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97008: Congressional Budget Actions in 1997

Updated January 8, 1997

Robert Keith
Government Division

SUMMARY

MOST RECENT DEVELOPMENTS

BACKGROUND AND ANALYSIS

Overview of the Congressional Budget Process
Budget Resolution
Reconciliation Legislation
Revenue and Debt-Limit Legislation
Appropriations and Other Spending Legislation
Sequestration

CHRONOLOGY

FOR ADDITIONAL READING

Key Web and Gopher Sites
CRS Reports

SUMMARY

In 1997, during the first session of the 105th Congress, the House and Senate will consider many different budgetary measures. Most of these measures will pertain to FY1998 and beyond, but some measures will make adjustments in the budget for the current fiscal year, FY1997. This issue brief describes House and Senate action on major budgetary legislation within the framework of the congressional budget process and other procedural requirements.

Congressional action on the budget commences following the submission by the President of his budget to Congress. President Clinton is expected to submit his FY1998 budget to Congress on Thursday, February 6, 1997, two days after delivering the State of the Union Address.

The President's budget is only a request to Congress. Although Congress is not required to adopt his recommendations, the President's budgetary proposals often exert considerable influence over congressional revenue and spending decisions.

The Congressional Budget Act of 1974 established the congressional budget process as the means by which Congress coordinates its various budget-related actions. The process is centered on an annual concurrent resolution on the budget. The budget resolution sets aggregate budget levels and spending amounts by functional categories for a multiyear period. A budget resolution does not become law; its main purpose is to establish the framework within which the House and Senate consider separate spending, revenue, and debt-limit legislation.

Under the 1974 act, the House and Senate are scheduled to adopt the FY1998 budget resolution by April 15. It is not uncommon for the chambers to miss this deadline, sometimes by months.

Formulation of both the President's budget and the congressional budget resolution rely upon the use of budget baselines. Baselines involve the projection of spending, revenue, and deficit or surplus levels into the future based upon current policies. The use of baselines allows decision-makers to assess the budgetary impact of proposed policy changes. The Congressional Budget Office (CBO) issued preliminary economic assumptions on December 12, 1996. These assumptions will be used to prepare CBO's baseline budget projections, to be issued at the end of January.

Budget resolution policies are implemented by Congress through the enactment of annual appropriations and other spending measures, revenue measures, debt-limit legislation, and reconciliation bills. Reconciliation is an optional procedure used principally to reduce the deficit. In view of the continued commitment by House and Senate leaders to balance the federal budget, reconciliation may well be used in 1997.

MOST RECENT DEVELOPMENTS

The Congressional Budget Office issued preliminary economic assumptions for calendar years 1997-2007 on December 12, 1996. CBO baseline budget projections, based on these economic assumptions, will be issued at the end of January.

President Clinton is expected to submit his FY1998 budget to Congress on Thursday, February 6, 1997, two days after delivering the State of the Union Address.

BACKGROUND AND ANALYSIS

Overview of the Congressional Budget Process

The fiscal year cycle that the federal budget process operates under is 12 months in length; a federal fiscal year begins on the October 1 preceding the calendar year for which the fiscal year is named. Accordingly, FY1998 will begin on October 1, 1997, and end on September 30, 1998. Most state governments, in contrast, use a fiscal year that runs from July 1 through June 30.

Federal budgeting uses a multiyear framework. At the time the budget is being considered, the fiscal year in progress is referred to as the current year; the upcoming fiscal year is called the budget year; and fiscal years after the budget year are known as the outyears. During the first session of the 105th Congress (until October 1), the current year will be FY1997 and the budget year will be FY1998.

Congressional action on the budget commences following the submission by the President of his budget to Congress. The Budget and Accounting Act of 1921 requires the President to submit a budget encompassing the full range of federal activities. The President's budget is only a request to Congress. Although Congress is not required to adopt his recommendations, the President's budgetary proposals often exert considerable influence over congressional revenue and spending decisions.

Formulation of both the President's budget and the congressional budget resolution rely upon the use of budget baselines. Baselines project spending, revenue, and deficit or surplus levels into the future based upon current policies. The use of baselines allow decision-makers to assess the budgetary impact of proposed policy changes.

