What’s PAYGO; And, First Cracks In Budget Deal Kumbaya

For those afflicted individuals like me who actually read legislation, one may have stumbled upon some intriguing language in the “Bipartisan Budget Act of 2019” (P.L. 116-37):

Effective on the date of the enactment of this Act, the balances on the PAYGO scorecards established pursuant to paragraphs (4) and (5) of section 4(d) of the Statutory Pay-As-You-Go Act of 2010 (2 U.S.C. 933(d)) shall be zero.

Consequently, as of August 2, the PAYGO scorecards are now set at zero, which is easy enough to understand on one level. But, what does this actually mean? Well, let’s find out.

First of all, there are actually three PAYGOs that are related but distinctly different: the House’s, the Senate’s, and the U.S. Code section. They are similar but have significant differences that bear some discussion. But, as a threshold matter, it’s fair but perhaps simplistic to say that PAYGO is to mandatory funding and revenue as spending caps are to discretionary funding. It’s a means by which the White House and Congress aren’t able to blow up the country’s finances by increasing mandatory funding or by cutting revenues. If this happens, then a sequester kicks in to cut many mandatory funding accounts by the amount mandatory funding has been increased or revenue has been cut.

In the House, earlier this year, Democrats revived a dormant PAYGO rule that had lapsed during Republican rule in favor of their CUTGO rule. See Rule XXI, Clause 10. Simply put the PAYGO rule provides that mandatory funding cannot be increased and/or revenues cannot be cut without corresponding changes to ensure that such legislation is budget-neutral (i.e. does not decrease the amount of money the government will take in on a net-basis and does not increase the amount of money also on a net-basis.) Moreover, unlike the previous PAYGO rule that was scrapped after the 111th Congress, the new PAYGO rule covers off-budget mandatory spending, the most notable program of which falls under the classification being Social Security. And yet, PAYGO does not apply to discretionary funding, and, yet, like almost all House rules, it can be waived by a majority vote, allowing the party controlling the chamber to break this rule as they please. Additionally, PAYGO does not apply to legislation designated as “emergency,” and there is an exception that allows the House to circumvent the rule if a bill is added to a House-passed bill upon engrossment of the legislation at which point only the PAYGO assessment of the latter bill is used for the two combined bills.

In the Senate, the chamber’s PAYGO rule has been in existence since the early 1990’s and has undergone a number of changes, the most recent in 2017. Section 4106 of H.Con.Res. 71, Budget Resolution for FY 2018. The Senate’s PAYGO rule also bars the consideration of legislation that increases mandatory spending or decreases revenue during the budget window. Their version provides:

It shall not be in order in the Senate to consider any direct spending or revenue legislation that would increase the on-budget deficit or cause an on-budget deficit for [periods of 6 and 11 years]

Again, this only pertains to on-budget funding, and so any off-budget accounts are exempt. The Senate may also waive or suspend PAYGO, but it requires 3/5 majority of all duly chosen and sworn Senators to do so (usually 60.)

The statutory PAYGO came into being in 2010 as part of the deal to lift the debt ceiling in P.L. 111-139 and was enacted per Title I of the bill (aka the “Statutory Pay-As-You-Go Act of 2010”). Looking back to 2010, the Obama White House and Congressional Democrats were looking at a federal balance sheet hemorrhaging cash because of the Great Recession and sought to return the government’s finances to the constraints implemented in the early 1990’s when PAYGO was first instituted. Arguably, PAYGO was part of the solution in helping the U.S. realize budget surpluses at the end of the 20th Century. And, Democrats (and, let’s face facts, it was almost only Democrats voting for the bill) were upfront about their intentions with Title I: “The purpose of this title is to reestablish a statutory procedure to enforce a rule of budget neutrality on new revenue and direct spending legislation.”

The statute provides ““PAYGO legislation” or a “PAYGO Act” refers to a bill or joint resolution that affects direct spending or revenue relative to the baseline.” It can also refer to discretionary spending that has a net negative effect on mandatory spending “if such provisions make outyear modifications to substantive law, except that provisions for which the outlay effects net to zero over a period consisting of the current year, the budget year, and the 4 subsequent years shall not be considered budgetary effects.” In any event, if legislation is enacted that violates PAYGO, OMB is required to issue a dreaded sequestration order to institute across-the-board cuts to all non-exempt mandatory funding (e.g. Medicaid, farm subsidies, SNAP, etc.) Since the statutory PAYGO doesn’t cover off-budget funding, Social Security and other programs wouldn’t be effected by a sequester.

