7

ENFORCEMENT OF MAXIMUM DEFICIT
AMOUNTS

Gramm-Rudman-Hollings (as amended by the 1987 Reaffirmation Act) establishes special procedures to enforce the maximum deficit amounts for fiscal years 1988 through 1993.

Assessing the Deficit and Calculating Spending Reductions

On August 15, the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) independently estimate the deficit for the upcoming fiscal year. CBO reports its estimate to OMB and Congress on August 20. If CBO's estimated deficit exceeds the maximum deficit amount for the upcoming fiscal year by more than $10 billion (zero in the case of fiscal year 1993), the CBO report will calculate spending reductions in non-exempt defense and non-defense programs to eliminate the entire deficit excess down to the maximum deficit amount.

OMB will issue a report to the President and Congress on August 25 providing its own deficit estimate and sequester calculations (if necessary). This report will become the basis for the President's initial sequester order, which is issued the same day. OMB is required to explain its differences with the CBO report.

Both CBO and OMB use the following formula in determining the required spending reductions.

DEFICIT REDUCTION FORMULA

First, the amount by which the estimated deficit exceeds the maximum deficit amount for the fiscal year is calculated. One-half of the deficit excess must come from defense programs and one-half from non-defense programs.

Second, the total amount of outlay savings from eliminating automatic spending increases is calculated. Provided that the resulting savings are not more than one-half of the total required reduction, the automatic increases are eliminated.

The 1985 Gramm-Rudman-Hollings Act included as subject to sequestration many indexed retirement and disability programs. These programs were later exempted from sequestration by the Omnibus Budget Reconciliation Act of 1986. Currently this procedure only applies to the automatic spending increases in three specific programs-the National Wool Act, the special milk program, and vocational rehabilitation.

Third, the amount of outlay savings to be obtained by applying three special rules to certain programs is calculated. These special rules are for guaranteed student loans, foster care and adoption assistance, and are described in Appendix VIII of this report. (There are a number of special rules for other programs, such as the Commodity Credit Corporation, but they do not enter into the calculations at this step. They are also described in Appendix VIII of this

8

report.) The estimated savings from these special rules are applied toward the required spending reductions in non-defense programs.

Additional non-defense reductions are made by reducing uniformly other programs except that a large number of programs (listed in Appendix VIII) are exempted from cuts under a seques

ter.

The uniform reduction percentages are computed by dividing the remaining required outlay savings in non-defense spending by the estimated outlays associated with non-exempt budgetary resources in each category. These uniform percentages are then applied to all of the remaining non-exempt budgetary resources for non-defense programs. Medicare and certain other health programs may not be reduced by more than 2 percent.

The other half of the deficit excess must be sequestered from defense programs. The uniform reduction percentages for defense programs are computed similarly. The amount of required defense outlay savings is divided by the estimated outlays associated with defense budgetary resources (including new budget authority plus unobligated budget authority from prior years). Appendix IX explains in greater detail how uniform percentage reductions are to be applied.

Gramm-Rudman-Hollings permits the President to exempt military personnel accounts from sequestration. If the Presidentchooses to exempt military personnel accounts, he must notify the Congress by August 15. If the President chooses this option the overall defense percentage reduction would be increased to meet the overall defense outlay reduction totals.

The President may use expedited procedures to propose further modifications to the percentage reduction in particular defense programs, projects, and activities specified in the final sequester order, according to the following conditions: (1) the President may propose that the amount sequestered from a program, project and activity be reduced so long as the equivalent amount be added to the amount sequestered from other defense programs, projects, and activities; (2) the total defense outlay amount reduced due to sequestration cannot be altered; (3) the presidential request cannot have the effect of increasing the amount of funds for a program, project, and activity in excess of the limit set by an appropriations act; and (4) no domestic military base can be closed. The President must submit to Congress by October 20 of the fiscal year concerned a report outlining his proposed changes. For these proposals to take effect, Congress must pass a joint resolution upholding or modifying them.

The 1985 Gramm-Rudman-Hollings Act required that OMB and CBO, having estimated the deficit for the upcoming fiscal year and having calculated any specified spending reductions, report their results to the Comptroller General by August 20.

If OMB and CBO were unable to agree on any calculations, the Act required that OMB and CBO jointly report the average to the

9

Comptroller General. The Comptroller General could then alter their estimates to the extent necessary to produce a single, consistent set of data that achieved the required deficit reduction. In July 1986, the United States Supreme Court declared the automatic deficit reduction process established by Gramm-Rudman-Hollings unconstitutional on the ground that it vested executive power in the Comptroller General, an officer removable by Congress. See Bowsher v. Synar, 106 S. Ct. 3181, 3192 (1986). Upon issuance of the Supreme Court's decision, a fallback procedure set forth in section 274(f) of Gramm-Rudman-Hollings became effective.

Under the fallback procedure, all of the amendments to the Budget Act as well as the special deficit reduction procedures established by Gramm-Rudman-Hollings remained unchanged, with one exception. Instead of OMB and CBO transmitting their August and October reports to the Comptroller General, the fallback procedure required that the joint report be transmitted to a Temporary Joint Committee (of Congress) on Deficit Reduction (TJC), which consists of the two Budget Committees. The Act required the TJC to report a joint resolution confirming the OMB-CBO report.