The 1974 Congressional Budget Act established a timetable for the consideration of budget resolutions and implementing legislation. This timetable, set forth in Section 300 of the act, is provided in Table 1.

The Balanced Budget and Emergency Deficit Control Act of 1985, commonly known as the Gramm-Rudman-Hollings Act, created a new enforcement process known as sequestration. Sequestration involves largely across-the-board spending cuts made automatically at the end of a session of Congress if certain budgetary goals are not expected to be met. The Budget Enforcement Act of 1990 changed the application of sequestration from deficit targets to discretionary spending limits, covering annual appropriations bills, and a pay-as-you-go requirement, covering revenue and mandatory spending measures. The sequestration process is supposed to give Congress and the President a strong incentive to reach agreement on budgetary matters through the regular legislative process, thereby avoiding a sequester.

TABLE 1. Congressional Budget Process Timetable Deadline Action to be completed First Monday in February President submits budget to Congress. February 15 CBO submits report on economic and budget outlook to Budget Committees. Six weeks after President's budget is submitted Committees submit reports on views and estimates to respective Budget Committee. April 1 Senate Budget Committee reports budget resolution. April 15 Congress completes action on budget resolution. June 10 House Appropriations Committee reports last regular appropriations bill. June 30 House completes action on regular appropriations bills and any required reconciliation legislation. July 15 President submits mid-session review of his budget to Congress. October 1 Fiscal year begins.

Budget Resolution

The Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344; 88 Stat. 297-339), as amended, established the congressional budget process as the means by which Congress coordinates the various budget-related actions (such as the consideration of appropriations and revenue measures) taken by it during the course of the year. The process is centered on an annual concurrent resolution (H.Con.Res. or S.Con.Res.) on the budget that sets aggregate budget levels and spending amounts by functional categories for a 5-year period. In 1995 and 1996, Congress used special authority in the 1974 act to extend the budget resolution to a longer time frame to accommodate its goal of eliminating the deficit by FY2002.

The timetable set forth in the 1974 Congressional Budget Act calls for the final adoption of the budget resolution by April 15, well before the beginning of the new fiscal year on October 1. Although the House and Senate usually pass the budget resolution separately before April 15, they often do not reach final agreement on it until after the deadline -- sometimes months later. The 1974 Congressional Budget Act bars consideration of revenue, spending, and debt-limit measures for the upcoming fiscal year until the budget resolution for that year has been adopted, but certain exceptions are provided (such as the exception that allows the House to consider the regular appropriations bills after May 15, even if the budget resolution has not been adopted by then).

The House and Senate Budget Committees are responsible for marking up and reporting the budget resolution. In the course of developing the budget resolution, the Budget Committees obtain baseline estimates and other information from the Congressional Budget Office (CBO), receive "views and estimates" reports from other House and Senate committees, review the President's budget, and hold hearings.

On December 12, 1996, CBO issued preliminary economic assumptions for calendar years 1997-2007. CBO baseline budget projections, based on these economic assumptions, will be issued at the end of January. Later in the year, CBO will issue an analysis of the President's budgetary proposals and a compendium of options to reduce the deficit.

President Clinton is expected to submit his budget for FY1998 to Congress on Thursday, February 6, two days after delivering the State of the Union Address. In most years, the budget is submitted as a multi-volume set consisting of a main document setting forth the President's message to Congress and an analysis and justification of his major proposals (the Budget) and supplementary documents providing account and program level detail, historical information, and special budgetary analyses (the Budget Appendix, Historical Tables, and Analytical Perspectives), among other things. The President submits a budget update (reflecting changed economic conditions, congressional actions, and other factors), referred to as the Mid-Session Review, by July 15 each year. He may revise his recommendations any time during the year.

The "views and estimates" reports of House and Senate committees, which provide the Budget Committees with information on the preferences and legislative plans of congressional committees regarding budgetary matters within their jurisdiction, are due within six weeks after the President's budget is submitted.

In their initial hearings each year, the Budget Committees receive testimony from the director of OMB, the secretary of the Treasury, and the chairman of the President's Council of Economic Advisers. The CBO director also testifies. This year, the testimony of these officials is expected to occur during the first few weeks of February, immediately after the President's budget is submitted.

