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Opinion for December 1999 was:
December 6, 1999 - What have the tricks led
to? A RIF? Definitely a fun summer and fall coming up. What will
result from the tricks used to make the numbers add for FY 2000. (This
was the only opinion for December 1999.)
December 6, 1999 - What have the tricks led to? A RIF?
Definitely a fun summer and fall!
 | Congressional actions to make the numbers come out for FY 2000 have led, so far, to
interesting OMB guidance to agencies and a CBO report. FY 2000 budget execution and
FY 2001 formulation are affected by the guidance and report. Agencies now have
explicit political instructions from OMB in executing FY 2000. CBO sets the stage
for development and processing of the FY 2001 budget request. With the specter of
potential RIFs and a heated budget debate, it will be a fun summer and fall! Here is
why:
 | OMB's guidance is aimed at making sure that the 0.38% "across the board" cut
ends up noticed, to point out that it is not a trivial amount. OMB tells agencies to
target the cuts, to take from Congressional additions to the budget, and to minimize
reductions in force (RIF). OMB does not rule out RIFs, although it could have done
so. It also could have kept quiet on RIFs. |
| CBO states that even after tricks the deficit estimate would be $17 billion, which would
use part of the Social Security surplus. CBO further states that $23.3 billion of
Congressionally directed "scorekeeping adjustments" (read: more tricks)
makes this problem go away and the on-budget accounts show a surplus. |
| I have reproduced key language from the CBO report and the OMB bulletin at the end of
this opinion. |
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| OMB's guidance is aimed at showing that an across the board cut can lead to pain.
Although couched in words meant to indicate some management judgment, the allusion to no
reductions in force (RIFs) if possible means that whole programs or visible activities
should be considered for elimination. A RIF would be an unavoidable consequence of
eliminating the "waste" that is to be used to fund the cuts. (For more on
how a small cut translates into a larger effect see concentrated or focused cuts. The
problem is compounded by the fact that agencies have to cut after the start of the fiscal
year, so options become even more limited and RIFs more likely.) A RIF, of course,
would emphasize how right the Administration was when it opposed across the board
cuts. By the time these cuts are identified and made public, the FY 2001 debate will
have arrived. Which brings CBO's report into the picture. |
| CBO has had the courage (but perhaps not the political good sense) to state the obvious,
i.e., that only tricks made the numbers add up. CBO has done us the favor of
quantifying the magnitude of the trickery. The only hope there is that the tricks
will not become a major political issue during the Presidential election is that the
economy will continue to outperform projections and result in more revenue than expected,
i.e., we trust in random fate to decide our future. This is not a good way to
budget. If the economy stumbles, it will be very difficult to avoid major budget
cuts. Given that the FY 2000 budget is actually using the Social Security surplus, a
higher deficit for FY 2001 (which is likely since much spending from FY 2000 has been
shifted to FY 2001) will not be politically tolerable - many people have painted
themselves into a corner on this fake issue. I guess they hope that the paint will
dry fast. But budgeting is not floor painting. |
What OMB and CBO stated:
| OMB felt it necessary to provide guidance to agencies on how to deal with the 0.38%
across the board cut. OMB directs agencies to use the following criteria in making
the allocation:
| Reductions should be taken from the least critical funding available to
the agency. |
| Reductions should be considered from enacted funding above the
President's request. |
| Wherever possible, no reductions should be taken that would require
reductions-in-force. |
| Agencies should make targeted recommendations rather than an
across-the-board funding cut. |
OMB adds that "... the Bill requires that all reductions are to be made from
discretionary budget authority and obligation limitations only." (OMB Bulletin No. 00-01,
Rescission of FY 2000 Discretionary Budget Authority, November 24, 1999.)
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| CBO is very blunt, but realistic: The caps will be violated, as will the Social
Security surplus, but it makes little difference anyhow since tricks have taken care of
it, and the economy may save us all from the tricks. In CBO's words, from "The Budget for
Fiscal Year 2000: An End-of-Session Summary, December 2, 1999":
| Much of the recent budget debate has centered around two distinct
objectives. The first is to adhere to the caps on discretionary spending specified in the
Balanced Budget Act of 1997. The second is to avoid an on-budget deficit--that is, the
need to use funds generated by the Social Security trust funds to finance spending for
programs other than Social Security. Under CBO's most recent estimating assumptions,
neither objective will be attained for fiscal year 2000. |
| Even after increasing the caps to accommodate emergency designations and
certain other spending, as required by law, both budget authority and outlays for
discretionary programs will probably exceed the caps for 2000 by about $7 billion and $17
billion, respectively. Furthermore, recent legislation has more than eliminated the $14
billion on-budget surplus projected under CBO's baseline assumptions in July. Using the
same economic and technical assumptions and incorporating the effects of those legislative
actions, CBO estimates a $17 billion on-budget deficit for 2000. However, in light of
recent economic trends, the baseline estimates that CBO will release in January are likely
to present a more favorable picture. |
| The Office of Management and Budget (OMB) is unlikely to determine that a
sequestration is necessary because its estimates of outlays from the appropriation bills
are lower than CBO's and because it may categorize certain provisions as offsets to
discretionary spending that CBO views as affecting direct spending or revenues.
Congressional scoring of the recent legislation also presents a somewhat different
picture. With the scorekeeping adjustments specified by Congress--totaling $4.4 billion in
budget authority and $23.3 billion in outlays--the outlay caps would not be exceeded, and
the on-budget accounts would show a surplus. |
| All such projections are subject to great uncertainty, however, and very
small percentage changes in revenues or outlays, each of which totals close to $2 trillion
a year, can change the budgetary outlook significantly. The recent positive economic
developments make it likely that CBO will project a more favorable outcome when it
completes its new baseline in January. |
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