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The Budget Enforcement Act of 1990 amended the Balanced Budget and Emergency Deficit Control Act of 1985 and the Congressional Budget Act of 1974 to add new enforcement procedures for direct (mandatory) spending, receipts, and discretionary spending for fiscal years 1991 through 1995. The Omnibus Budget Reconciliation Act of 1993 further amended the two acts to extend the application of the new procedures through 1998. The law requires the Congressional Budget Office (CBO) to issue a sequestration preview report five days before the President's budget submission in January or February, a sequestration update report on August 15, and a final sequestration report 10 days after the end of a session of Congress. The final sequestration report must contain estimates of the following items:

• The discretionary spending limits and any adjustments to them;
  
  
• The amount of discretionary new budget authority and total outlays and the amount of any required discretionary sequestration;
  
  
• The amount by which direct spending or receipt legislation enacted after the Budget Enforcement Act has increased or decreased the deficit and the amount of any required pay-as-you-go sequestration; and
  
  
• The maximum deficit amount.

This report to the Congress and the Office of Management and Budget (OMB) provides the required information. Because enacted appropriations have not exceeded the spending limits for fiscal years 1994 or 1995 and direct spending and receipt legislation has not increased the total deficit for those two years, CBO estimates that neither a discretionary spending sequestration nor a pay-as-you-go sequestration will be required in 1995.
 

DISCRETIONARY SEQUESTRATION REPORT

The Omnibus Budget Reconciliation Act of 1993 (OBRA-93) established new limits on total discretionary budget authority and outlays for fiscal years 1996 through 1998. But it left in place the existing discretionary spending limits for 1993 through 1995 and the existing enforcement procedures, including the requirements to adjust the discretionary limits.

Discretionary Spending Limits for Fiscal Years 1994-1998

The current estimates of the limits on total discretionary spending for 1994 through 1998 (shown in Table 1) differ from those in CBO's sequestration update report of August 1994 for several reasons. First, the estimates have been revised to reflect differences between the spending limits in CBO's update report and those in OMB's August 1994 update report. Second, the limits have been increased to reflect emergency funds made available since OMB issued its update report. Third, the limits have been adjusted for appropriations provided for compliance activities of the Internal Revenue Service and to reflect allowances for budget authority and outlays specified by the Balanced Budget and Emergency Deficit Control Act of 1985 (the Balanced Budget Act). Finally, the limits have been reduced pursuant to provisions of Public Law 103-322, the Violent Crime Control and Law Enforcement Act of 1994, that establish a special category of discretionary spending from a new Violent Crime Reduction Trust Fund.

Differences Between the Limits in the CBO and OMB Update Reports. The Balanced Budget Act requires both CBO and OMB to calculate the changes in the discretionary spending limits specified in the act. OMB's estimates of the limits are controlling, however, in determining whether enacted appropriations are within the limits or a sequestration is required to eliminate a breach of the limits. CBO's estimates are advisory. In acknowledgment of OMB's statutory role, when CBO calculates changes in the limits for a report it first adjusts for the differences between its and OMB's estimates in the previous reports--in effect using OMB's most recent official estimates as the starting point for the adjustments CBO is required to make in the new report.

The differences between the two agencies' estimates of spending limits in their August 1994 update reports (shown in Table 1) result entirely from different estimates of emergency spending that was made available after they had issued their preview reports in early 1994. The Balanced Budget Act requires that the discretionary spending limits be increased for appropriations that are classified as emergency spending by the law providing them and designated as such by the President. Most of the emergency spending reflected in the update reports comes from appropriations provided in the Emergency Supplemental Appropriations Act of 1994 (Public Law 103-211), enacted February 12 to provide relief for victims of the earthquake in California and other disasters. The remainder reflects the release of appropriations that had been previously enacted. Those contingent emergency appropriations--funding that becomes available for obligation only if and when the President designates it as emergency spending--were enacted before OMB issued its preview report on February 7 but only designated by the President after that report was released.

The discrepancy between the estimates of emergency budget authority in the two update reports largely results from the different ways that CBO and OMB account for contingent emergency appropriations in their estimates of appropriation bills. OMB includes only the effects of the contingent emergency appropriations that the President designates as emergencies when he signs the bill. CBO, however, includes the cost of all contingent emergency appropriations in its estimate of a bill, both because it must often issue its estimates before the President has signed the bill and in order to reflect the full amount of spending that could result from Congressional action.

Since OMB does not include the cost of undesignated contingent emergency appropriations in its estimates of bills, it adjusts the spending limits for all such appropriations subsequently designated by the President. Because CBO does include the effects of the undesignated contingent emergencies in its bill estimates, it makes a further adjustment only for designations that relate to contingent appropriations enacted before OMB's most recent sequestration report (the effects of which are included neither in the limits from that OMB report--which represent the starting point for CBO's adjustments--nor in the adjustments for new legislation in the current CBO report).