Floor consideration of the budget resolution is guided by House and Senate rules and practices. In the House, the Rules Committee usually reports a "special rule" (a simple House resolution), which, once approved, establishes the terms and conditions under which the budget resolution is considered. This special rule typically specifies which amendments may be considered and the sequence in which they are to be offered and voted on. It has been the practice in recent years to allow consideration of a few amendments (as substitutes for the entire resolution) that present broad policy choices. In the Senate, the amendment process is less structured, relying on agreements reached by the leadership through a broad consultative process. The amendments offered in the Senate may entail major policy choices or may be focused on a single issue.

Reconciliation Legislation

Section 310 of the 1974 Congressional Budget Act sets forth a special procedure for the development and consideration of reconciliation legislation. Reconciliation legislation is used by Congress to bring existing revenue and spending law into conformity with the policies in the budget resolution and can be Congress' most potent deficit-reduction tool.

Reconciliation is an optional process, but Congress has used it more years than not; during the 17 calendar years covering 1980 through 1996, 12 omnibus reconciliation measures have been enacted into law. In view of the continued commitment expressed by House and Senate leaders in achieving a balanced budget, reconciliation may well be used again in 1997.

The reconciliation process has two stages: (1) the adoption of reconciliation instructions in the budget resolution; and (2) the enactment of reconciliation legislation that implements changes in revenue or spending laws. Although reconciliation has been used since 1980, specific procedures tend to vary from year to year.

Reconciliation is used to change the amount of revenue and spending generated by existing law. In a few instances, reconciliation has been used to adjust the public debt limit. On the spending side, the process focuses on entitlement laws, but it may not be used to force changes in Social Security law. Reconciliation sometimes has been applied to discretionary authorizations (which are funded in annual appropriations acts), but this is not the usual practice.

When more than one committee in the House and Senate is subject to reconciliation directives, the proposed legislative changes usually are consolidated by the Budget Committees into an omnibus bill. The 1974 Congressional Budget Act does not permit the Budget Committees to revise substantively the legislation recommended by the committees of jurisdiction. This restriction pertains even when the Budget committees estimate that the proposed legislation will fall short of the dollar changes called for in the instructions. Sometimes, the Budget Committees, working with the leadership, develop alternatives to the committee recommendations, to be offered as floor amendments, so as to achieve greater compliance with the reconciliation directives.

The 1974 Congressional Budget Act provides for the expedited consideration of reconciliation measures and requires that amendments offered to reconciliation legislation in either the House or the Senate be deficit neutral and germane, and not include extraneous matter.

Revenue and Debt-Limit Legislation

In the House, revenue and debt-limit legislation is under the jurisdiction of the Ways and Means Committee; in the Senate, jurisdiction is held by the Finance Committee. Most revenues derive from existing provisions of the tax code or Social Security law, which continue in effect from year to year without legislative action. Nonetheless, Congress usually makes some changes in the tax laws each year, either to raise or lower revenues or to redistribute the tax burden.

Congress typically acts on revenue legislation pursuant to proposals in the President's budget. An early step in congressional work on revenue legislation is publication by CBO of its own estimates (developed in consultation with the Joint Committee on Taxation) of the revenue impact of the President's budget proposals. The congressional estimates often differ significantly from those presented in the President's budget, which are based on OMB projections.

The revenue totals in the budget resolution establish the framework for subsequent action on revenue measures. Congress generally may not consider legislation increasing or decreasing revenues for the next fiscal year until it has adopted the budget resolution for that year. The budget resolution contains only revenue totals and total recommended changes; it does not allocate these totals among revenue sources (although it does set out Medicare receipts separately), nor does it specify which provisions of the tax code are to be changed. These specific decisions are made in the revenue legislation reported by the House and Senate committees with jurisdiction over such matters.

