Budget Enforcement for FY2002: An Overview of Procedural Developments

Order Code RS21084

Updated May 23, 2002

CRS Report for Congress

Received through the CRS Web

Budget Enforcement for FY2002:

An Overview of Procedural Developments

Robert Keith

Specialist in American National Government

Government and Finance

Summary

Congressional action on budgetary legislation for FY2002 is subject to constraints

imposed by the 1974 Congressional Budget Act and the 1985 Balanced Budget Act, as

amended. The 1974 act requires that spending and revenue legislation adhere to policies

set forth in the annual budget resolution, while the 1985 act imposes limits on

discretionary spending and a “pay-as-you-go” (PAYGO) requirement on direct spending

and revenue legislation. Budget resolution policies are enforced by points of order and

reconciliation; the discretionary spending limits and PAYGO requirement are enforced

by sequestration, which involves automatic, largely across-the-board spending cuts.

The FY2002 budget resolution called for over $100 billion more discretionary

spending than the then-existing limits would have allowed, as well as large tax cuts and

significant increases in direct spending that would have caused a PAYGO violation in

excess of $100 billion. Budget resolution policies assumed that legislation increasing

the discretionary spending limits and preventing a PAYGO sequester for FY2002 would

be enacted later in the 2001 session. In late December 2001, the Defense Appropriations

Act for FY2002 was enacted (P.L. 107-117), which raised the discretionary spending

limits and set balances on the PAYGO scorecard for FY2001-2002 to zero, thereby

preventing sequesters. According to the Final Sequestration Report for FY2002, issued

by the OMB director on January 31, 2002, the revisions required by P.L. 107-117,

together with other required adjustments, yielded a new budget authority limit of $706.3

billion and an outlay limit of $731.3 billion for all FY2002 discretionary spending.

The House and Senate are considering supplemental appropriations for FY2002

during the 2002 session, but techniques such as emergency designations and offsets are

expect to be used to prevent a sequester from occurring. Further, the FY2002 effects of

any revenue or direct spending legislation enacted through September 30 will be

included in the calculations for any PAYGO sequester for FY2003, but a PAYGO

sequester likely will be avoided through directed scorekeeping, as has been done in past

years. This report will be updated as developments warrant.

Budget Enforcement Procedures

Congressional Research Service ˜ The Library of Congress

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Federal budget policies are enforced under two major statutes—the Congressional

Budget Act of 1974 and the Balanced Budget and Emergency Deficit Control Act of

1985, as amended. Budget enforcement procedures under the 1974 Congressional Budget

Act are, for the most part, permanent and ongoing, whereas budget enforcement

procedures under the 1985 Balanced Budget Act apply to legislation enacted through the

end of FY2002. In his budgets for FY2002 and FY2003, President Bush proposed

extending procedures under the 1985 act or pursuing other procedural alternatives1

The 1974 Congressional Budget Act provides for the adoption by Congress of an

annual concurrent resolution on the budget. The budget resolution recommends the total

level of revenues, spending, the surplus or deficit, and the public debt for each year

covering at least a 5-year period. Total spending is allocated to each of the House and

Senate committees with jurisdiction over discretionary or direct spending; the House and

Senate Appropriations Committees subdivide their spending allocations by subcommittee.

If the House and Senate wish to compel their committees to develop legislation

conforming existing revenue, direct spending, or debt-limit law to budget resolution

policies, they may include reconciliation directives in the budget resolution so instructing

the appropriate committees. Reconciliation submissions from committees usually are

consolidated into an omnibus bill that is considered under expedited procedures.

Enforcement of budget resolution policies occurs as individual revenue and spending

measures, including any required reconciliation legislation, are considered. Points of

order established in different provisions of the 1974 Congressional Budget Act allow

Members to object to legislation that would violate budget resolution policies, unless the

points of order are waived or set aside.

The 1985 Balanced Budget Act, as amended in 1990 and later years, establishes

adjustable limits on discretionary spending and subjects direct spending and revenue

legislation to a “pay-as-you-go” (PAYGO) requirement. Under the PAYGO requirement,

direct spending and revenue legislation enacted for a fiscal year may not, in the net, incur

a positive balance on a multiyear PAYGO “scorecard.” While these procedures apply to

legislation enacted through the end of FY2002, the PAYGO effects of such legislation are

reflected on the PAYGO scorecard and subject to sequester through FY2006.