As a result of the different treatment of contingent emergencies, CBO attributed more 1994 emergency budget authority to the Emergency Supplemental Appropriations Act and less to the release of contingent funds than did OMB. The treatment of contingent emergency appropriations also contributes to the differences between CBO's and OMB's adjustments to the outlay limits in the update reports, but different assumptions about the spendout rates of the emergency appropriations account for part of that discrepancy.

Emergency Funding Made Available Since OMB's Update Report. In addition to the adjustments resulting from differences between the caps in CBO's and OMB's update reports, the discretionary spending limits are adjusted to reflect emergency appropriations made available since OMB's update report. A total of more than $1 billion in 1994 emergency funding and $2 billion in 1995 emergency funding was provided in seven regular appropriation bills for 1995. The largest amounts were $1 billion in 1995 contingent emergency funding for the Commodity Credit Corporation to deal with farm disasters that was provided in the Rural Development, Agriculture, and Related Agencies appropriation act (Public Law 103-330) and a contingent 1995 appropriation of $600 million for the Low Income Home Energy Assistance Program in the Labor, Health and Human Services, Education and Related Agencies appropriation act (Public Law 103-333). Almost $500 million in 1994 funding was provided for Small Business Administration disaster loans in the Veterans Affairs, Housing and Urban Development, and Independent Agencies appropriation act (Public Law 103-317), and nearly $300 million in 1994 funding was provided for the Department of Defense emergency response fond in the Department of Defense appropriation act (Public Law 103-335). In addition, $219 million in 1994 emergency funding was made available when the President designated previously enacted contingent appropriations as emergency spending.

Internal Revenue Service Funding and Special Allowances. The Balanced Budget Act provides for an increase in the spending limits if appropriations for compliance initiative activities of the Internal Revenue Service will result in outlays that exceed the amount in CBO's summer 1990 baseline. Sufficient funding was provided in the Treasury, Postal Service, and General Government appropriation act for 1995 (Public Law 103-329) to trigger the specified increase of $188 million in budget authority and $184 million in outlays in 1995, along with a $4 million increase in the outlay limit for 1996.

The Balanced Budget Act also provides a special allowance for discretionary new budget authority. This allowance specifies an increase in the limit on 1995 budget authority equal to 0.179 percent of the sum of total budget authority allowed under the limits for 1991, 1992, and 1993, as well as increases in the outlay limits to reflect the outlays associated with the budget authority adjustment. This provision increases the limit on budget authority for 1995 by almost $3 billion. The limit on outlays increases by nearly $1.5 billion in 1995 and by lesser amounts in 1996 through 1998.

In addition, the Balanced Budget Act provides for a special outlay allowance if estimated outlays resulting from enacted appropriations exceed their limit for a year (before adjusting for the allowance) but budget authority does not surpass its limit. The special outlay allowance is not to exceed $6.5 billion in 1995 (less any outlay adjustments resulting from the special allowance for discretionary new budget authority). CBO estimates that this provision requires a $100 million adjustment to the limit on 1995 outlays.

Violent Crime Reduction Trust Fund. The Violent Crime Control and Law Enforcement Act was enacted on September 13,1994. It specifies amounts of budget authority that will be placed in a new Violent Crime Reduction Trust Fund in each fiscal year from 1995 through 2000. Appropriations from this trust fund for anticrime programs authorized in the bill are not counted in determining compliance with the adjusted discretionary spending limits of the Balanced Budget Act. These appropriations are, however, subject to sequestration if estimated outlays exceed annual limits on spending from the trust fund specified by the law. The legislation provides for reducing the existing discretionary spending limits by the amount of budget authority to be placed in the trust fund each year and by the amount of the limits on trust fund outlays. Table 1 shows these specified reductions and the resulting limits, which are labelled as the general purpose discretionary spending limits. It also shows the limits on spending from the trust fund. (The new law provides for a sequestration only if outlays exceed the specified limit, but budget authority is limited by the amount allocated to the trust fund in the legislation.)

Compliance with the Spending Limits

Fiscal Year 1994. CBO's estimates of discretionary new budget authority and total outlays for fiscal year 1994 are shown in Table 2. To the estimate of 1994 appropriations in OMB's August sequestration update report, CBO has added its estimates of the new 1994 discretionary spending provided by supplemental appropriations--nonemergency and emergency--contained in five regular appropriation acts for fiscal year 1995. The effect of new Presidential designations of contingent emergency appropriations on 1994 spending has also been added to the estimate. Table 2 also compares the estimated new budget authority and outlays for 1994 with the adjusted spending limits.

Section 251(a)(5) of the Balanced Budget Act provides that, if appropriations for the current year enacted after June 30 cause that year's spending limits to be breached, the budget year limits shall be reduced by the amount of the breach. According to the estimates in Table 2, discretionary spending was below the limits for fiscal year 1994. There is no need, therefore, to reduce the fiscal year 1995 spending limits to offset a breach of the fiscal year 1994 limits.