The House and Senate periodically consider major revenue measures, such as the Tax Reform Act of 1986, under their regular legislative procedures. However, as has been the case with direct spending programs, many of the most significant changes in revenue policy in recent years have been made in the context of the reconciliation process. Although revenue changes usually are incorporated into omnibus budget reconciliation measures, along with spending changes (and sometimes debt-limit increases), such revenue legislation may be considered on a separate legislative track (e.g., the Tax Equity and Fiscal Responsibility Act of 1982).

When the revenues collected by the federal government are not sufficient to cover its expenditures, it must finance the shortfall through borrowing. Federal borrowing is subject to a public debt limit established by statute. As long as the federal government continues to operate with a budget deficit, the public debt limit must be increased periodically. Failure to increase the debt limit in a timely manner could lead to inefficient, stop-gap financing practices by the Treasury Department and eventually to default. The frequency of congressional action to raise the debt limit has ranged in the past from several times in one year to once in several years.

In 1979, the House amended its rules to provide for the automatic engrossment of a measure increasing the debt limit upon final adoption of the conference report on the budget resolution. The rule, House Rule XLIX (commonly referred to as the "Gephardt rule," after its sponsor, Representative Richard Gephardt), was intended to facilitate quick action on debt increases. However, the Senate has no comparable rule and often considers such legislation thoroughly, if not at length. The House and Senate may enact debt-limit legislation originating under the Gephardt rule or arising under conventional legislative procedures. In some instances, Congress has enacted debt-limit increases as part of omnibus budget reconciliation legislation or other measures.

Appropriations and Other Spending Legislation

The spending policies of the budget resolution generally are implemented through two different types of spending legislation. Policies involving discretionary spending are implemented in the context of annual appropriations acts, whereas policies affecting direct or mandatory spending (which, for the most part, involves entitlement programs) are carried out in substantive legislation.

All discretionary spending is under the jurisdiction of the House and Senate Appropriations Committees. Direct spending is under the jurisdiction of the various legislative committees of the House and Senate; the House Ways and Means Committee and the Senate Finance Committee have the largest shares of direct spending jurisdiction. (Some entitlement programs, such as Medicaid, are funded in annual appropriations acts, but such spending is not considered to be discretionary.)

In recent years, many of the most significant changes in direct spending programs, from a budgetary standpoint, have been made in the reconciliation process. The greatest number of spending decisions in any year occurs in the annual appropriations process.

The President requests annual appropriations in his budget submission. In support of the President's appropriations requests, agencies submit justification materials to the House and Senate Appropriations Committees. These materials provide considerably more detail than is contained in the President's budget and are used in support of agency testimony during Appropriations subcommittee hearings on the President's budget.

Congress passes three main types of appropriations measures. Regular appropriations provide budget authority to agencies for the next fiscal year. Supplemental appropriations provide additional budget authority during the current fiscal year when the regular appropriation is insufficient or to finance activities not provided for in the regular appropriation. Continuing appropriations provide stop-gap (or full-year) funding for agencies that have not received a regular appropriation by the start of the fiscal year.

In a typical session, Congress acts on more than 16 appropriations measures, including 13 regular appropriations bills and at least two supplemental appropriations measures. Because of recurring delays in the appropriations process, Congress typically passes one or more continuing appropriations each year. The scope and duration of these measures depend on the status of the regular appropriations bills and the degree of budgetary conflict between the President and Congress. In some years, a continuing appropriations measure has been turned into an omnibus measure for enactment of regular appropriations bills.

By custom, appropriations measures originate in the House of Representatives. The House and Senate appropriations subcommittees typically begin holding extensive hearings on appropriations requests shortly after the President's budget is submitted.

Sequestration

After a decade of experience with the Congressional Budget Act of 1974, Congress faced persistent high deficits and increasing budgetary deadlock. In 1985, it enacted legislation aimed at bringing the federal budget into balance by the early 1990s. That legislation -- the Balanced Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177; 99 Stat. 1038-1101) -- is commonly referred to as the Gramm-Rudman-Hollings (GRH) Act.

