Ranking Minority Member of your Committee, and the Chairmen and
Ranking Minority Members of the Senate Budget Committee and the
House and Senate Appropriations Committees. Copies will be made
available to other interested parties on request.

Please contact me at (202) 512-9142 if you or your staff have any questions.
Major contributors to this report are listed in appendix V.

Sincerely yours,




Susan J. Irving
Associate Director, Budget Issues




Page 5                                         GAO/AIMD-97-28 Compliance Report
Contents



Letter                                                                                             1


Appendix I                                                                                         8
                        Background                                                                 8
Background and          Objective, Scope, and Methodology                                         10
Objective, Scope, and
Methodology
Appendix II                                                                                       12
                        OMB Issued Late Reports                                                   12
Compliance Issues       OMB Charged Discretionary Cap Adjustment to PAYGO                         14
                         Scorecard

Appendix III                                                                                      16
                        Federal Agriculture Improvement and Reform Act of 1996                    17
Implementation          Small Business Job Protection Act of 1996                                 20
Issues Relating to      Personal Responsibility and Work Opportunity Reconciliation               21
                          Act of 1996
Estimates for PAYGO     Total PAYGO Legislation                                                   21
Legislation
Appendix IV                                                                                       24
                        1996 Was an Unusual Budget Year                                           24
Implementation          OMB and CBO Differed on Adjustments to Discretionary                      25
Issues for                Spending Limits
                        Common Reasons for Different Appropriation Scoring                        30
Discretionary
Spending
Appendix V                                                                                        39
                        Accounting and Information Management Division                            39
Major Contributors to   Office of the General Counsel                                             39
This Report
Tables                  Table I.1: Sequestration Reports and Due Dates                             9
                        Table III.1: Comparison of OMB and CBO Scoring of PAYGO                   17
                          Legislation With a Difference Greater than $100 Million in Fiscal
                          Years 1996 or 1997




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Contents




Table III.2: PAYGO Legislation Enacted During the Second                 22
  Session of the 104th Congress That Has a Deficit Impact Greater
  Than $500,000 in Fiscal Years 1996 or 1997
Table IV.1: Enacted Appropriations As of November 15, 1996,              25
  Under Discretionary Caps
Table IV.2: BA Scoring Differences: Fiscal Year 1996 Items               33
  Exceeding $100 Million
Table IV.3: BA Scoring Differences: Fiscal Year 1997 Items               35
  Exceeding $100 Million
Table IV.4: Outlay Estimates for Appropriations Enacted in               36
  Second Session
Table IV.5: Outlay Scoring Differences: Fiscal Year 1996 Items           37
  Exceeding $400 Million
Table IV.6: Outlay Scoring Differences: Fiscal Year 1997 Items           38
  Exceeding $400 Million


Abbreviations

BA         budget authority
BEA        Budget Enforcement Act
CBO        Congressional Budget Office
CDR        Continuing Disability Reviews
DBOF       Defense Business Operations Fund
DOD        Department of Defense
FAIR       Federal Agriculture Improvement and Reform Act of 1996
FEMA       Federal Emergency Management Agency
GNMA       Government National Mortgage Association
GRH        Balanced Budget and Emergency Deficit Control Act of 1985
                (Gramm-Rudman-Hollings)
HHS        Department of Health and Human Services
OBRA       Omnibus Budget Reconciliation Act of 1990
OBRA 93    Omnibus Budget Reconciliation Act of 1993
OCRA       Omnibus Consolidated Rescissions and Appropriations Act
                of 1996
OCAA       Omnibus Consolidated Appropriations Act, 1997
OMB        Office of Management and Budget
PAYGO      pay-as-you-go
SSI        Supplemental Security Income
USDA       Department of Agriculture
VA/HUD     Department of Veterans Affairs/Department of Housing and
                Urban Development
VCRTF      Violent Crime Reduction Trust Fund


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Appendix I

Background and Objective, Scope, and
Methodology

              The Balanced Budget and Emergency Deficit Control Act of 1985 (GRH), as
Background    amended by the Budget Enforcement Act of 1990 (BEA) and the Omnibus
              Budget Reconciliation Act of 1993 (OBRA 93), established statutory limits
              on federal government spending for fiscal years 1991 through 1998 by
              creating:

              (1) annual adjustable dollar limits (spending caps) on discretionary
              spending, 1

              (2) a pay-as-you-go (PAYGO)2 requirement for direct spending3 and receipts
              legislation, and

              (3) a sequestration4 procedure to be triggered if (a) aggregate
              discretionary appropriations enacted for a fiscal year exceeds the fiscal
              year’s discretionary spending caps or (b) aggregate PAYGO legislation is
              estimated to increase the deficit over the current and budget year.

              To track progress against the above requirements and to implement any
              needed sequestration, GRH requires CBO and OMB to score (estimate) the
              budgetary effects of each appropriation action and each piece of PAYGO
              legislation. As soon as practicable after the Congress completes action on
              any appropriation involving discretionary spending, CBO is required to
              report to OMB the estimated amount of new budget authority and outlays
              provided by the legislation. Within 5 calendar days after an appropriation
              is enacted, OMB must report its estimates for these amounts, using the
              same economic and technical assumptions underlying the most recent
              budget submission. It must also include the CBO estimates and explain any
              differences between the two sets of estimates. OMB and CBO have similar
              PAYGO scoring requirements for reporting their estimates for any direct
              spending or receipts legislation.

              GRH also requires CBO and OMB to submit a series of three sequestration
              reports at specified times during each year as shown in table I.1. Each CBO
              and OMB report must include a discretionary sequestration report which
              tracks progress against the discretionary spending caps and a PAYGO


              1
               Programs or activities funded through the regular appropriations process.
              2
               BEA requires that any new legislation that increases direct spending or decreases receipts be deficit
              neutral (that is, not increase the deficit). Such legislation is often referred to as PAYGO legislation.
              3
               Direct spending (commonly referred to as mandatory spending) means entitlement authority, the food
              stamp program, and any budget authority provided by law other than in appropriation acts.
              4
               Sequestration is the revocation or cancellation of budgetary resources.



              Page 8                                                          GAO/AIMD-97-28 Compliance Report
                                       Appendix I
                                       Background and Objective, Scope, and
                                       Methodology




                                       sequestration report that displays the net deficit decrease or increase for
                                       enacted PAYGO legislation. Because OMB’s reports are controlling for
                                       purposes of sequestration, CBO adjusts its reports to the most recent OMB
                                       estimates as a starting point for each of its reports.

Table I.1: Sequestration Reports and
Due Dates                                                                                              Due date
                                       Report                              CBO                                OMB
                                       Preview report                      5 days before President’s          With President’s budget
                                                                           budget submission                  submission
                                       Update report                       August 15                          August 20
                                       Final report                        10 days after end of               15 days after end of
                                                                           congressional session              congressional session

                                       Annual discretionary spending limits for budget authority and outlays are
                                       set forth in GRH. It requires that these limits be adjusted for emergency
                                       appropriations, funding for continuing disability reviews,5 and changes in
                                       inflation estimates and concepts and definitions. The spending limits are
                                       enforced by sequestration should appropriations exceed the limits.

                                       A separate spending limit for budget authority and outlays was established
                                       for the Violent Crime Reduction Trust Fund (VCRTF) by the Violent Crime
                                       Control and Law Enforcement Act of 1994 (P.L. 103-322). The VCRTF, which
                                       was excluded from the general purpose spending caps, is subject to
                                       sequestration if estimated outlays from the fund exceed annual spending
                                       limits specified in the Violent Crime Control and Law Enforcement Act.

                                       In addition, if an appropriation for a fiscal year in progress that is enacted
                                       between end of session adjournment and July 1 of that fiscal year causes
                                       any of the spending limits for the year in progress to be exceeded, CBO and
                                       OMB must issue Within-Session Sequestration Reports 10 and 15 days,
                                       respectively, after enactment. On the same day as the OMB report, the
                                       President must issue an order implementing any sequestrations set forth in
                                       the OMB report. This year no Within-Session Sequestration Reports were
                                       required.

                                       PAYGO enforcement covers all direct spending and receipts legislation. CBO
                                       and OMB maintain a “scorecard” showing the cumulative deficit effect of
                                       PAYGO legislation to track progress against the PAYGO requirements. If at the


                                       5
                                        The Contract With America Advancement Act of 1996 (P.L. 104-121) and the Personal Responsibility
                                       and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) amended GRH to provide for adjusting
                                       the discretionary spending limits for appropriations for conducting continuing disability reviews by the
                                       Social Security Administration when appropriations exceed certain levels set forth in the legislation.



                                       Page 9                                                        GAO/AIMD-97-28 Compliance Report
                        Appendix I
                        Background and Objective, Scope, and
                        Methodology




                        end of a congressional session, cumulative legislated changes in direct
                        spending and receipts enacted since BEA was enacted in 1990 increase the
                        deficit during the period covered by the current and budget year, a
                        sequester of non-exempt direct spending programs is required to offset the
                        increase. Net savings in either the current or budget year can be used to
                        offset increases in the next year during the period. The Omnibus
                        Consolidated Appropriations Act, 1997 (P.L. 104-208) requires that on the
                        day following OMB’s final sequestration report for fiscal year 1997, the
                        scorecard balance for fiscal year 1997 be changed to zero if such balance
                        for the fiscal year is not an increase in the deficit.