In a section-by-section the chairs of the House and Senate Budget Committees inserted into the Congressional Record during debate, they provided the following explanation:

Budgetary effects are defined as the amount by which PAYGO legislation changes mandatory outlays or revenues relative to the baseline. The budgetary effects of changes in tax or mandatory spending law are measured relative to what revenues or mandatory spending would otherwise have been if not for the legislation, as measured by the baseline (as defined in section 257 of BBEDCA). Off-budget effects (i.e., Social Security trust funds and the Postal Service fund) and debt service are not counted as budgetary effects.

The chairs made another interesting point regarding changes in mandatory funding as part of appropriations bills possibly being subject to PAYGO:

Legislation subject to PAYGO also includes provisions in annual appropriations bills that change revenue or mandatory spending law in appropriations bills. Changes in mandatory spending law are considered discretionary in the current and budget years because the Appropriations Committees can offset the costs or use the savings by adjusting funding levels for discretionary programs in those years. But mandatory spending provisions in appropriations bills having outyear budget authority effects–that is, effects in those years after the budget year–are considered PAYGO legislation.

OMB is to maintain two publicly available PAYGO scorecards based on Congressional Budget Office (CBO) estimates of the effect of legislation subject to PAYGO. These CBO estimates are supposed to be entered into the Congressional Record by the chairs of the Budget Committees, but this doesn’t always happen, and if it doesn’t, OMB performs the calculations of whether legislation has resulted in an increase in mandatory funding or a reduction in revenues. For example, the most recent PAYGO scorecard was based on OMB’s estimates.

OMB explained the process:

Within 14 business days after a congressional session ends, OMB issues an annual PAYGO report and determines whether a violation of the PAYGO requirement has occurred. If either the 5- or 10-year scorecard shows net costs in the budget year column, the President is required to issue a sequestration order implementing across-the-board cuts to nonexempt mandatory pro-grams by an amount sufficient to offset those net costs.

Coming forward to the current Congress, OMB has posted the June 2019 scorecard showing a possible sequester of $3.218 billion, mainly because of scorecard balances carried over from the 115th Congress. But, of course, when OMB updates the PAYGO scorecard, per the “Bipartisan Budget Act of 2019,” the balance will be set to zero for both the five and ten year budget windows, which wipes the slate clean for the current Congress. Consequently, the balances shown on the most recent PAYGO scorecard have just been wiped clean as well as any potential PAYGO effects from the budget deal that lifted the FY 2020 and 2021 caps. It seems obvious that when Congress resets the PAYGO scorecards, they are not honoring the spirit of PAYGO. If I can change my scale, then weight gains would disappear, in a sense, right?

In the same vein, it must be mentioned that PAYGO didn’t stop Congress from adding more than $1.5 trillion in debt with the 2017 tax bill Republicans and the White House herald as their most significant legislative achievement. And, this was not the only time PAYGO Has been waived. Likewise, PAYGO was allowed to lapse when the George W. Bush Administration and Republicans pushed through their tax cut package and Medicare Part D drug prescription plan.

So, not surprisingly, PAYGO is only as good as Congress and the White House’s honoring of the rules in the House and Senate and on OMB’s scorecard.

On a different note, the budget ceasefire between the White House and Congress seems to be ending. The White House is proposing to begin the process to rescind a reported $4.3 billion in FY 2019 foreign aid funding appropriated to the Department of State and United States Agency for International Development (USAID). Normally, the funds are impounded, or set aside, for 45 days until either Congress passes legislation agreeing to rescind funds or fails to do so at which point the funds are released and are to be spent per the intent of Congress. The White House knows it cannot get a rescission bill through the Congress, but instead they are hoping to have the funds impounded through the end of the fiscal year, which ends on September 30, and then State and USAID will not be able to spend the funds. Correction: On August 3, the White House told State and USAID to essentially not use the funds in question until they provide an accounting in this letter. While this is not a rescission or impoundment request, this reapportionment of FY 2019 functions to freeze these funds.