All of the provisions of the 1985 Gramm-Rudman-Hollings Act pertaining to a presidential order remained unchanged by the fallback procedure. The only change made was in how a presidential order is triggered, that is, by a joint resolution rather than the Comptroller General report.

The 1987 Reaffirmation Act addresses the ruling of the Supreme Court and, by assigning OMB the role formerly assigned to the Comptroller General, restores the automatic sequester for fiscal years 1988 through 1993.

Presidential Order Implementing Spending Reductions

If the OMB Director's report to the President estimates that the maximum deficit amount for the upcoming fiscal year will be exceeded by more than $10 billion (zero in the case of fiscal year 1993), the President is required to issue an order reducing spending to eliminate the entire deficit excess down to the maximum deficit amount. The reductions are based upon the reductions calculated in the OMB Director's report. The reductions contained in the President's order are applied at the program, project or activity level, as defined in the appropriations process, for those budget accounts that are subject to annual appropriations. For all other accounts, the reductions are applied at the budget activity level as contained in the President's budget.

The President issues an "initial order" on August 25 setting forth any required reductions. The initial order becomes effective on October 1, the start of the fiscal year. At this point any budgetary resources covered by the presidential order are withheld.

Revised Reports by OMB and CBO and the Final Presidential Order

On October 10, CBO issues a revised report to OMB and Congress on the estimated deficit for the fiscal year and any spending reduc

10

tions required to eliminate the deficit excess as then calculated. This revised report is designed to reflect any congressional action since August on spending and revenue measures for the fiscal year. On October 15, the Director of OMB issues a revised report to the President. These reports are prepared using the same economic and technical assumptions as used for the initial reports.

On October 15, the President issues a final order making any spending reductions required by the Director of OMB's revised report. The final order takes effect immediately and cancels budgetary resources as required.

The President must issue an initial and final sequestration order even if the triggering procedures indicate that no reductions are required. (The orders would so state.) The President must also issue a detailed message, as a single document, to accompany both an initial and a final order. The President must submit to Congress the message accompanying an initial or final order within 15 days after issuing the order.

Compliance Report by the Comptroller General

On November 15, one month after the final presidential order is issued, the Comptroller General issues a "compliance report" on the extent to which the President's order complies with all the requirements of Gramm-Rudman-Hollings. The Comptroller General must certify that the order fully and accurately complies with such requirements or indicate where it fails to comply.

Alternative Congressional Plan

The presidential order can be modified or cancelled by a joint resolution of Congress if the Majority Leader of either House introduces such a measure within 10 calendar days of session after OMB has issued the revised report.

Gramm-Rudman-Hollings also sets forth procedures in the Senate for formulating a congressional alternative to a presidential reduction order. Procedures for the House of Representatives are not specified in the law because the House Rules Committee would stipulate appropriate procedures at the time it formulated an alternative. Development of a congressional alternative would normally occur during the October period following issuance of a presidential reduction order. The procedures established for the Senate are an accelerated form of reconciliation, which is already a well-established part of the congressional budget process.

Under this accelerated reconciliation procedure, Senate committees may submit to the Budget Committee their views on a congressional alternative, and the Budget Committee may report a resolution to the Senate affirming the presidential order or changing it in whole or in part. If any changes are recommended, the resolution must contain instructions to Senate committees to change laws under their jurisdictions to reduce spending sufficiently to achieve the required deficit reduction.

11

If the Senate adopts such a resolution, Senate committees receiving reconciliation instructions report their deficit reduction legislation to the Budget Committee. The Budget Committee then packages the legislation into a single reconciliation bill for consideration by the full Senate. Following passage of an alternative plan by the Senate and the House, differences would be ironed out in a Senate-House conference. Following passage of a conference agreement by the Senate and House, the alternative plan would require presidential signature to take effect, and supersede in whole or in part a presidential sequester order.

Special Provisions for an Economic Recession or Declared War

If the economy enters a recession, the Senate and House would automatically consider a resolution temporarily suspending for the remainder of the current fiscal year or for the next fiscal year or both: (1) the maximum deficit amounts; (2) budget resolution spending and revenue constraints; (3) the requirement for issuance of reports by OMB and CBO on deficit reduction and related matters; and (4) the requirement for issuance of a presidential reduction order (except that if an order has already been issued, it is allowed to stand). Any such suspension resolution passed by the Congress would have to be signed into law by the President.

Recession is defined, for these purposes, as (1) a projection by OMB or CBO that real economic growth will be less than zero with respect to two consecutive quarters during the six-quarter period beginning with the prior quarter; or (2) a report by the Department of Commerce that actual real economic growth for each of the previous two quarters was less than 1 percent.

A declaration of war by Congress automatically suspends the reporting of excess deficits by OMB and CBO, the requirement that budget resolutions comply with the maximum deficit amounts, and the requirement that amendments to reconciliation bills be deficit neutral.

IMPOUNDMENT CONTROL

As mentioned earlier in this publication, one cause for enactment of the Budget Act was a dispute in the early 1970s over presidential authority to impound money appropriated by the Congress. Title X of the Budget Act (known as the Impoundment Control Act) sets up legal procedures to prevent a recurrence of this dispute.

Under these procedures, the President may propose to defer using an amount of budget authority until later in the fiscal year or he may propose to rescind (cancel) an amount of budget authority altogether, but in either case he must notify the Congress. A deferral proposed by the President stands unless Congress passes a law disapproving the postponement. A rescission proposed by the President does not occur unless Congress passes a law approving the cancellation.