The discretionary spending limits and PAYGO requirement are enforced by

sequestration, a procedure involving largely across-the-board spending cuts in nonexempt

programs.2 Sequestration is triggered shortly after the end of a congressional session if

the director of the Office of Management and Budget (OMB) estimates in a sequestration

report that one or more of the discretionary spending categories will be breached or the

PAYGO requirement will be violated. A “within-session” sequester may be triggered

during the following session if the enactment of a supplemental appropriations act causes

1

See the Analytical Perspectives volume (page 243 for FY2002 and pages 283-284 for

FY2003). The House Budget Committee held hearings on this matter on June 27, 2001; the

testimony is available at [http://www.house.gov/budget/hearingstatements.htm].

2

A more detailed explanation of sequestration is presented in CRS Report RL31137,

Sequestration Procedures Under the 1985 Balanced Budget Act, by Robert Keith.

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a breach of the limits. Section 254 of the 1985 act requires the President to issue a

sequestration order carrying out any spending reductions identified by the OMB director

as being necessary to eliminate a spending limit breach or a PAYGO violation. In recent

years, Congress and the President have enacted legislation including procedural features

that have prevented a sequester from occurring.3

Budget Policies for FY2002

The initial policies for FY2002 regarding discretionary spending, direct spending,

and revenues were established by the submission of the President George W. Bush’s

budget on April 9, 2001, and the adoption by the House and Senate of the annual budget

resolution (H.Con.Res. 83) on May 10. With regard to discretionary spending, both

President Bush and Congress recommended spending levels well above the existing

limits. The initial approach taken by the President and Congress for FY2002 mirrored

actions taken the year before by President Clinton and Congress when the discretionary

spending limits for FY2001 were raised by nearly $100 billion.4

For FY2002, President Bush proposed a revised budget authority limit of $661

billion and a revised outlay limit of $692 billion for discretionary spending. The

President’s request was $112 billion higher than the existing limit on budget authority

($549 billion) and $120 billion higher than the existing limit on outlays ($572 billion).

The President reserved $841 billion over 10 years, covering FY2002-2011, for

“contingencies,” which was expected to include, among other things, additional

discretionary spending stemming from a review of defense needs and other factors.

Discretionary spending for FY2002 assumed in the budget resolution amounted to

$661.3 billion in budget authority and $682.776 billion in outlays.5 House procedures

under the 1974 Congressional Budget Act allow it to consider annual appropriations bills

at variance with the statutory discretionary spending limits as long as the budget

resolution levels are not violated (or any violations are waived by a simple majority vote).

Accordingly, the House planned to consider regular appropriations acts for FY2002

compatible with the budget resolution policy and expected that the statutory limits would

be revised later in the session so that no sequester would occur.

The Senate was faced with a more difficult procedural situation because of the point

of order provided in Section 312(b) against Senate consideration of any appropriation

measure violating the statutory discretionary spending limits. Further, waivers of the

point of order could be obtained only with a three-fifths vote.

3

The enactment of such techniques is examined in depth in CRS Report RL31155, Techniques

for Preventing a Budget Sequester, by Robert Keith.

4

These actions are discussed in detail in CRS Report RL30696, Discretionary Spending Limits

for FY2001: A Procedural Assessment, by Robert Keith. See also the companion report, CRS

Report RL30706, Pay-As-You-Go Requirement for FY2001: A Procedural Assessment, by

Robert Keith.

5

See the conference report on H.Con.Res. 83, H. Rept. 107-60 (May 8, 2001), page 48.

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Section 203 of the budget resolution provided a mechanism for the Senate to begin

consideration of the regular appropriations acts for FY2002 without the statutory limits

having first been increased. Section 203(a)(2) stated that the functional totals in the

budget resolution envisioned $659.540 billion in budget authority and $647.780 billion

in outlays for the single discretionary spending category in FY2002. In addition, $28.489

billion and $5.275 billion in highway and mass transit outlays were envisioned, as well

as $1.760 billion in budget authority and $1.232 billion in outlays for the conservation

category. Section 206(a)(3) reflected Senate anticipation of the need to raise the statutory

limits for FY2001 in order to accommodate these spending levels. Further, Section

203(b) provided for the necessary adjustments under the budget resolution, including

increased allocations to the Appropriations Committees, whenever legislation raising the

statutory limits became law.