                        In their final sequestration reports, both OMB and CBO calculate whether a
                        sequester is necessary. However, the OMB report is the sole basis for
                        determining whether any end-of-session sequestration is required. If OMB
                        determines that sequestration is required, the President must issue an
                        order implementing it. For fiscal year 1997, neither CBO’s report, issued
                        October 11, 1996, nor OMB’s report, issued November 15, 1996, called for a
                        sequester.6


                        The objective of our review was to determine whether the OMB and CBO
Objective, Scope, and   reports complied with the requirements of GRH as amended by BEA and
Methodology             other legislation. To accomplish this, we reviewed the OMB and CBO
                        Preview, Update, and Final Sequestration reports to determine if they
                        reflected all of the technical requirements specified in GRH, such as
                        (1) estimates of the discretionary spending limits, (2) explanations of any
                        adjustments to the limits, (3) estimates of the amount of net deficit
                        increase or decrease, and (4) in the event of a sequester, the sequestration
                        percentages necessary to achieve the required reduction.

                        We reviewed legislation dealing with budget enforcement including GRH as
                        amended by BEA, OBRA 93, the Violent Crime Control and Law Enforcement
                        Act of 1994, the Contract With America Advancement Act of 1996, the
                        Personal Responsibility and Work Opportunity Reconciliation Act of 1996,
                        and the Omnibus Consolidated Appropriations Act, 1997 (OCAA). We
                        reviewed the pertinent appropriations acts enacted during the second
                        session of the 104th Congress—the 9 continuing appropriations measures



                        6
                         CBO’s final sequestration report stated that if it had used the balances in OMB’s March preview report
                        and its own estimates of the effects of legislation enacted since then, it would conclude that the
                        combined 1996 and 1997 deficits had increased by about $2.9 billion and that a sequester would be
                        required in 1997. See PAYGO discussion in appendix II for more detail.



                        Page 10                                                       GAO/AIMD-97-28 Compliance Report
Appendix I
Background and Objective, Scope, and
Methodology




and the 6 regular appropriations enacted for fiscal year 19967 and the 13
appropriations enacted for fiscal year 1997.8 We also examined the OMB
and CBO scoring reports for all PAYGO reports on mandatory spending and
receipts legislation. We compared each OMB and CBO report and obtained
explanations for differences of $500 million or more in estimates for the
PAYGO reports. For discretionary spending, we compared and analyzed all
OMB and CBO scoring reports and obtained explanations for differences of
$100 million or more in budget authority estimates and $400 million or
more in outlay estimates for all general purpose items. We also examined
and analyzed all OMB and CBO adjustments to the discretionary spending
limits for the preview, update, and final sequestration reports. We also
examined appropriation scoring reports for patterns in reasons for
differences between OMB and CBO, irrespective of the dollar amounts.

During the course of our work, we interviewed OMB and CBO officials. Our
work was conducted in Washington, D.C., from July through
December 1996.




7
Five of the regular appropriations for 1996 were combined and enacted as the Omnibus Consolidated
Rescissions and Appropriations Act of 1996.
8
Six of the regular appropriations for 1997 were combined and enacted as the Omnibus Consolidated
Appropriations Act, 1997.


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Appendix II

Compliance Issues


                  We found three compliance issues during our review. Two of the issues
                  relate to the late issuance of OMB reports—the final sequestration report
                  and 5-day scoring reports. The third issue relates to charging
                  appropriations actions for continuing disability reviews to the PAYGO
                  scorecard. These issues are discussed below.


                  GRH  sets a specific timetable for issuance of CBO and OMB reports. CBO and
OMB Issued Late   OMB  sequestration reports are required by law to be issued three times
Reports           during the calendar year as dictated by a specific event or a specific
                  date—the President’s budget submission, specific dates in August, and the
                  end of a congressional session. The law also requires that CBO and OMB
                  issue scoring reports on appropriation and PAYGO legislation at specified
                  times after completion of congressional action and enactment. For 1997,
                  OMB, for reasons explained below, did not issue its final sequestration
                  report within the time established in law. OMB also issued most of its
                  scoring reports on individual pieces of legislation after the time specified
                  in law.

                  Section 254(g) requires that OMB issue a final sequestration report 15 days
                  after the end of a congressional session (as set forth in section 254(a))
                  updated to reflect laws enacted through that date. The 104th Congress
                  adjourned sine die on October 4, 1996. OMB’s final sequester report was
                  required to be issued on October 19, 1996, based on the congressional
                  adjournment date.

                  OMB, however, did not issue its report until November 15, 27 days later
                  than required by law. OMB decided not to issue a report until all legislation
                  enacted during the 104th Congress had been sent to and signed by the
                  President. The last piece of legislation sent to the President was the
                  Omnibus Parks and Public Lands Management Act of 1996 (HR 4236).
                  Although the Congress completed action on this bill on October 3, 1996, it
                  was not sent to the President for signature until November 5, 1996. The
                  President signed the bill into law on November 12, 1996.

                  According to OMB, the final report was delayed to include all legislation.
                  The Omnibus Consolidated Appropriations Act enacted during the 104th
                  Congress required that PAYGO balances for 1997 in next year’s preview
                  report be set at zero—i.e., that no balance be carried over to offset the




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Appendix II
Compliance Issues




costs of future legislation. Thus, OMB decided it was important that the
final report reflect all PAYGO legislation.1

The law clearly requires OMB to issue its report after the end of the session.
However, because delays in the final processing of legislation could occur
again, the Congress should decide whether OMB should issue an
incomplete report by the 15th day or issue the report after all legislation
passed by that session of the Congress has been acted upon. We believe
that the purpose of the final report should be to determine whether a
sequester is necessary based on all legislation enacted during a session of
the Congress. Therefore, as noted in the letter, we suggest that the
Congress consider amending GRH to direct OMB to issue its final report
during a given period after Presidential action has been taken on all
legislation passed during a session.

With regard to the scoring reports required to be issued by OMB, section
252(d) requires that “Within 5 calendar days after the enactment of any
direct spending or receipts legislation enacted after the enactment of this
section, OMB shall transmit a report to the House of Representatives and to
the Senate containing such CBO estimate of that legislation, an OMB
estimate of the amount of change in outlays or receipts, as the case may
be, in each fiscal year through 1998 resulting from that legislation, and an
explanation of any difference between the two estimates.” Section
251(a)(7) contains a requirement for reporting estimates of budget
authority and current year and budget year outlays within 5 days after the
enactment of any discretionary appropriation.

Our analysis of 101 scorekeeping reports for both PAYGO and
appropriations actions issued by OMB for legislation enacted during the
second session of the 104th Congress showed that 72 (71 percent) of the
scoring reports were issued more than 5 days after enactment. Report
issuance ranged from 2 days to 34 days after enactment and averaged 7.5
days per report. Most reports (88 percent) were issued within 10 days after
enactment.

Timing for CBO reports on bills with completed congressional action was
similar to that of OMB. Although CBO had a slightly lower average days per

1
 GRH as amended by BEA provides that if in the aggregate all PAYGO legislation increases the deficit
in the current or budget year, there is a sequester. Section 4001 of the Omnibus Consolidated
Appropriations Act (P.L. 104-208) requires that if the balance for fiscal year 1997 is not an increase in
the deficit (i.e., if no sequester is required) then the day following the issuance of OMB’s final
sequestration report, the scorecard balance for fiscal year 1997 be set at zero. OMB reported that, on
the day after submission of its final sequestration report, $6.3 billion in savings would be removed
from the PAYGO scorecard for fiscal year 1997 and will not be available to offset future legislation.



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                           Appendix II
                           Compliance Issues




                           report (7.3), only 54 percent of its reports were issued more than 5 days
                           after the Congress completed action on the legislation. However, unlike
                           OMB, CBO does not have a specified number of days as its requirement for
                           report issuance. CBO is required only to issue its reports “as soon as
                           practicable after Congress completes action.”


Matter for Congressional   The Congress may wish to consider changing the required timing of OMB’s
Consideration              final sequestration report to link its issuance to the completion of
                           Presidential action on all legislation passed during a session of the
                           Congress.


                           In its scoring for the Personal Responsibility and Work Opportunity
OMB Charged                Reconciliation Act of 1996, OMB in effect “charged PAYGO” for the increase
Discretionary Cap          in the discretionary cap adjustment provided for in the act. To understand
Adjustment to PAYGO        this action, it is necessary to look at both this act and the earlier Contract
                           with America Advancement Act of 1996 (P.L. 104-121).
Scorecard
                           Section 103(b) of the Contract with America Advancement Act of 1996
                           amended section 251(b)(2) of GRH to adjust the discretionary caps upward
                           by specified amounts for appropriations enacted for continuing disability
                           reviews under the heading “Limitation on Administrative Expenses” for
                           the Social Security Administration.2 In scoring this act, both OMB and CBO
                           increased the discretionary caps and took no action on the PAYGO
                           scorecard. The Personal Responsibility and Work Opportunity
                           Reconciliation Act of 1996, passed later in the session, amended the
                           previously passed act to increase by $150 million in 1997 and $100 million
                           in 1998 the allowable amounts of the cap adjustment. This increase in
                           dollar amounts for continuing disability reviews was the sole change to
                           this section of the law.

                           In its PAYGO scoring report on the Personal Responsibility and Work
                           Opportunity Act of 1996, OMB increased PAYGO outlays by the $250 million
                           newly authorized to be appropriated. Thus, OMB made a PAYGO adjustment
                           based on authorized future appropriations action. This contrasted with its

                           2
                            Administrative expenses are shown on the discretionary scorecard but benefit payments are part of
                           the PAYGO scorecard. Therefore, although continuing disability reviews reduce Supplemental Security
                           Income (SSI) costs, these savings in SSI payments cannot be used to offset the costs of increased
                           continuing disability reviews. We have previously commented on the problem this presents. [See
                           correspondence to Chairmen and Ranking Members of Government Operations and Budget and
                           Governmental Affairs Committees, B-247667, May 19, 1993]. The increase in the caps provided in these
                           1996 laws was likely intended to deal with this problem and may have been patterned after the cap
                           adjustment for IRS compliance.