Fiscal Year 1995. Table 3 presents CBO's estimates of discretionary new budget authority and total outlays for fiscal year 1995. It includes OMB's estimates of emergency appropriations that were reflected in adjustments to the discretionary spending limits in OMB's August update report. To that amount, CBO has added its estimate of the new budget authority and total outlays for fiscal year 1995 for each of the year's 13 regular appropriation acts. These estimates include advance appropriations and outlays from appropriation acts for fiscal year 1994 and earlier years. They also include the budget authority and outlays that stem from emergency appropriations (other than those already reflected in the adjustments to the discretionary spending limits in OMB's August report), for which the discretionary limits have been increased.

Comparing actual appropriations with the adjusted spending limits for fiscal year 1995 shows that total general purpose discretionary spending is below the limit on budget authority and at the limit on outlays (see Table 3). Spending from the Violent Crime Reduction Trust Fund is slightly below its budget authority and outlay limits. According to CBO's estimates, therefore, no discretionary sequestration is needed.
 

PAY-AS-YOU-GO SEQUESTRATION REPORT

If changes in direct spending programs or governmental receipts enacted since the Budget Enforcement Act increase the combined current and budget year deficits, a pay-as-you-go sequestration is triggered at the end of the Congressional session, and nonexempt mandatory programs are cut enough to eliminate the increase. The pay-as-you-go provisions of the Balanced Budget Act had applied through fiscal year 1995, but OBRA-93 extended them through 1998.

As is the case with the discretionary spending limits, the Budget Enforcement Act requires both CBO and OMB to estimate the net increase in the deficit resulting from direct spending or receipt legislation. OMB's estimates are controlling, however, in determining whether a sequestration is required. CBO therefore adopts OMB's estimates of the changes in the deficit specified in its August update report as the starting point for this report. Table 4 shows CBO's estimates of changes in the deficit for 1994 through 1998 that result from direct spending or receipt legislation enacted since the Budget Enforcement Act. These figures reflect OMB's estimates of changes resulting from legislation enacted before its August update and CBO's estimates of legislation enacted since then. The estimates do not include any changes in the deficit for 1996 through 1998 resulting from legislation enacted before OBRA-93, because the pay-as-you-go procedures did not apply to those years until OBRA-93 was enacted.

The changes in direct spending and revenues since OMB's August report, added to the combined net deficit reduction of $1,467 million for 1994 and 1995 that OMB estimated in that report, yield a net decrease in the combined 1994 and 1995 deficits of $1,986 million (see Table 4). According to these estimates, no pay-as-you-go sequestration is required in 1995.

If there are no further changes in laws governing direct spending and receipts, the estimated deficit reduction of $1,506 million in 1995 would offset a deficit increase of $1,007 million in 1996, and no sequestration would be required in 1996. The deficit increases for 1996, 1997, and 1998 shown in Table 4 indicate, however, that a pay-as-you-go sequestration will be required in 1997 and 1998 unless legislation is enacted to reduce direct spending or increase revenues in 1996 through 1998.
 

DEFICIT SEQUESTRATION REPORT

The Budget Enforcement Act established procedures to enforce annual deficit targets through 1995. Those procedures were crafted in such a way that they have imposed no additional budgetary discipline beyond the constraints of the discretionary spending limits and the pay-as-you-go requirement. OBRA-93 did not extend the provisions for enforcing a deficit target beyond their scheduled expiration at the end of 1995.

The maximum deficit target for 1995 has no effect for two reasons. First, when the President submitted the budget for fiscal year 1995, he exercised the option provided by the Balanced Budget Act to adjust the deficit targets for revised economic and technical assumptions, in addition to making the required adjustments to account for changes in the discretionary caps and pay-as-you-go balances. Second, the assumptions used in preparing the President's budget must be used by OMB for all subsequent Balanced Budget Act calculations that year. Therefore, even if the budgetary outlook deteriorates after the President's budget is submitted, the deficit targets will be said to have been reached as long as the discretionary spending limits and pay-as-you-go requirements are met.

Under the Budget Enforcement Act, the estimated maximum deficit amount is equal to the projected on-budget baseline deficit (excluding net spending by the Postal Service, Social Security receipts and benefit payments, and spending from the Violent Crime Reduction Trust Fund)--assuming that discretionary spending is held to the adjusted general purpose limits--minus any net increases or decreases in the deficit resulting from direct spending or receipt legislation that appear on the pay-as-you-go scorecard. CBO's current estimate of the maximum deficit amount for 1995 is $238 billion (see Table 5). That figure is based on the economic and technical estimating assumptions used for the baseline that was presented in CBO's August 1994 Economic and Budget Outlook: An Update. It excludes changes in the deficit resulting from enacted pay-as-you-go legislation but includes Social Security's administrative costs. Those appropriations for Social Security are off-budget but are covered by the Budget Enforcement Act's discretionary spending limits as a result of the way OMB interprets the act.

Since the sequestration update report for 1995 published in August, CBO's estimate of the maximum deficit amount for 1995 has decreased by $12 billion because of adjustments to the discretionary spending limits and because of changes in the economic forecast and technical reestimates to the baseline made in the Economic and Budget Outlook: An Update.

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