On September 20, 2001, the chairmen and ranking minority members of the House

and Senate Appropriations Committees, with the concurrence of House and Senate

leaders, jointly proposed to the Bush Administration an increase in total discretionary

spending for FY2002 beyond the levels envisioned in the budget resolution. With regard

to budget authority, the proposal involved an increase of about $25 billion, from $661.3

billion to $686 billion. The increase was intended to accommodate President Bush’s

request for an additional $18.4 billion in budget authority for defense spending, as well

as additional budget authority for education ($4 billion) and emergency appropriations for

Hurricane Allison, Western forest fires, and other natural disasters.6

Following negotiations between OMB Director Mitch Daniels and the

Appropriations Committee leaders, an agreement was reached on October 2 to limit

discretionary spending for FY2002 to $686 billion.7 Although some House and Senate

Members had asked that President Bush submit a formal budget request for the full $25

billion increase, they accepted his request in the form of a letter. In his letter, President

Bush cited the “strong bipartisan effort” that led to the agreement but noted that in the

course of implementing the agreement he would review “the policy and program content

of legislation before agreeing to sign it.”

With regard to “PAYGO measures” (that is, measures affecting direct spending,

revenues, or both), the budget resolution assumed large tax cuts and significant increases

in direct spending that would have caused a PAYGO violation in excess of $100 billion.

Budget resolution policies reflected the assumption that legislation preventing a PAYGO

sequester for FY2002, as well as increasing the discretionary spending limits for that year,

and would be enacted later in the 2001 session.

6

The President’s request for $18.4 billion in additional defense funding was intended to meet

needs “consistent with the early results of Secretary Rumsfeld’s strategy review.” See the letter

from President George Bush to the Honorable Richard A. Gephardt, Democratic Leader, House

of Representatives, June 27, 2001, which accompanied Estimate #9, accessible through the OMB

Website: [www.omb.gov].

7

See: “White House, Appropriators Agree On Discretionary Spending of $686 Billion,” by

Cheryl Bolen, BNA Daily Report for Executives, No. 190, Wednesday, October 3, 2001, page

A-20.

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Implementation of the FY2002 Policies

Discretionary Spending Limits. For most of the remainder of the 2001 session

following adoption of the budget resolution in May, the House and Senate considered the

regular appropriations acts for FY2002 (which began on October 1, 2001) without

enacting the necessary revisions in the discretionary spending limits for that year. On

October 11, the House Budget Committee ordered reported H.R. 3084, the Interim Budget

Control and Enforcement Act of 2001, which would have increased the statutory limit on

budget authority for FY2002 to an amount sufficient to accommodate the $686 billion

spending level agreed upon earlier. Senator Pete Domenici, the ranking minority member

of the Senate Budget Committee, introduced similar legislation (S. 1575) on October 25.

Neither chamber acted on the legislation.

As action on the regular appropriations acts drew to a close in December, the

Defense Appropriations Act for FY2002, H.R. 3338, became the vehicle for revising the

discretionary spending limits. Section 101(a) in Division C of the act (115 Stat. 23412342) revised the limits for FY2002 in a manner accommodating the $686 billion level

agreed to on October 2 and preventing a sequester.8 In addition, Section 101(d) provided

for a further increase of 0.12% in the limits on discretionary budget authority if needed

to cover technical estimates made by the OMB director. President George W. Bush

signed the act into law on January 10, 2002 (P.L. 107-117). OMB’s Final Sequestration

Report for FY2002 was issued on January 31, 2002.9 According to the report, P.L. 107117 increased the discretionary spending limits for FY2002 by $134.5 billion in budget

authority and a comparable amount in outlays. This revision, together with other required

adjustments, yielded a new budget authority limit of $706.308 billion and an outlay limit

of $731.329 billion for all discretionary spending for the fiscal year. The regular

appropriations acts for FY2002 enacted during the 2001 session were under the revised

statutory limits in the aggregate by $2 million in budget authority and $3.343 billion in

outlays.