                           Page 14                                                     GAO/AIMD-97-28 Compliance Report
                            Appendix II
                            Compliance Issues




                            earlier scoring of the Contract with America Advancement Act for which it
                            made no adjustment for PAYGO outlays. OMB said that under the Contract
                            with America Advancement Act, the intention was to fund administrative
                            expenses to achieve a certain level of mandatory savings. OMB further said
                            that since the additional discretionary resources provided in the Personal
                            Responsibility and Work Opportunity Reconciliation Act cap
                            adjustment—unlike those provided in the earlier Contract with America
                            Advancement Act—were not necessary to achieve the mandatory savings,
                            it scored the second cap adjustment as a PAYGO cost.

                            In its final sequester report of October 11, CBO took exception with OMB’s
                            adjustment of PAYGO outlays. It pointed out that a cap adjustment does not
                            involve direct spending and should not be included on the PAYGO
                            scorecard. Section 250(c)(8) defines direct spending as budget authority
                            provided by law other than appropriation acts, entitlement authority, and
                            the food stamp program.

                            OMB’s PAYGO  scoring of the Personal Responsibility and Work Opportunity
                            Reconciliation Act of 1996 cap adjustments for continuing disability
                            reviews is not consistent with the definition of “direct spending” in GRH nor
                            with the long-standing practices followed by OMB and CBO. OMB’s scoring of
                            the Personal Responsibility and Work Opportunity Reconciliation Act of
                            1996 in effect constrains mandatory spending to pay for an increase in the
                            discretionary caps by holding the PAYGO part of the budget responsible for
                            the discretionary spending increase permitted by the upward cap
                            adjustment. The scoring attempts to ensure that the potential increase in
                            discretionary spending is offset by recording it as a PAYGO cost. We have
                            previously commented3 on the need to consider when and under what
                            circumstances breaching the wall between discretionary and mandatory
                            categories makes sense. OMB’s scoring of the Personal Responsibility and
                            Work Opportunity Reconciliation Act of 1996 raises the issue again, and
                            we suggest that the Congress look at this issue.


Matters for Congressional   To increase its ability to shift spending priorities, the Congress may wish
Consideration               to consider specifying the circumstances and conditions under which
                            tradeoffs between mandatory and discretionary spending are permitted.



                            3
                             Letter to Chairmen and Ranking Members of House Committees on Government Operations and on
                            Budget and of Senate Committees on Governmental Affairs and Budget on possible changes to BEA
                            (B-247667, May 19, 1993). Also Budget Process: Evolution and Challenges (GAO/T-AIMD-96-129,
                            July 11, 1996).



                            Page 15                                                  GAO/AIMD-97-28 Compliance Report
Appendix III

Implementation Issues Relating to Estimates
for PAYGO Legislation

               Ninety-seven pieces of direct spending and receipts legislation were
               enacted during the second session of the 104th Congress. In its final
               sequestration report, OMB estimated that PAYGO legislation decreased the
               fiscal year 1996 deficit by $1.2 billion and the 1997 deficit by $6.3 billion
               for a combined total of $7.5 billion for the 2 years.

               GRH  requires that, in total, direct spending and receipts legislation not
               increase the deficit in any year through 1998. Net savings enacted for 1
               fiscal year may be used to offset net increases in the next year. The PAYGO
               process requires that OMB maintain a “scorecard” that shows the
               cumulative deficit impact of such legislation, beginning with the 102nd
               Congress.1

               CBO’s final sequestration report estimated that PAYGO legislation reduced
               the deficit for fiscal year 1996 by $1.1 billion and $6.3 billion for fiscal year
               1997. Thus, CBO concluded that no PAYGO sequestration would be
               necessary. However, this conclusion was only made because CBO adopted
               OMB’s PAYGO balances from OMB’s August update report as the basis for
               calculating the current balances. CBO reported that if it had used the
               balances in OMB’s March preview report and its own estimates of the
               effects of PAYGO legislation enacted since then, it would conclude that the
               combined 1996 and 1997 deficits had increased by about $2.9 billion and
               that a sequestration would be required in 1997. CBO attributed these
               different outcomes to different estimates of the effects of the Federal
               Agriculture Improvement and Reform Act of 1996 (FAIR). This issue is
               discussed in detail in the next section of this report.

               Table III.1 shows the five laws for which OMB and CBO PAYGO estimates
               differed by over $100 million. These differences accounted for most of the
               total estimating differences. Table III.2 contains a list of PAYGO legislation
               having a deficit impact in either fiscal year 1996 or 1997 that was enacted
               during the second session of the 104th Congress.




               1
                Section 4001 of the Omnibus Consolidated Appropriations Act, 1997 (P.L. 104-208) requires that on the
               day following the issuance of OMB’s final sequestration report, the scorecard balance for fiscal year
               1997 be set at zero if the balance for fiscal year 1997 is not an increase in the deficit. OMB reported
               that, on the day after submission of its final sequestration report, $6.3 billion in savings would be
               removed from the PAYGO scorecard for fiscal year 1997 and will not be available to offset future
               legislation.



               Page 16                                                       GAO/AIMD-97-28 Compliance Report
                                       Appendix III
                                       Implementation Issues Relating to Estimates
                                       for PAYGO Legislation




Table III.1: Comparison of OMB and
CBO Scoring of PAYGO Legislation       Dollars in millions
With a Difference Greater Than $100                                                                             Change in fiscal year
Million in Fiscal Years 1996 or 1997                                                                              baseline deficit
                                       Act                                                                            1996           1997
                                       Contract with America Advancement Act
                                            OMB estimate                                                              $ –26        $ –212
                                            CBO estimate                                                                 –6          –341
                                            Difference                                                                  –20            129
                                       Federal Agriculture Improvement and Reform Act of 1996
                                            OMB estimate                                                            –1,941         –3,746
                                            CBO estimate                                                              3,175          1,476
                                            Difference                                                              –5,116         –5,222
                                       Small Business Job Protection Act of 1996
                                            OMB estimate                                                              –255             126
                                            CBO estimate                                                                –92          –579
                                            Difference                                                                –163             705
                                       Health Insurance Portability and Accountability Act of 1996
                                            OMB estimate                                                                –10            191
                                            CBO estimate                                                                 52          –275
                                            Difference                                                                   42            466
                                       Personal Responsibility and Work Opportunity Reconciliation
                                       Act of 1996
                                            OMB estimate                                                                –18        –3,932
                                                                                                                              a
                                            CBO estimate                                                                           –2,994
                                            Difference                                                                  –18          –938
                                       a
                                           Less than $500,000.



                                       We examined the reasons for the differences between CBO and OMB for the
                                       three pieces of PAYGO legislation where the scoring difference exceeded
                                       $500 million. A discussion of those analyses follows.


                                       OMB  and CBO differed by $5.1 billion for 1996 and $5.2 billion for 1997 in
Federal Agriculture                    their estimates of the deficit impact of the Federal Agriculture
Improvement and                        Improvement and Reform Act of 1996 (FAIR) (P.L. 104-127).2 FAIR is a
Reform Act of 1996                     comprehensive law authorizing agriculture programs for fiscal years 1996
                                       through 2002 and includes commodities, credit, conservation, rural


                                       2
                                        This represents the largest difference in scoring between CBO and OMB since the establishment of
                                       PAYGO procedures in BEA.



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Appendix III
Implementation Issues Relating to Estimates
for PAYGO Legislation




development, trade, nutrition, research, and market promotion programs.
As shown in table III.1, OMB estimated that FAIR would reduce the deficit by
$1.9 billion in 1996 and $3.7 billion in 1997. CBO estimated that the act
would increase the deficit by $3.2 billion in 1996 and $1.5 billion in 1997.
Had OMB scored FAIR as CBO did, an offset would have been required to
avoid a PAYGO sequester.

The primary reason for this difference, according to both OMB and CBO, is
the use of different baseline assumptions against which to compare FAIR
for the 1996 crop year.3 Based on longstanding practice, both CBO and OMB
would have been expected to calculate the impact of FAIR against a
baseline that assumed the provisions of the 1990 farm act4 were in
effect—and CBO did so. OMB, however, assumed the provisions of the 1938
and 1949 agriculture acts were in effect for crop year 1996 (affecting fiscal
years 1996 and 1997) but that the 1990 act was in effect for crop years 1997
and beyond. OMB’s use of two different sets of legislative assumptions in its
baseline calculations is unprecedented.

Baseline assumptions are derived from section 257(b)(2) of GRH which
requires that, in constructing the baseline, “No program with estimated
current-year outlays greater than $50 million shall be assumed to expire in
the budget year or outyears.” The conference report on OBRA 93 addressed
the issue of baseline construction specifically by stating that, “In case of
CCC, which reverts to older, very general authority, existing practice is to
assume that authority would be used in the same manner as the just
expired law.”

The Congress has typically passed 5-year farm bills providing lower crop
support levels than would be paid under the 1949 permanent agriculture
law. The 1990 farm act expired in December 1995, but FAIR was not signed
into law until April 4, 1996.

Although section 257(b)(2) conceivably could be interpreted as assuming a
reversion, for baseline purposes, to laws which had been superseded by
the expired law, a more reasonable interpretation—and one which
consistently has been used by both OMB and CBO in all past instances—is to
construct the baseline based on the law that is set to expire (or that was
most recently in effect if it has already expired). This usual interpretation
ensures that scoring of new legislation is compared with what actually

3
A crop year is the 12-month period beginning at the time of harvest and is identified by the year in
which it begins.
4
 Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 101-624).



Page 18                                                        GAO/AIMD-97-28 Compliance Report
Appendix III
Implementation Issues Relating to Estimates
for PAYGO Legislation




exists or was most recently in effect. Thus, for purposes of constructing
the baseline, had OMB used standard scoring conventions, it would have
scored FAIR against the 1990 legislation.

