The Budget Enforcement Act: Its Operation Under a Budget Surplus

The Budget Enforcement Act: Its Operation Under a Budget Surplus
James V. Saturno, Specialist on the Congress
Government Division
February 11, 1998

Summary

The Budget Enforcement Act was enacted in 1990 in an effort to control future budgetary actions. It did this through two separate, but related, mechanisms: limits on discretionary spending, and the pay-as-you-go process to require that any legislative action on direct spending or revenues which would increase the deficit be offset. These procedures currently would apply through FY2002 (for legislation enacted before October 1, 2002, for measures affecting direct spending or revenues), regardless of whether the budget is in deficit or surplus.

Budget Enforcement Act Procedures

When Congress and President Bush reached agreement on a five-year deficit reduction plan in 1990, they also agreed to supplant the Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177, and also known as the Gramm-Rudman-Hollings Act) with the Budget Enforcement Act (BEA)(Title XIII of P.L. 101-508). The BEA effectively eliminated its predecessor's emphasis on the deficit as the focus of budgetary control.

The new law established a pair of mechanisms that were intended to make it difficult for Congress or the President to undo the budget agreement. First, it established a limit on the level of discretionary spending (divided into defense, international, and domestic discretionary spending for FY1991-93), to be enforced by a presidential sequester order affecting only discretionary spending (only the specific sub-category for FY1991-93). Second, the act established the pay-as-you-go procedure, which requires that increases in direct spending or reductions in revenues due to legislative action be offset by other such legislative actions so that there is no net increase in the deficit. This process is also enforced by a presidential sequester order, one that would affect only non-exempt direct spending programs. The result was that these new mechanisms shifted the focus away from actions Congress and the President exercised no direct control over (the effect of the economy on the deficit) to those they could control (spending and revenue legislation).(1)

Implications for a Balanced Budget

The budget submitted by President Clinton on February 2, 1998, projected a surplus for FY1999 of $9.5 billion for the consolidated budget (i.e., including all federal on-budget and off-budget expenditures and receipts). Although this might be regarded as the achievement of the intended purpose of the BEA, there is no explicit provision for its procedures to be suspended prior to FY2002, except in the event of war or recession, and the control mechanisms established by the act would continue to be in force.(2)

The control mechanisms established under the Budget Enforcement Act are not based on achieving a specific level of deficit or surplus. The provisions of the pay-as-you-go process focus on the net impact on the budget deficit, rather than on achieving a specific deficit. In other words, as long as the pay-as-you-go process continues to exist in its current form, any legislation which would increase mandatory spending or decrease revenues would still have to be fully offset, regardless of whether the projected effect would be a budget deficit or surplus. Similarly, the focus of the discretionary spending caps on a specific level of spending means that the resulting level of a surplus or deficit has no impact on their effect.

The provisions of the BEA concerning offsets would also continue, and the division between mechanisms designed to control discretionary and mandatory portions of the budget would remain. This division would continue to generally prohibit discretionary spending initiatives from being offset by changes in mandatory spending or revenues (or vice versa).(3) There is also no provision under the BEA that would allow a surplus resulting from changes in the baseline due to economic or technical factors to be used as an offset for budgetary legislation, since the process is designed to take account only of current legislative actions. New legislative actions, however, that are projected to produce or increase a surplus still could be used as an offset. One implication of this may be that, under the current budgetary rules, a surplus resulting from current law could only be used to buy down federal debt, rather than to finance spending initiatives or tax cuts.(4)

1. For a discussion of this transition from the Gramm-Rudman-Hollings Act to the Budget Enforcement Act see, for example, Phillip G. Joyce, "The Reiterative Nature of Budget Reform: Is There Anything New in Federal Budgeting?" Public Budgeting and Finance, vol. 13, no. 3 (fall 1993), p. 36.

The terms of the Budget Enforcement Act have been extended twice, first by Title XIV of the Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66), and more recently by the Budget Enforcement Act of 1997 (Title X of the Balanced Budget Act of 1997, P.L. 105-33). For a discussion of the most recent extension see U.S. Library of Congress, Congressional Research Service, Budget Enforcement Act of 1997: Summary and Legislative History, by Robert Keith, CRS Report 97-931 GOV (Washington, 1997).

2. Letter from the director of CBO to the Senate Budget Committee, October 29, 1997.

3. However, scorekeeping convention does allow changes in mandatory spending made in appropriations acts to be used as an offset for changes in discretionary spending (and vice versa).

4. As stated by Kenneth Kies, former staff director of the Joint Committee on Taxation, and reported in Daily Tax Report (February 2, 1998), Bureau of National Affairs, p. G-8.