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LETTER OF TRANSMITTAL

INTRODUCTION

BUDGET BASE LEVELS

ECONOMIC ASSUMPTIONS

SEQUESTERABLE RESOURCES

SEQUESTRATION CALCULATIONS

AUTOMATIC SPENDING INCREASES

SPECIAL RULES

• Guaranteed Student Loan Program
• Foster Care and Adoption Assistance Programs
• Medicare
• Veterans Medical Care and Other Health Programs
• Child Support Enforcement Program
• Unemployment Compensation Programs
• Commodity Credit Corporation
• Mine Workers Disability Compensation
• Federal Pay
• Defense Contracts

SEQUESTRATION REDUCTIONS

CONCEPTUAL ISSUES

• Appropriated Entitlements
• Pay Raises
• Washington Metropolitan Area Transit Authority and Other Interest Payment Programs
• Veterans Administration Policy Loans
• Impact of Conceptual Differences

APPENDIX: SEQUESTRATION REDUCTIONS BY AGENCY AND BUDGET ACCOUNT
 

TABLES
1.	Budget Base Levels for 1987
2.	Differences Between OMB and CBO Baseline Deficits
3.	Economic Assumptions
4.	Real Economic Growth Rates by Quarter
5.	Base Level Outlay Estimates for 1987
6.	Sequestration Calculations for 1987
7.	Automatic Spending Increases for 1987 Subject to Sequestration
8.	Defense Program Sequestrations for 1987
9.	Nondefense Program Sequestrations for 1987 by Function
10.	Sequestrations for 1987 by Agency

 

The Balanced Budget and Emergency Deficit Control Act of 1985 (Public Law 99-1.77) stipulates that budget deficits must be decreased annually and specifies measures that must be taken to achieve this result. The maximum deficit amounts specified by the Act are:

The Act provides that a deficit estimate that exceeds the maximum level by any amount in 1986 and 1991, or by more than $10 billion in 1987-1990, triggers an automatic spending reduction procedure to eliminate the excess deficit through the "sequestration" of budgetary resources. Except for special and trust funds, sequestration is the permanent cancellation of new budget authority and other authority to obligate and expend funds. (Amounts sequestered in special and trust funds remain in such funds.)

For 1986, the automatic procedure took place between January and March. In July, however, the Supreme Court ruled the procedure by which the sequestration occurred was unconstitutional because the Act violated the principle of separation of powers by granting the Comptroller General final authority to determine the size and composition of the sequestration the President must order. The Act contains a "fallback" mechanism (described below) that was implemented after the Supreme Court's decision that the Comptroller General's role was unconstitutional. The Congress passed a joint resolution reaffirming the 1986 reductions made earlier, and the President signed it (Public Law 99-366).

Under the fallback mechanism, the first step in the sequestration process for 1987 is submission of this joint report by the Director of the Office of Management and Budget (OMB) and the Director of the Congressional Budget Office (CBO) to the Congress. The report will be referred to the Temporary Joint Committee on Deficit Reduction, composed of the entire membership of the House and Senate Budget Committees. The report:

• estimates budget base levels, including the amount by which the projected deficit exceeds the maximum deficit amount for the fiscal year covered by the report;
  
  
• provides OMB and CBO economic assumptions, including the estimated rate of real economic growth; and
  
  
• calculates the amounts and percentages by which various budgetary resources must be sequestered 1n order to eliminate any deficit excess.

This document is the Directors' Initial report for 1987. The budget estimates reflect laws and regulations in effect on August 15, 1986. A revised report will be submitted on October 6. That report will reflect laws enacted and regulations promulgated after August 15 that affect the 1987 budget. If either report estimates a 1987 deficit in excess of $154 billion, the Directors must calculate the sequester needed to reduce the deficit to $144 billion--the maximum deficit amount. After receiving the report the Temporary Joint Committee must, within five calendar days, report to the House and Senate a joint resolution "setting forth the contents of the report." Within the next five days the Congress is in session, both Houses are required to vote on the joint resolution. If the resolution becomes law, the President must follow its terms 1n Issuing his sequester order.

This procedure applies to both the initial and the revised reports of the Directors. A sequester order based on the August 20 report would become effective October 1. A sequester order based on the October 6 report would become effective on October 15 or on the date the President signs the order, whichever is later.

This document is available in its entirety in PDF.