Notwithstanding this longstanding practice, OMB seems to have been of
two minds on this issue. In the President’s 1997 budget issued March 19,
1996, the current services estimates for 1995-2002 used the 1990 farm act
as the basis for estimates of mandatory programs for farmers. However, a
footnote to the current services budget noted that at the time the budget
was prepared new authority for farm programs—which had expired in
December 1995—had not yet been enacted. This footnote stated further
that legislation enacted after the release of the 1997 budget would be
scored against the permanent law baseline (1938 and 1949 farm bills).
When OMB issued its 5-day scoring estimates after the passage of FAIR,5 it
said it scored the commodity provisions against the extension of the 1990
act for all crop years except 1996. According to OMB, because a recent
federal court decision prior to the enactment of FAIR affirmed
implementation of “permanent law” for commodity programs for the 1996
crop year, the OMB baseline for 1996 was prepared assuming this
permanent law. Despite the footnote in the 1997 budget, an OMB official
told us that absent this court case OMB would have used the 1990 farm bill
as the baseline for all years.

Our review of the court order in that case,6 along with a transcript of the
hearing, does not support OMB’s characterization of the Morris v. Glickman
decision as having “affirmed USDA implementation of ’permanent law’ for
its commodity programs with the 1996 crop year.” In the Morris v.
Glickman case, plaintiff farmers sued to compel the Secretary of
Agriculture to establish commodity price support levels under the 1949 act
for the 1996 crop year. At the hearing, the court determined that the
Secretary was not legally compelled to establish support levels “in
advance of the planting season,” but rather to establish such levels “as
soon as practicable.” Although the court stated that the 1949 act was in
effect until a new act was signed, the court stated that it was unlikely that
the farmers would receive payments under the 1949 act. Accordingly, the
court dismissed the case with prejudice.

It appears that, except for the claimed effect of the Morris v. Glickman
decision, both OMB and CBO agree on the baseline assumptions for farm


5
 The President signed FAIR on April 4, 1996, and OMB issued its 5-day scoring estimates on April 9.
6
 Morris v. Glickman (DCDC Civ. No. 96-0373, March 21, 1996).



Page 19                                                        GAO/AIMD-97-28 Compliance Report
                           Appendix III
                           Implementation Issues Relating to Estimates
                           for PAYGO Legislation




                           commodity programs—i.e., that commodity credit programs should be
                           scored against the expiring act.

                           Even if OMB had used the 1990 act as its baseline for fiscal years 1996 and
                           1997, there would have been sizable scoring differences with CBO due to
                           long-acknowledged differences in technical program assumptions.
                           According to OMB, these assumptions include the number of program
                           participants, amount of cropland in production, and differences in
                           commodity prices. CBO has also reported in the past that OMB’s baseline
                           was consistently higher than its projected outlays with the biggest
                           differences in 1992 and 1993 when CBO’s projections were $1.9 billion and
                           $1.6 billion lower, respectively, than the administration’s.7


Matter for Congressional   The Congress may wish to consider clarifying section 257(b) to explicitly
Consideration              require the most recently expiring provisions of law for programs with
                           current year outlays greater than $50 million to be used to construct the
                           baseline.


                           OMB and CBO differed by $163 million for 1996 and $705 million for 1997 in
Small Business Job         their estimates of the PAYGO impact of the Small Business Job Protection
Protection Act of 1996     Act of 1996 (P.L. 104-188). The act makes numerous changes in the tax
                           code that reduce revenues while providing relief to small businesses,
                           simplifying pension plans, and extending certain expiring provisions.

                           CBO estimated that, due to increased revenues, the deficit would decrease
                           by $92 million in 1996 and $579 million in 1997 for a total deficit reduction
                           totaling $671 for the 2 years. OMB estimated that the 1996 deficit would
                           decrease by $255 million due to increased revenues. However, it estimated
                           that decreased revenues would cause the 1997 deficit to increase by
                           $126 million, for a 2-year deficit reduction of $129 million.

                           The largest revenue increases result from the repeal of the possessions tax
                           credit given to domestic corporations with operations in Puerto Rico and
                           other U.S. possessions (Section 936) and the extension of expired Airport
                           and Airway Trust Fund excise taxes through the end of 1996. CBO, which
                           receives its estimates of changes in tax laws from the Joint Committee on
                           Taxation, estimated that these two provisions would result in higher
                           revenue gains than OMB, which receives its estimates of tax law changes

                           7
                             The Outlook for Farm Commodity Program Spending, Fiscal Years 1992-1997 Congressional Budget
                           Office, June 1992.



                           Page 20                                                   GAO/AIMD-97-28 Compliance Report
                        Appendix III
                        Implementation Issues Relating to Estimates
                        for PAYGO Legislation




                        from the Treasury Department. These increases were either partially offset
                        or more than offset by extending tax credits such as that for
                        employer-provided educational assistance.


                        OMB and CBO estimates for 1997 differed by $938 million for the Personal
Personal                Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L.
Responsibility and      104-193). This legislation repealed certain welfare entitlements and
Work Opportunity        replaced them with a block grant to states. It also requires welfare
                        recipients to work and places time limits on the receipt of welfare benefits
Reconciliation Act of   as well as amending a variety of other federal programs.
1996
                        OMB estimated that this legislation would reduce the deficit by $3.9 billion
                        for fiscal year 1997 while CBO estimated that it would reduce the deficit by
                        $3.0 billion. Despite this large difference for 1997, the total difference for
                        the 7-year period 1996-2002 amounts to only $154 million.

                        While there were relatively small overall differences between OMB and CBO
                        estimates, larger differences at the program level result from different
                        technical assumptions and different program baselines. OMB and CBO
                        analysts told us that the program level differences were attributable
                        primarily to assumptions about implementation of immigrant provisions of
                        the law. OMB assumed that provisions denying immigrant benefits could be
                        implemented sooner than CBO assumed. In addition, OMB and CBO estimates
                        for receipts relating to the Earned Income Tax Credit differ because OMB
                        uses Treasury estimates and CBO uses Joint Committee on Taxation
                        estimates for receipts.

                        Of more analytic significance was OMB’s adjustment of PAYGO outlay
                        estimates in response to an authorization for appropriations for continuing
                        disability reviews. OMB increased PAYGO outlay estimates by $150 million
                        for 1997 and $100 million in 1998 for amounts authorized as a
                        discretionary cap adjustment for Social Security Administration
                        continuing disability reviews. CBO did not include any PAYGO effects for this
                        item. This is discussed in detail under compliance issues in appendix II.


                        Table III.2 lists all PAYGO legislation enacted during the second session of
Total PAYGO             the 104th Congress having an impact of more than $500,000 on the deficit
Legislation             in fiscal years 1996 or 1997. Both OMB and CBO estimates are included,
                        along with the difference between the two. Complete lists of PAYGO




                        Page 21                                        GAO/AIMD-97-28 Compliance Report
                                               Appendix III
                                               Implementation Issues Relating to Estimates
                                               for PAYGO Legislation




                                               legislation with deficit impact and without deficit impact are included in
                                               OMB’s final sequestration report dated November 15, 1996.



Table III.2: PAYGO Legislation Enacted During the Second Session of the 104th Congress That Has a Deficit Impact Greater
Than $500,000 in Fiscal Years 1996 or 1997
Dollars in millions
                                                                       1996                                         1997
P.L. No.         Title                                     OMB         CBO         Difference           OMB         CBO       Difference
104-96           Smithsonian Institution
                 Sesquicentennial
                 Commemorative Coin Act of
                 1995                                        $0         $ –3                 $3           $0         $ –3            $3
104-104          Telecommunications Act of 1996                0           0                   0            4          1              3
104-105          Farm Credit System Reform Act
                 of 1996                                      –1          –1                   0          –1          –1              0
104-106          Defense Authorization Act of
                 1996                                        315        395                  –80         609         672            –63
104-110          Extension of VA Medical and
                 Housing Programs                             –3          –5                   2          –1          –1              0
104-117          Tax Relief for Troops in
                 “Operation Joint Endeavor”                   38          38                   0          45          45              0
104-121          Contract With America
                 Advancement Act                             –26          –6                 –20        –212        –341            129
                                                                   a                               a
104-123          Greens Creek Land Exchange                                0                              –1           0             –1
104-127          Federal Agriculture
                 Improvement and Reform Act of
                 1996                                    –1,941        3,175           –5,116          –3,746       1,476        –5,222
104-132          Antiterrorism and Effective
                 Death Penalty Act                            –2          –2                   0          –2          –3              1
104-134          Omnibus Consolidated
                 Rescissions and Appropriations
                                                                   b                                            b
                 Act                                                       0                   0                      –4              4
104-164          Defense and Security
                 Assistance Improvements                     –72           0                 –72            0          0              0
Pvt Law 104- 1   Private Relief for Benchmark Rail
                 Group                                         1           1                   0            0          0              0
104-168          Taxpayer Bill of Rights 2                    26          30                  –4          16          15              1
104-185          Federal Oil and Gas Royalty
                 Simplification and Fairness Act
                 of 1996                                       0           0                   0          –1          –1              0
104-188          Small Business Job Protection
                 Act of 1996                               –255         –92              –163            126        –579            705
                                                                   b                                            b
104-190          AID Buyout Authority                                      0                   0                      –1              1
104-191          Health Insurance Portability and
                 Accountability Act of 1996                  –10        –52                   42         191        –275            466
                                                                                                                             (continued)


                                               Page 22                                                  GAO/AIMD-97-28 Compliance Report
                                                  Appendix III
                                                  Implementation Issues Relating to Estimates
                                                  for PAYGO Legislation