This proposal has not been submitted to Congress, but Democrats and Republicans have already sent a number of letters urging the White House not to do this not least of which because the Government Accountability Office (GAO) issued a legal opinion in December 2018 finding asserting that the agencies in this situation would still receive the funding. The GAO determined that

the statutory text and legislative history of the Impoundment Control Act of 1974 (ICA), Supreme Court case law, and the overarching constitutional framework of legislative and executive powers provide no basis to construe the ICA as a mechanism by which the President may, in effect, unilaterally shorten the availability of budget authority by transmitting rescission proposals shortly before amounts are due to expire.

Here are the letters:

It is quite possible this will result in more litigation as the Administration pays little heed to norms and laws when they impede their policy goals. Besides, there are likely a million ways to work behind the scenes to keep funds from State and USAID even if the Administration loses the battle.

Of course, this is the White House looking to set the terms of political debate through driving the news cycle in ways they think favorable to Trump’s reelection. His base hates foreign aid, which is considered a giveaway to other countries, and regardless of whether this moves succeeds, it has the benefit of drawing a distinction between Trump on the side of his base in trying to stop foreign aid “welfare” and be fiscally responsible, and the Democrats who care more about foreigners than they do “average” Americans. Whether this spills over in the larger FY 2020 appropriations debate remains to be seen.

Appropriators Have Work To Do

Now that Congress and the White House have agreed on the FY 2020 top line numbers for defense and non-defense discretionary spending, both the House and Senate need to adjust the numbers they have put forth as their working caps.

The House did not pass a budget resolution and instead passed a deeming resolution (H.J.Res. 293) in April that functions in much the same way with respect to setting the top-line numbers for appropriations. During debate on the deeming resolution, Representative James Morelle (D-NY) explained the caps put forth by Democrats:

In fiscal year 2020, defense spending would be capped at $664 billion, with nondefense discretionary spending capped at $631 billion. The Investing for the People Act (H.R. 2021) would also provide up to $8 billion, annually, for nondefense overseas contingency operations, OCO, activities that do not count against the spending caps, while limiting OCO designation of defense spending in 2020 and 2021 to no more than the fiscal year 2019 level of $69 billion dollars.

In my this post, I detailed the new spending caps under the as the “Bipartisan Budget Act of 2019” (P.L. 116-37) raised the caps

  FY 2020 FY 2021
Defense (aka Security) $666.5 billion $671.5 billion
Non-Defense (aka non-security) $621.5 billion $626.5 billion

For FY 2020, House Democrats will need to trim roughly $10 billion from the non-defense side of appropriations and slightly boost for the defense side. The House Appropriations Committee will need to trim the non-defense funds from the bills with non-defense funding, and it is not immediately clear what their approach will be. Is an across-the-board reduction equitable? Or should the committee eliminate funds based on need and priorities? I’d say it is likely to be the latter approach, but the process for how the House does this is not clear beyond the Appropriations Committee reporting a new 302(b) allocation. Will the Appropriations Committee essentially draft new bills and hold them until the Senate has finished work on their bills all the while negotiating on final numbers for programs? This seems like the likeliest outcome although it is possible the House could bring new bills to the floor, but I suspect they wouldn’t do so unless there was some leverage to be gained against or pressure exerted on the Senate.

In the other body, appropriators are more or less working from a blank slate as Senate Majority Leader Mitch McConnell (R-KY) prevailed upon Senate Appropriations Committee Chair Richard Shelby (R-AL) to not begin the appropriations process until agreement had been reached on top-line numbers. Undoubtedly, the committee has bill language and report language that has been negotiated on; all that was missing was the top-line funding numbers. Having said that, it didn’t exactly take a crystal ball to project a reasonable range of top-line funding numbers and work from those. I’m assuming this is, in fact, what happened, and so the committee may hit the ground running next month.