A “within-session sequester” could be required during the 2002 session if

supplemental appropriations are enacted in violation of the limits. However, Congress

is expected to use emergency designations, offsets, and other techniques to prevent a

sequester from occurring.

PAYGO Requirement. Following adoption of the FY2002 budget resolution, the

House and Senate also began consideration of various PAYGO measures. The

centerpiece of congressional action on PAYGO measures during the 2001 session, the

Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16), was signed

into law on June 7. The measure, which was developed in response to the President’s taxcut proposals and the reconciliation directives in the FY2002 budget resolution, placed

balances of $69.501 billion and $35.691 billion on the PAYGO scorecard for FY2001 and

FY2002, respectively. (In determining the need for a PAYGO sequester for FY2002, the

FY2001 and FY2002 balances are combined.)

8

The provision originated in the substitute amendment recommended by the Senate

Appropriations Committee (see S.Rpt. 107-109, December 5, 2001, page 232).

9

The Final Sequestration Report for FY2002 is available on the OMB Website [www.omb.gov].

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Another major PAYGO measure enacted during the 2001 session was the Crop Year

2001 Agricultural Economic Assistance Act (P.L. 107-25). Although it had no budgetary

impact for FY2002, it added $5.5 billion to the PAYGO balance for FY2001. After the

September 11 terrorist attacks on the United States, Congress and the President enacted

the Air Transportation Safety and System Stabilization Act into law (P.L. 107-42),

incurring over $1 billion in net costs to compensate air carriers for losses due to the

attacks and for related purposes. Section 102 in Division C of the Defense Appropriations

Act for FY2002, as enacted into law, prevented a PAYGO sequester for FY2002 by

requiring the OMB director to set the balances on the PAYGO scorecard for FY2001 and

FY2002 to zero. According to the OMB Final Sequestration Report, the combined

balance for FY2001-2002 on the scorecard before the required adjustment was $130.279

billion. In its earlier sequestration update report, OMB had noted maximum savings

achievable from a PAYGO sequester for FY2002 of $33.3 billion.10 Consequently, had

a full PAYGO sequester (including a 4% cut in Medicare) been implemented, there still

would have been a balance on the scorecard of nearly $100 billion. The remaining

PAYGO balances for FY2003-2006 range from $110 billion to $135 billion a year.

During the 2002 session, the effects of any direct spending or revenue legislation

enacted through September 30 will be recorded on the PAYGO scorecard. The FY2002

effects of any such legislation will be added to the PAYGO scorecard for FY2003 in

determining whether a PAYGO sequester for FY2003 is needed.

Suspension of Budget Enforcement Procedures

Section 258 of the 1985 Balanced Budget Act provides that certain budget

enforcement procedures in that act and the 1974 Congressional Budget Act may be

suspended because of low economic growth or war. In the case of war, enforcement

procedures are suspended automatically upon the enactment of a declaration of war. With

regard to low economic growth, the suspension of procedures occurs only if a suspension

resolution directed toward that purpose is enacted into law.11 The process is triggered by

the issuance of a “low-growth report” by the Congressional Budget Office (CBO).

During the years that these suspension provisions have been available, the United

States has faced sustained low economic growth only twice—in late 1990/early 1991 and

in late 2001/early 2002. CBO issued low-growth reports three times in 1991, but all three

suspension resolutions were defeated in the Senate by a wide margin. The House did not

act on such legislation. More recently, CBO issued low-growth reports on October 31,

2001, and on January 30, 2002. In each instance, the Senate Budget Committee reported

unfavorably a suspension resolution that subsequently was defeated on the floor. The

Senate rejected S.J.Res. 28 on November 13, 2001, by a vote of 1-99, and rejected

S.J.Res. 31 on February 14, 2002, by voice vote; the House did not act on such legislation.

10

U.S. Executive Office of the President, Office of Management and Budget, Budget of the

United States Government, Fiscal Year 2002, Mid-Session Review, Appendix B (Washington:

August 2001), page 67.

11

Low-growth suspension procedures are discussed in CRS Report RL31068, Budget

Enforcement Procedures Suspended During Low Economic Growth, by Robert Keith.