Dollars in millions
                                                                                1996                                      1997
P.L. No.              Title                                       OMB           CBO          Difference      OMB          CBO          Difference
104-193               Personal Responsibility and
                      Work Opportunity Reconciliation
                                                                                     a
                      Act of 1996                                   –18                              —18   –3,932        –2,994              –938
104-201               National Defense Authorization
                      Act for Fiscal Year 1997                         0            0                  0       –22          –22                 0
104-208               Omnibus Consolidated
                                                                          b                                          b
                      Appropriation Act                                             0                  0                      1                –1
104-251               Railroad Unemployment
                      Insurance Amendments Act of
                      1996                                             0            0                  0        12           12                 0
104-264               Federal Aviation Authorization
                      Act of 1996                                      0            0                  0         0           50               –50
104-275               Veterans Benefits Improvements
                      Act of 1996                                      0            0                  0       –34            0               –34
104-286               Central Utah Project Completion
                      Act Amendments                                   0            0                  0       –75          –72                –3
104-294               Economic Espionage Act of 1996                   0            0                  0        –5           –5                 0
104-295               Miscellaneous Trade and
                      Technical Corrections Act of
                      1996                                             0            0                  0        15            9                 6
104-297               Sustainable Fisheries Act                        0            0                  0         0           –2                 2
104-301               The Navajo-Hopi Land Dispute
                      Settlement Act of 1996                           0            0                  0         0           48               –48
104-304               Accountable Pipeline and
                      Partnership Act of 1996                          0            0                  0         3            3                 0
104-308               Compensation for Patent
                      Owners in Certain Suits Against
                      the United States                                0            0                  0         4            3                 1
104-315               Change in Medicaid Nursing
                      Facility Resident Review
                      Requirements                                     0            0                  0       –10           –8                –2
104-318               Emergency Drought Relief Act                     0            0                  0         7            7                 0
104-324               Coast Guard Authorization Act
                      of 1996                                          0            0                  0         3            3                 0
104-329               United States Commemorative
                      Coin Act of 1996                                 0            0                  0        –6           –6                 0
                      Total Enacted This Session                 –1,948        3,484             –5,432    –7,013        –1,973             –5,040

                                                  Note: A negative number in the OMB or CBO column represents a reduction in the deficit,
                                                  whereas a positive number represents an increase in the deficit.
                                                  a
                                                      Less than $500,000.
                                                  b
                                                      OMB did not score this legislation as PAYGO.




                                                  Page 23                                                    GAO/AIMD-97-28 Compliance Report
Appendix IV

Implementation Issues for Discretionary
Spending

                           In our review of compliance with discretionary spending controls during
                           the second session of the 104th Congress, we identified several instances
                           in which OMB and CBO differed in (a) making adjustments to discretionary
                           spending limits, or caps, and (b) scoring appropriations, that is, estimating
                           the amounts of discretionary new budget authority and outlays for enacted
                           appropriations bills. These two areas are discussed in separate sections
                           below, after a brief introductory section describing (1) the unusual
                           circumstances for appropriations during the year and (2) the overall level
                           of fiscal year 1996 and 1997 discretionary spending in relation to the
                           discretionary spending limits.


                           The second session of the 104th Congress was an unusual year for
1996 Was an Unusual        appropriations because the Congress and the President had not reached
Budget Year                agreement on 6 of 13 fiscal year 1996 appropriations when the session
                           began in January 1996, 3 months after the start of fiscal year 1996. From
                           January through April 1996, nine different continuing appropriations
                           measures for fiscal year 1996 were enacted to keep nearly one-third of the
                           government operating until final agreement was reached between the
                           Congress and the President on the six remaining fiscal year 1996
                           appropriations.1 The fiscal year 1996 appropriation for Foreign Operations
                           was enacted on February 12, 1996, while the remaining five regular
                           appropriations for fiscal year 1996—for Commerce, the District of
                           Columbia, Interior, Labor/HHS/Education, and VA/HUD—were combined into
                           the Omnibus Consolidated Rescissions and Appropriations Act of 1996
                           (OCRA), enacted on April 26, 1996, almost 7 months after the start of the
                           fiscal year.

                           In contrast with the fiscal year 1996 appropriations, all fiscal year 1997
                           appropriations were enacted into law before the start of fiscal year 1997
                           on October 1, 1996. Seven of the 13 regular appropriations bills—for
                           Agriculture, District of Columbia, Military Construction, Legislative
                           Branch, VA/HUD, Transportation, and Energy/Water—were enacted during
                           August and September. The remaining six bills were combined into the
                           Omnibus Consolidated Appropriations Act, 1997 (OCAA), enacted on
                           September 30.


Discretionary Spending     Appropriations enacted during the second session were well below the
During the Year Was Well   1996 and 1997 discretionary spending limits—by about $29-$34 billion in
Below BEA Spending Caps    budget authority and $12-$14 billion in outlays (see table IV.1). As a result,

                           1
                            Prior to the second session, four continuing resolutions for fiscal year 1996 were enacted.



                           Page 24                                                        GAO/AIMD-97-28 Compliance Report
                                        Appendix IV
                                        Implementation Issues for Discretionary
                                        Spending




                                        OMB and CBO differences over discretionary cap adjustments and scoring of
                                        appropriations were not of the same consequence as the PAYGO scoring
                                        differences discussed in appendix III, since such differences posed no
                                        sequester threat for discretionary spending as they did for the PAYGO
                                        spending.

Table IV.1: Enacted Appropriations as
of November 15, 1996, Under             Dollars in millions
Discretionary Capsa                                                                    Fiscal Year 1996             Fiscal Year 1997
                                                                                            BAb      Outlaysb              BAb     Outlaysb
                                        Discretionary spending limitsc                $526,663       $552,734      $532,031       $550,991
                                        Total appropriations enacted                   492,484        538,209       502,388         538,702
                                        Amount under spending limits                     34,179        14,525         29,643         12,289
                                        a
                                         In addition to the statutory spending limits discussed above, the Congress also sets separate
                                        discretionary spending caps in its budget resolutions. These budget resolution caps were lower
                                        than the statutory caps for fiscal year 1997. The budget resolution caps were $497.4 billion in
                                        budget authority ($35 billion less than the statutory cap for budget authority (BA)) and $538.6
                                        billion in outlays ($12 billion lower than the statutory cap for outlays). Fiscal year 1997
                                        appropriations enacted during the session exceeded the budget resolution discretionary budget
                                        authority caps by about $3 billion according to CBO, the scorekeeper for congressional
                                        budgeting purposes. Total estimated fiscal year 1997 outlays were below the budget resolution
                                        caps by $141 million in the Senate and by $3 billion in the House, the main difference being that
                                        the House counted as an offset to fiscal year 1997 outlays $3.1 billion from the Banking and
                                        Savings Association Insurance Funds as provided for in OCAA.
                                        b
                                            OMB estimates.
                                        c
                                            Includes both General Purpose and Violent Crime Reduction Trust Fund Limits.




                                        Section 251(b) of GRH requires that discretionary spending limits be
OMB and CBO                             adjusted to account for (a) changes in concepts and definitions, (b)
Differed on                             changes in inflation, (c) emergency appropriations, and (d) spending for
Adjustments to                          continuing disability reviews by the Social Security Administration in
                                        excess of certain amounts. While both CBO and OMB are required to
Discretionary                           calculate how much the spending limits should be adjusted, OMB’s
Spending Limits                         adjustments control for the purposes of budget enforcement, such as
                                        determining whether enacted appropriations fall within the spending
                                        limits or whether a sequestration is required to avoid a breach of them.
                                        CBO’s cap adjustment estimates are advisory. During the year, OMB and CBO
                                        made cap adjustments for changes in concepts and definitions, changes in
                                        inflation, emergency appropriations, and continuing disability reviews.
                                        Overall, based on our calculations, CBO and OMB increased the 1996
                                        spending caps by over $1 billion for these adjustments, while CBO and OMB
                                        decreased the 1997 and 1998 caps in making these adjustments by over




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                          $2 billion for 1997 and $7 billion for 1998.2 OMB’s cap adjustments were
                          lower than CBO’s for 1996 by less than $100 million for both budget
                          authority and outlays, and OMB’s were lower for 1997 by about $200 million
                          in budget authority and $600 million in outlays. On the other hand, OMB’s
                          cap adjustments were higher than CBO’s for 1998 by about $550 million for
                          both budget authority and outlays. Our analysis of these differences
                          follows.


OMB and CBO Differed on   Discretionary spending limits are adjusted for changes in accounting and
Adjustments for Changes   scorekeeping conventions, and budget concepts definitions, including
in Concepts and           reclassification of spending and programs between the direct and
                          discretionary spending categories. In their March 1996 preview
Definitions               sequestration reports, both OMB and CBO adjusted the 1997 and 1998
                          spending caps for changes in concepts and definitions. OMB increased the
                          budget authority spending caps for such changes by $117 million and
                          $86 million for 1997 and 1998, respectively, while OMB decreased the outlay
                          spending caps by $1.9 billion and $1.8 billion for 1997 and 1998,
                          respectively. Compared to OMB, CBO’s proposed cap adjustments for
                          changes in concepts and definitions would have resulted in lower
                          spending caps: for budget authority by $161 million in 1997 and $33 million
                          in 1998, and for outlays by $437 million in 1997 and $130 million in 1998.
                          These differences were the result of three factors.

                          First, OMB increased the caps more because it estimated greater savings
                          than CBO from legislative changes made to direct spending programs in
                          appropriations acts (which are “reclassified” and scored as discretionary
                          changes with corresponding changes to the discretionary spending limits),
                          primarily the savings from acreage limitations placed on the wetlands and
                          conservation reserve programs by provisions in the 1996 Agriculture
                          Appropriations Act (P.L. 104-37). For this reason, OMB estimated
                          $73 million and $139 million more budget authority savings than CBO in
                          fiscal years 1997 and 1998, respectively. OMB’s related outlay savings were
                          $47 million and $30 million more than CBO’s for fiscal year 1997 and 1998,
                          respectively.