While the Senate did not pass a budget resolution as McConnell undoubtedly wanted to protect those Senate Republicans up for reelection from uncomfortable votes, the Senate Budget Committee did mark up a budget resolution. In S.Con.Res. 12, the Senate Budget Committee set the following caps in FY 2020: $576 billion for defense (plus the majority of $67 billion in OCO funds) and $542 billion for non-defense. Consequently, the Senate has just gained a huge amount of breathing room on both sides of the discretionary divide, and yet, because the Senate Appropriations Committee has not marked up any bills, the process of effecting the new caps will be somewhat easier. In any event, the nominal, not-real numbers the Senate started with will be adjusted upwards by $90 billion on the defense side of the ledger and $79 billion for non-defense.

Opening the aperture on appropriations reveals an uncertain view. Sure, we have top-line numbers, but will Fox News rile up the President after Republicans and Democrats have reached agreement on full-year appropriations for FY 2020. However, more immediately, it seems unlikely we will have all 12 bills enacted before the end of FY 2019 on September 30 and has been common practice there will almost certainly be a continuing resolution (CR) for some portion of the federal government through December. It’s just a question of which agencies will have FY 2020 appropriations in place and which will be operating under a CR, which does cause some problems. In any event, it will quite the ride as always.

Budget Deal Reached; Battle Over FY 2020 Appropriations Continues

As has been widely reported in the media, Congress and the White House agreed on a deal to raise the FY 2020 and 2021 budget caps and suspend the debt ceiling until July 2021. Ostensibly, this clears the way for Congress to send appropriations bills to the White House in September when the two chambers reconvene. However, there is still plenty of room for the appropriations process to go awry, especially if the White House rightly or wrongly sees political advantage in taking a stand on something like a border wall again as it did earlier this year.

Last week, the House passed the “Bipartisan Budget Act of 2019” (H.R. 3877) by a 284-189 vote with 65 Republicans voting to pass the package and 16 Democrats voting no. The Senate then took up and passed the bill today by a 67-28 vote with the five Democrats who participated in the Democratic debates not voting.

The caps as reset when the so-called Super Committee failed to deliver a package of $1.2. trillion in funding cuts:

  FY 2020 FY 2021
Defense (aka Security) $576 billion $590 billion
Non-Defense (aka non-security) $542 billion $555 billion

Under the “Bipartisan Budget Act of 2019” the new caps would be:

  FY 2020 FY 2021
Defense (aka Security) $666.5 billion $671.5 billion
Non-Defense (aka non-security) $621.5 billion $626.5 billion

And, here is the difference between the original and the new caps:

  FY 2020 FY 2021
Defense (aka Security) +$90.5 billion +$81.5 billion
Non-Defense (aka non-security) +$79.5 billion +$71.5 billion

There’s plenty here for both sides to claim victory. Congressional Republicans get a higher defense top-line, an agreement that allows appropriations to move forward, support from the President, a relatively painless debt limit increase, and no parity for defense and non-defense funding. Congressional Democrats got substantial increases for non-defense funding whereas the President’s DOA FY 2020 budget request would have slashed non-defense funding, a relatively painless debt limit increase, and buy-in from the White House and President, which brought along Republicans terrified of there being any daylight between them and Trump (e.g. Senate Majority Leader McConnell (R-KY)).

However, now that the spending caps and debt limit hurdles have been cleared, it is uncertain at best whether appropriations will be enacted by the beginning of FY 2020 (i.e. October 1). While the House has passed 10 of the 12 bills, the Senate Appropriations Committee has not even set its 302(b) allocations let alone mark up actual bills. However, I’m doubtful the committee has been idle; it wouldn’t shock me if they’re able to move bills very quickly to the floor. Beyond that, it’s not clear how well that works. I think a continuing resolution (CR) funding some portion of the government may be likely into the latter part of the year. Of course, even if Congress reaches agreement with sign-off from the White House, a Fox segment on such a deal could blow it up once Trump decides there’s advantage to be had in holding everything up in the name of what he and his base consider security on the U.S.-Mexico border.

Another bigger picture question is whether the Democrats will agree to caps on discretionary spending going forward once this deal expires. It is likely the current battle lines that informed this and past budget deals will extend into future talks. The only variable will be the fortifications and arms available to each party in each chamber. However, the leverage granted by the “Budget Control Act of 2011” (BCA) (P.L. 112-25) will be gone. It should be interesting to see what happens in calendar year 2020.