The GRH Act established a series of declining annual deficit targets and created an automatic spending-reduction process (known as sequestration) intended to ensure that the deficit targets are adhered to even if Congress and the President fail to reduce the deficit sufficiently through legislative action. Congress made significant changes in the GRH Act in 1987 and 1990. The most recent changes, the Budget Enforcement Act (BEA) of 1990 (Title XIII of P.L. 101-508; 104 Stat. 1388-573 through 630), were made in conjunction with the enactment of a 5-year deficit-reduction accord covering fiscal years 1991-1995. In 1993, the BEA procedures were extended through fiscal year 1998 as part of another comprehensive budget agreement between the President and Congress.

Sequestration involves the issuance of a presidential order that permanently cancels budgetary resources (except for special funds and trust funds) for the purpose of achieving a required amount of outlay savings in order to reduce the deficit. Once sequestration is triggered by an executive determination, spending reductions are made automatically; this process, therefore, is regarded by many as providing a strong incentive for Congress and the President to reach agreement on legislation that would avoid a sequester.

The BEA, as first enacted in 1990 and as extended in 1993, changed the sequestration process substantially. First, it effectively eliminated deficit targets as a factor in budget enforcement. Second, the BEA established adjustable limits on discretionary spending funded in the annual appropriations process. Third, the BEA created pay-as-you-go (PAYGO) procedures to require that increases in direct spending (i.e., spending controlled outside of the annual appropriations process) or decreases in revenues due to legislative action are offset so that there is no net increase in the deficit.

The BEA established new sequestration procedures to enforce the discretionary spending limits and the PAYGO requirements. One type of sequester occurs if the discretionary spending limits are exceeded, and a second type occurs if the PAYGO requirement is violated. To the extent that one or both types of sequesters must be made, they will occur on the same day within 15 calendar days after Congress adjourns to end a session; sequestration of this type is referred to as "end-of-session sequestration." Further, one or more additional sequesters may occur subsequently in the fiscal year to eliminate any breach in the discretionary spending limits; this type of sequestration is referred to as "within-session sequestration."

The timetable for the sequestration process is set forth in Table 2.

Table 2. Sequestration Process Timetable

***TABLE or GRAPHIC not shown here***

Early in the session, OMB and CBO issue sequestration preview reports. The reports provide estimates of the discretionary spending limits, as adjusted, and estimates of any net deficit increase or decrease caused by the enactment of direct spending or revenue legislation subject to the PAYGO process. In August, OMB and CBO issue sequestration update reports to reflect the impact of legislation enacted during the interim. The purpose of the preview and update reports is to provide Congress and the President with advance notice regarding the possibility of a sequester. If one or both types of sequester are anticipated, these reports may afford Congress and the President enough warning so that they can enact legislation to forestall them.

Finally, OMB and CBO issue sequestration reports shortly after Congress adjourns to end the session. The end-of-session reports must reflect any pertinent legislation enacted since the update reports were issued and must indicate the baseline amount of budgetary resources and the amount and percentage of the reduction for each account subject to sequestration.

Several other reports are associated with the sequestration process. First, within-session sequestration reports may be issued by CBO and OMB (no later than July 10 and July 15, respectively) if supplemental appropriations or other discretionary spending is enacted that causes a breach in a discretionary spending limit. Second, the President must notify Congress by August 10 of each year if he intends to use authority provided him in the GRH Act to exempt military personnel accounts from sequestration. Finally, the comptroller general must issue a compliance report (issued within 30 days of the final OMB sequestration report and the presidential sequestration order) evaluating whether the OMB and CBO reports and the presidential order comply with the requirements of the GRH Act.

The BEA enforcement procedures may be suspended in the event a declaration of war is enacted or if Congress enacts a special joint resolution triggered by the issuance of a "low-growth" report by CBO. Also, there are several special procedures under the act by which the final sequestration order for a fiscal year may be modified or the implementation of the order affected.

CHRONOLOGY

12/12/96CBO issued preliminary economic assumptions for calendar years 1997-2007.

FOR ADDITIONAL READING

Key Web and Gopher Sites

Important information regarding current and past budgets (including budget documents), the federal budget process, and their duties and functions are available at the following web or gopher sites.

Congressional Budget Office (CBO). http://gopher.cbo.gov:7100/

General Accounting Office (GAO). http://www.gao.gov

Office of Management and Budget (OMB). http://www.whitehouse.gov/WH/EOP/OMB/html/ombhome.html