                          Second, the spending limits were reduced to reflect a reclassification of
                          the portion of the Department of Transportation’s federal aid to highways
                          account that is not subject to appropriations committee control through
                          obligation limitations. This highway spending was reclassified from


                          2
                           The CBO numbers are based on our estimates of what the spending limits would have been had CBO’s
                          cap adjustments not been conformed to OMB’s adjustments during the year.



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                          discretionary to mandatory spending beginning in 1997 and the caps were
                          reduced to reflect the discretionary outlays that would have been included
                          in the discretionary spending baseline if the category change had not
                          occurred. OMB reduced the outlay caps by $2.12 billion and $1.86 billion for
                          1997 and 1998, respectively, to reflect the reclassification of the highway
                          spending. Since CBO projected lower highway outlays, it would have
                          reduced the outlay caps by $2.18 billion and $1.99 billion for 1997 and
                          1998, or $62 million in 1997 and $126 million in 1998 more than OMB
                          actually reduced the outlay caps for the reclassified highway spending.

                          Third, apparent cap adjustment differences between OMB and CBO in
                          budget authority of $88 million in 1997 and $-106 million in 1998 and in
                          outlays of $328 million in 1997 and $-26 million in 1998 were due to a sign
                          error (transposition of (+/-) signs to a set of budget figures in a list of
                          reclassified programs) by CBO that was corrected in its August 1996 update
                          report.


CBO and OMB Differed in   Discretionary spending limits are adjusted to reflect changes in prior
Adjusting 1998            inflation estimates. This year both CBO and OMB revised downward prior
Discretionary Spending    inflation estimates for 1997 and 1998 reflected in the President’s 1996
                          Budget. Thus both CBO and OMB called for reducing the discretionary
Limits for Changes in     spending caps—by the same amount for 1997 and by different amounts for
Inflation                 1998—to reflect the lower inflation forecasts.3 Since CBO projected a 0.1
                          percent lower rate of inflation for 1998 than OMB, CBO would have reduced
                          the 1998 caps by $520 million more in budget authority and by $312 million
                          more in outlays than OMB actually did.

                          CBO’s and OMB’s updated inflation estimates were reflected in their
                          March 1996 preview reports. For 1997, since CBO and OMB each projected
                          the same 1997 inflation rate of 2.7 percent, down about 0.5 percent from
                          the prior inflation estimate for 1997 of 3.2 percent, both agencies called for
                          reducing the 1997 caps by the same amount: $4.7 billion in budget
                          authority and $2.8 billion in outlays.

                          For 1998 inflation, CBO projected a rate of 2.6 percent, while OMB projected
                          2.7 percent, different rates, but both down from the prior estimate of about


                          3
                           This year CBO and OMB each began using a new chain-weighted methodology for computing their
                          respective inflation estimates. Because of this shift in method, the prior inflation forecast contained in
                          the economic assumptions for the President’s 1996 Budget had to be restated on a chain-weighted
                          basis. Then, the difference between the restated 1996 budget inflation estimates and each agency’s
                          comparable 1997 inflation estimates were compared to produce CBO’s proposed inflation adjustment
                          and OMB’s actual inflation adjustment to the discretionary caps.



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                           3.2 percent. Due to this difference over the projected 1998 inflation rate,
                           the CBO and OMB preview reports had differing estimates of how much the
                           1998 caps needed to be adjusted. OMB reduced the 1998 caps by $7.3 billion
                           in budget authority and $5.6 billion in outlays to reflect its updated, lower
                           1998 inflation estimate. CBO would have reduced the 1998 discretionary
                           spending caps by $7.8 billion in budget authority and $5.9 billion in outlays
                           to reflect its revised inflation estimate. The 0.1 percent inflation estimate
                           difference resulted in a cap adjustment difference of $520 million in
                           budget authority and $312 million in outlays.


CBO and OMB Differed in    Discretionary spending caps are adjusted to reflect emergency
Scoring and Adjusting      appropriations. There are two types of emergency appropriations:
Discretionary Spending     (1) emergency appropriations so designated in statute and (2) contingent
                           emergency appropriations designated in statute as emergencies contingent
Limits for Emergency       upon later action by the President officially designating them as
Spending and Rescissions   emergency requirements.

                           The amount of emergency cap adjustments by CBO and OMB differ for two
                           reasons. First, CBO and OMB can and always do differ in when they score
                           the contingent emergency appropriations for purposes of cap adjustments.
                           Second, CBO and OMB can differ in how they score the budget authority and
                           outlays for an emergency appropriation. For example, the two agencies
                           can have different estimates of the rate at which the emergency funds
                           appropriated will be obligated and then outlayed.

                           The first reason cap adjustments for emergencies differ is that OMB and CBO
                           can and always do differ in when they score contingent emergency
                           appropriations. CBO scores and adjusts the spending caps for contingent
                           emergencies when they are enacted into law because the Congress does
                           not need to take any further action to make them available. OMB, however,
                           does not adjust the caps for contingent emergencies until the President
                           designates (releases) them as emergency requirements. This means that
                           between enactment and Presidential release of funds, there is usually a
                           difference in cap adjustment for contingent emergencies between CBO and
                           OMB. For example, CBO’s update sequestration report issued in August 1996
                           included a budget authority cap adjustment of $87 million for 1996 for the
                           amounts of unreleased contingent emergencies included in OCRA. OMB did
                           not make this adjustment. CBO in its final sequestration report then made
                           an adjustment to its estimates of the caps for 1996 to reconcile the
                           $87 million budget authority difference with OMB’s update report.




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The different rules used by CBO and OMB for scoring contingent emergency
appropriations led to OMB’s 1997 budget authority cap adjustment being
$364 million lower than CBO’s in its final sequestration report. In its
October 11, 1996, Final Report, CBO estimated that $1.9 billion in 1997
budget authority for emergencies had been enacted since OMB’s August
Update Report, which included $1.3 billion in regular emergency
appropriations and $566 million for contingent emergencies. It adjusted
the cap upward by the total amount. OMB, in its final report, adjusted the
cap upward for the $1.3 billion for regular emergencies and $202 million of
the $566 million of contingent emergency appropriations that were
released by the President on November 12, 1996. OMB did not adjust the
cap for the remaining $364 million of 1997 unreleased contingent
emergency funds, leading to the $364 million 1997 budget authority cap
adjustment difference with CBO.

The second reason cap adjustments for emergencies differ is that OMB and
CBO can differ in how they score budget authority or outlays from an
emergency appropriation. The August 1996 OMB and CBO update reports
reflected such a difference in the scoring of outlays. Due to different
outlay timing estimates, OMB called for smaller emergency cap adjustments
than CBO for 1996 and 1997 outlays, by $84 million and $746 million
respectively, but OMB called for a $147 million higher cap than CBO for 1998
outlays. These emergency outlay differences between OMB and CBO were
due primarily to the scoring of outlays from two emergency items included
in OCRA enacted on April 26, 1996: (1) an $820 million Defense emergency
supplemental appropriation and (2) a $1.0 billion rescission from the
unobligated balance in the Federal Emergency Management Agency
(FEMA) disaster relief fund.

OMB estimated that the $820 million supplemental for Department of
Defense (DOD) military personnel and operations and maintenance
activities would result in outlays of $335 million more than CBO for 1996
and over $245 million less for 1997. CBO estimated that about $336 million
(41 percent) of the DOD emergency supplemental would be outlayed in the
remaining 5-plus months of fiscal year 1996, and another $394 million (48
percent) in 1997. In contrast, OMB projected that DOD would spend about
$670 million (82 percent) of the supplemental funds during the remainder
of fiscal year 1996. It based its faster outlay spendout estimate on
knowledge that DOD anticipated the increased funding and was ready to
spend it.




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                        The other major scoring difference in OCRA involved how fast savings
                        would be produced as a result of the $1 billion rescission from the
                        unobligated balance in FEMA’s disaster relief fund. CBO estimated that
                        outlay savings from the rescission would not begin until 1998 based on a
                        “first-in first-out” method of calculating outlay savings. The “first-in
                        first-out” method assumes that outlays are made from the oldest budget
                        authority first, and that savings would occur later. Using this method, CBO
                        projected that outlay savings from the rescission would not begin until
                        1998, when savings of 30 percent ($300 million) of the $1 billion rescission
                        would occur. In contrast, OMB estimated savings to begin in 1996, when 40
                        percent ($400 million) of the savings from the rescission would occur,
                        followed by another 40 percent ($400 million) in 1997, and the remaining
                        20 percent ($200 million) in 1998. Unlike CBO, OMB used a simple 3-year
                        40:40:20 percent method of projecting future outlay savings from the
                        rescission, with all outlay savings to occur over 3 years (1996-1998), that
                        is, 40 percent in year 1 (the current fiscal year of 1996), 40 percent in year
                        2 (1997), and 20 percent in year 3 (1998).

                        Primarily as a result of the scoring of these two emergency items, OMB, in
                        its update sequestration report, adjusted the 1996 outlay cap downward by
                        $84 million more than CBO. OMB’s faster outlay savings estimate for the
                        FEMA rescission was offset by its faster spendout (outlay or spending rate)
                        estimate for the DOD emergency supplemental (that is, $400-$335=$65 of
                        the $84 million difference in 1996 outlays). For the 1997 cap adjustment,
                        the scoring differences on the DOD and FEMA items accounted for over
                        $645 million of the $746 million lower OMB 1997 outlay cap. In contrast
                        with 1996 and 1997, for 1998 CBO projected a lower cap than OMB, as CBO
                        estimated an initial $300 million in savings from the FEMA rescission to
                        begin, while OMB estimated the final $200 million in FEMA savings to end,
                        accounting for $100 million of the $147 million lower CBO 1998 outlay cap.


                        Section 251(a)(7) of GRH requires CBO and OMB to score the budget
Common Reasons for      authority and outlays of each discretionary appropriation bill enacted.
Different               Within 5 days of enactment of an appropriation bill, OMB is required to
Appropriation Scoring   transmit its and CBO’s scoring estimates to the House and the Senate, with
                        an explanation of any differences between the OMB and CBO estimates. We
                        examined all the CBO and OMB scoring reports for appropriations enacted
                        during the second session of the 104th Congress which included fiscal year
                        1996 appropriations for nearly one-third of the government as well as all
                        fiscal year 1997 appropriations. We focused primarily on items with the




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                           largest scoring differences and discussed reasons for scoring differences
                           with OMB and CBO analysts.

                           We identified seven reasons for differences between OMB and CBO in the
                           scoring of discretionary budget authority:

                           1. different assumptions,

                           2. different cost estimates,

                           3. baseline differences,

                           4. timing differences,

                           5. errors,

                           6. different scoring of contingent emergency, and

                           7. different classifications of spending between discretionary and direct
                           spending categories.

                           We also identified three reasons for differences in the scoring of outlays:

                           1. different spendout rates of new budget authority;

                           2. different spendout rates of prior year authority, including spendout of
                           account balances from prior year budget authority as well as prior
                           authority to spend receipts from offsetting collections; and

                           3. different new/current year budget authority estimates.

                           While there were many discretionary scoring differences between OMB and
                           CBO, none involved substantive compliance issues. Also, the scoring
                           differences were not consequential because estimated discretionary
                           spending was well below the spending caps, thus posing no sequester
                           threat for discretionary spending like they did for the PAYGO spending.


Overall Budget Authority   Overall, during the session, CBO and OMB discretionary budget authority
Differences Were Quite     scoring differences were relatively small, amounting to less than 1 percent
Small                      of total budget authority. OMB and CBO differed in their estimates of budget
                           authority on 30 spending items (budget accounts or groups of related



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accounts) for 1996 and 33 spending items for 1997 according to our review
of OMB’s 5-day reports. There were 8 items in 1996 and 5 items in 1997 that
had differences of $100 million or more. The total budget authority (BA)
scoring difference for these 13 items totaled about $3 billion in absolute
value, accounting for nearly 75 percent of the about $4 billion absolute BA
scoring difference between CBO and OMB.

Absolute scoring differences represent the sum of the absolute value of
scoring differences for spending items, in contrast with net scoring
differences that represent the sum of positive and minus number
differences which tend to offset or cancel each other out. A net scoring
difference is never larger and is usually much smaller than the absolute
difference. Absolute scoring differences are a better indicator than net
scoring differences of the magnitude or extent of scoring differences
between OMB and CBO, since the positive and minus number differences
comprising a net scoring difference within a bill and between bills offset
each other.

Tables IV.2 and IV.3 show items exceeding $100 million in BA scoring
differences for fiscal years 1996 and 1997, respectively, along with the
stated reasons for the differences. The eight items for 1996 in Table IV.2
accounted for about 80 percent ($1.9 billion of $2.4 billion) of the absolute
BA scoring difference between OMB and CBO in 1996 appropriations enacted
during the 2nd session of the 104th Congress.




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Table IV.2: BA Scoring Differences: Fiscal Year 1996 Items Exceeding $100 Milliona
Dollars in millions
                    Item: program        Budget authority
Appropriation       or account                difference Stated reason(s) for difference
VA/HUD in OCRA      Government                             Different assumptions: CBO estimated that GNMA would make a profit
                    National Mortgage                      for the government in FY 96, scoring a $499 million profit or negative
                    Association                            subsidy. OMB assumes that GNMA is designed to break even, and
                    (GNMA):                                therefore it has no subsidy by definition. However, OMB did estimate
                    Guarantees of                          that GNMA fee collections and other income would exceed expenses
                    Mortgage-Backed                        by $477 million in FY 96, but noted that this amount would be retained
                    Securities                             by GNMA in order to cover future year expenses and serve as a
                                                           reserve against losses that may be incurred on GNMA guarantees in
                                                      $499 the future.
VA/HUD in OCRA      FHA General and                        Different cost estimates: OMB had a $170 million lower net present
                    Special Risk                           value estimate of the subsidy than CBO based on different volume and
                    Program Account                        subsidy assumptions, including a negative subsidy for the Nursing
                                                           Home loan program that OMB included but CBO did not. Also, OMB
                                                           scored $167 million in projected proceeds for a loan asset sale which
                                                           CBO did not. CBO did not think the sale proceeds belong in the
                                                           program account, since the sale was allowed under current law and
                                                           involved pre-1992 loans. Also, CBO questioned whether the sale would
                                                      –337 make any money.
Labor/HHS in OCRA Grants to States for                     Baseline differences: Difference resulted from a difference in OMB and
                  Medicaid: Sec.                           CBO baseline estimates for this program. OMB’s Medicaid baseline
                  519 (Optional                            included the latest state estimate of federal spending for Louisiana:
                  Alternative                              $2.4 billion in FY 96. The appropriation act capped the federal share of
                  Medicaid Payment                         payments to Louisiana at $2.6 billion; therefore, OMB scored the
                  Method)                                  provision with a cost of $258 million. OCRA defined the periods
                                                           covered in state fiscal years, and the $258 million reflects the cost in FY
                                                           96. CBO’s baseline included $2.6 billion as the federal share of costs,
                                                           not the earlier state estimate of $2.4 billion, and therefore CBO scored
                                                       258 no costs in FY 96.
Energy in OCRA      U.S. Enrichment                        Timing differences: OMB continued its assumption made in the
                    Corporation                            President’s FY 97 budget that the sale of USEC to the private sector
                    (USEC) Fund                            would take place at the start of the 4th quarter of FY 96, and scored
                                                           lost USEC 4th quarter income of $39 million and $200 million in working
                                                           capital to be provided from the sale proceeds. CBO did not project the
                                                           sale to take place in FY 96 and scored no BA for FY 96, but did project
                                                           $90 million additional outlays to prepare for the sale. Neither CBO nor
                                                           OMB scored the $1.6 billion in expected proceeds from the sale itself,
                                                       239 since OCRA did not contain a waiver of BEA’s asset sale scoring rule.
Interior in OCRA    Strategic                              Errors: CBO, under congressional budget resolution rules, scored
                    Petroleum Reserve                      proceeds of $227 million from the sale of Weeks Island oil, but
                                                           mistakenly forgot to change its scoring to zero as required under BEA
                                                           before sending its scoring data to OMB. OMB did not score the sale
                                                       227 since BEA does not allow scoring of non-routine asset sales.
VA/HUD in OCRA      FHA Mutual                             Different cost estimates: OMB and CBO had the same estimates for the
                    Mortgage                               negative subsidy. OMB scored proceeds of $184 million for a loan
                    Insurance                         –184 asset sale, but CBO did not think the sale would make any money.
                                                                                                                          (continued)




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Dollars in millions
                      Item: program       Budget authority
Appropriation         or account               difference Stated reason(s) for difference
Labor/HHS in OCRA Family Education                          Baseline differences: OMB did not score any BA savings associated
                  Loan Account and                          with the reduction in authority from $550 million to $436 million to
                  Federal Direct                            obligate the FY 96 permanent appropriations for loan administration.
                  Student Loan                              CBO scored BA savings of $114 million. OMB scored $12 million in BA
                  Program Account                           savings associated with the elimination of the $10 loan origination
                                                            payment to schools. CBO scored no savings, assuming savings would
                                                        102 be completely offset by increased payments to alternative originators.
Interior in OCRA      Strategic                             Errors: CBO, under congressional budget resolution rules, scored
                      Petroleum Reserve                     proceeds of $100 million from the sale of Weeks Island oil, but
                                                            mistakenly forgot to change its scoring to zero as required under BEA
                                                            before sending its scoring data to OMB. OMB did not score the sale
                                                        100 since BEA does not allow scoring of non-routine asset sales.

                                           a
                                             A positive BA difference means OMB scored higher BA; a negative BA difference means CBO
                                           scored higher BA.



                                           The 5 items for 1997 in table IV.3 accounted for about 64 percent
                                           ($1 billion of $1.6 billion) of the absolute BA scoring difference between
                                           OMB and CBO in fiscal year 1997 appropriations bills enacted during the
                                           second session of the 104th Congress.




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Table IV.3: BA Scoring Differences: Fiscal Year 1997 Items Exceeding $100 Milliona
Dollars in millions
                    Item: program or     Budget authority
Appropriation       account                   difference Stated reason(s) for difference
Labor/HHS in OCAA Low Income Home                           Different scoring of contingent emergency: CBO scored this $300
                  Energy Assistance                         million contingent emergency for FY 97, included in OCRA, to OCAA.
                  Program                                   OMB will score this contingency if and when it is released by the
                                                      $-300 President.
Labor/HHS in OCAA Federal Direct                              Baseline differences: CBO scored $218 million in BA savings as a
                  Student Loan                                result of limitations on spending for student loan administration, while
                  Program,                                    OMB did not, consistent with each agency’s baseline for the program.
                  Financing Account                     218
VA/HUD              GNMA:                                   Different assumptions: CBO estimated that GNMA would make a profit
                    Guarantees of                           for the government in FY 97, thus scoring a $209 million profit or
                    Mortgage-Backed                         negative subsidy. OMB assumes that GNMA is designed to break
                    Securities                              even, and therefore it has no subsidy by definition. OMB estimated that
                                                            GNMA fees and income would exceed expenses by $532 million in FY
                                                        209 97 but that these amounts would be retained to cover future costs.
VA/HUD              FHA General and                         Different cost estimates: OMB and CBO have different estimates of the
                    Special Risk                            negative subsidy for this credit program due to different volume and
                    Program Account                         subsidy assumptions. OMB scored $25 million in BA, while CBO
                                                       –160 scored $185 million in BA.
VA/HUD              FHA Assignment                          Different cost estimates: CBO has a lower estimate of the net present
                    Reform                                  value of savings associated with this reform than does OMB. CBO
                                                       –132 calculates a $128 million savings, OMB $260 million.
                                           a
                                             A positive BA difference means OMB scored higher BA; a negative BA difference means CBO
                                           scored higher BA.




Outlay Scoring Differences                 Overall, during the session, the absolute value of CBO and OMB
Were Larger Than Budget                    discretionary outlay scoring differences amounted to about 3 percent of
Authority Scoring                          total outlays, that is, $23 billion out of the estimated $731 billion in total
                                           budget year outlays from all fiscal year 1996 and 1997 discretionary
Differences                                appropriations enacted during the second session. Not unexpectedly,
                                           absolute discretionary outlay scoring differences were much larger (nearly
                                           6 times larger) than the $4 billion or 0.6 percent absolute budget authority
                                           scoring differences between CBO and OMB. Since appropriation acts specify
                                           the exact dollar amount of budget authority for most discretionary
                                           programs, scoring budget authority is relatively simple. In contrast, outlays
                                           for a particular fiscal year depend on the pace at which budget authority is
                                           used and so can be more difficult to score with precision. Outlays during a
                                           fiscal year may be for obligations incurred in prior years as well as in the
                                           current fiscal year, and current year obligations and outlays may be from




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                                          permanent (no-year) and prior year authority as well as new (current fiscal
                                          year) budget authority.4

                                          Net outlay scoring differences amounted to only $109 million, about 0.01
                                          percent of the $731 billion in total estimated budget year outlays for all
                                          fiscal year 1996 and 1997 appropriations passed in the second session,
                                          versus the $23 billion or 3 percent absolute outlay scoring difference. Both
                                          the net and absolute outlay scoring differences were smaller for 1997
                                          appropriations than for the 1996 appropriations.


Table IV.4: Outlay Estimates for Appropriations Enacted in Second Session
Dollars in millions
                                                                                             Difference                Percent difference
Fiscal year appropriations                                   OMB             CBO               Net     Absolute               Net      Absolute
All 1996 Bills                                           $197,175       $194,641           $2,534        $10,187             1.29            5.17
All 1997 Bills                                            533,499         535,924          –2,425          12,709            0.45            2.38
Total                                                    $730,674       $730,565             $109        $22,896             0.01            3.13

                                          OMB and CBO differed in their estimates of outlays on 87 spending items in
                                          1996 appropriations bills and 106 separate spending items for 1997 bills
                                          according to our review of OMB’s 5-day reports. There were 10 items (5
                                          items in 1996 and 5 items in 1997) that had outlay differences of
                                          $400 million or more.5 The absolute value of the outlay scoring difference
                                          for these 10 items totaled almost $7 billion, accounting for about 30
                                          percent of the $23 billion absolute outlay scoring difference between CBO
                                          and OMB.

                                          Tables IV.5 and IV.6 show items exceeding $400 million in outlay
                                          differences for fiscal years 1996 and 1997, respectively, along with the
                                          stated reasons for the scoring differences. The 5 items in table IV.5
                                          accounted for nearly 28 percent ($2.8 billion of $10.2 billion) of the
                                          absolute outlay scoring difference between OMB and CBO for fiscal year

                                          4
                                           According to CBO estimates, about 75 percent of the total amount of budget authority appropriated
                                          for fiscal year 1997 will be outlayed during 1997, while almost 30 percent of outlays in 1997 will be
                                          from prior year or permanent budget authority.
                                          5
                                           We used a larger threshold ($400 million) for outlays than for budget authority ($100 million) since
                                          outlay estimating differences between CBO and OMB tend to offset over the time that finite amounts
                                          of budget authority “spend out.” The rates at which budget authority is spent (outlayed) is called the
                                          spendout rate. Spendout rates vary across the budget due to the differing nature of government
                                          programs, projects, and activities comprising the budget. Budget authority for salaries and expenses,
                                          for example, spends out much faster than budget authority for large construction projects such as
                                          shipbuilding or the procurement of aircraft. For large budget accounts, even small spendout rate
                                          differences between OMB and CBO can lead to large differences in outlay estimates for a given fiscal
                                          year.



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                                           Spending




                                           1996 appropriations enacted during the second session of the 104th
                                           Congress.


Table IV.5: Outlay Scoring Differences: Fiscal Year 1996 Items Exceeding $400 Milliona
Dollars in millions
                    Item: program
Appropriation       or account            Outlay difference Stated reason(s) for difference
Labor/HHS in OCRA Student Financial                         Spendout of prior year authority: OMB estimated a 10.5 percent higher
                  Assistance                                spendout from prior year budget authority balances than CBO in this
                                                            $7.5 billion per year account that funds Pell Grants and other
                                                       $713 campus-based aid for college students.
VA/HUD in OCRA      Community                                Spendout of prior year authority: OMB estimated a 13 percent higher
                    Development                              spendout from prior year budget authority balances, due in large part
                    Block Grants                             to OMB’s use of more recent technical assumptions for outlays in this
                                                         632 $5 billion per year account.
VA/HUD in OCRA      GNMA:                                    Different current year BA estimate: The outlay difference is due to the
                    Guarantees of                            different BA estimates for FY 96, which are based on different views
                    Mortgage-Backed                          OMB and CBO have of the program and whether or not it makes a
                    Securities                               profit and the associated $499 million difference in budget authority
                                                         499 scoring.
P.L. 104-91         National Institutes                     Spendout of prior year authority: CBO estimated an aggregate 8
                    of Health                               percent higher spendout from prior year budget authority balances
                                                            than OMB for the $12 billion per year programs and activities
                                                       –490 comprising NIH.
VA/HUD in OCRA      FEMA Disaster                            Spendout of new budget authority and prior year authority: CBO
                    Relief                                   calculates outlays based on historical averages for FEMA spending,
                                                             while OMB uses a simple 40:40:20 percentage spendout of new BA
                                                         475 over 3 years.
                                           a
                                             A positive outlay difference means OMB scored higher outlays; a negative outlay difference
                                           means CBO scored higher outlays.



                                           The 5 items in table IV.6 accounted for nearly 33 percent ($4.1 billion of
                                           $12.7 billion) of the absolute outlay scoring difference between OMB and
                                           CBO in fiscal year 1997 appropriations bills enacted during the second
                                           session.




                                           Page 37                                                     GAO/AIMD-97-28 Compliance Report
                                           Appendix IV
                                           Implementation Issues for Discretionary
                                           Spending




Table IV.6: Outlay Scoring Differences: Fiscal Year 1997 Items Exceeding $400 Milliona
Dollars in millions
                    Item: program
Appropriation       or account           Outlay difference Stated reason(s) for difference
Defense in OCAA     Defense Business                         Spendout of prior year authority: CBO and OMB projected the same
                    Operations Fund                          86.3 percent year 1 spendout rate of $948 million in new BA for the
                    (DBOF)                                   DBOF. DBOF also has balances from prior year budget authority and
                                                             permanent authority to spend offsetting collections. OMB projects FY
                                                             97 DBOF collections (of $68.2 billion) will exceed projected outlays
                                                             from such authority by $588 million, while CBO estimates such outlays
                                                             will exceed collections by $620 million. The $1.2 billion difference
                                                             represents less than 2 percent of the total estimated DBOF
                                                     $-1,208 collections/outlays for FY 97.
VA/HUD              Annual                                  Spendout of prior year authority: About $700 million of the difference is
                    Contributions for                       due to CBO’s estimate of faster spendout of balances. Some of the
                    Assisted Housing                        difference is the result of different estimates of outlays resulting from
                                                            the transfer of balances. (OMB later adjusted spendout assumptions in
                                                     –1,093 its mid-session review significantly reducing the difference with CBO).
VA/HUD              Public Housing                           Spendout of prior year authority: OMB estimated 18 percent higher
                    Capital Fund                             spendout ($4.3 billion to CBO’s $3.5 billion) from prior year balances
                                                         757 transferred from the Annual Contributions Account.
VA/HUD              FEMA Disaster                            Spendout of new and prior year authority: OMB used a faster spendout
                    Relief                                   rate for $1.3 billion in new budget authority that accounted for $464
                                                             million of the difference, and a $153 million higher spendout of balance
                                                         617 from prior year authority.
Defense in OCAA     Defense                                 Spendout of new and prior year authority: CBO had a 6.5 percent or
                    Shipbuilding and                        $465 million higher spendout of prior year balances than OMB ($6.6
                    Conversion, Navy                        billion to CBO’s $7.1 billion), and a 0.3 percent or $17 million higher
                                                            spendout (5.2 percent for CBO versus 4.9 percent for OMB) of the $5.6
                                                       –482 billion in new BA.
                                           a
                                             A positive outlay difference means OMB scored higher outlays; a negative outlay difference
                                           means CBO scored higher outlays.




                                           Page 38                                                     GAO/AIMD-97-28 Compliance Report
Appendix V

Major Contributors to This Report


                        Christine E. Bonham, Assistant Director
Accounting and          Robert M. Sexton, Evaluator-in-Charge
Information             Robert G. Kershaw, Senior Evaluator
Management Division     Joseph G. Heisler, Evaluator

                        Charles Roney, Assistant General Counsel
Office of the General   Edda Emmanuelli-Perez, Attorney-Advisor
Counsel




(935208)                Page 39                                    GAO/AIMD-97-28 Compliance Report
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