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.

Appropriations State of Play

The House is on the verge of finishing work on its 12 appropriations bills while the Senate has passed only a supplemental appropriations bill and will bring another to the floor. Absent an imminent breakthrough on the caps on discretionary spending for FY 2020 and 2021, the word for appropriations will be “impasse” until the end of the year.

Thus far, House Democrats seem to have bridged their internal differences on defense and non-defense spending in passing two of the most contentious bills of any cycle (Labor-Health and Human Services-Education and Defense) and have moved on to the next package.

However, one of the least controversial bills has now become the object of controversy and may prove difficult to pass: the Legislative Branch bill. House Majority Leader Steny Hoyer (D-MD) had reportedly negotiated a deal with Republican Minority Leader Kevin McCarthy (R-CA) and Minority Whip Steve Scalise (R-LA) under which House Members would get their first raise in ten years as a cost of living adjustment. In exchange for the pay raise that Republicans would also receive, the minority party would not attack the majority party on the floor or in the campaign cycle. However, House freshmen Democrats who were narrowly elected in the last election approached Hoyer about pulling the provision from the FY 2020 Legislative Branch bill that was supposed to be part of the first package of bills. They made the case that the optics of giving Members a pay raise given the major issues that have gone unresolved would be terrible and would hamper their reelection efforts.

Members’ salary has been $174,000 per year since 2009 as Congress has opted to block what would otherwise be an automatic annual increase. According to the Congressional Research Service, if Congress had allowed every adjustment to go into effect since the current statute came into effect in 1992, they would now earn $210,900 per year. Moreover, the rate of inflation has eroded the buying power of Members’ salaries by 15% since their last pay raise in 2009. Additionally, the freeze on Members’ salaries also caps the salaries of House staff, none of whom may be paid more than a Member.

In February, the Congressional Budget Office (CBO) projected that the Department of the Treasury would exhaust the measures used to ensure the U.S. does not default on its debts by September or October now that the suspension of the debt limit has gone back into effect. In simpler terms, Treasury can only borrow so much money and the statutory limit on debt caps this amount. As of March 2019, Treasury has hit this limit. Once Treasury has “maxed out” its borrowing abilities, it then starts juggling incoming cash to meet obligations like Social Security payments or bond payments.

Congress and the President will need to raise the debt limit or risk default on U.S. debt with the resulting downgrade on the creditworthiness of the U.S. This will be a major piece of how and when appropriations and spending caps get decided this year as the last few debt limit increases have incurred various degrees of brinksmanship.

And, of course, Republicans and Democrats remain split on what kind of increase in the spending caps they would like for FY 2020 and 2021. See this post for discussion on the spending caps. The former want more defense and less non-defense funding and the latter want the exact opposite. Additionally, the White House seems particularly dug in on increasing funding for national security programs while cutting virtually all other funding. Incidentally, these are the last two years of the caps on discretionary spending instituted under the Budget Control Act of 2011. It is likely that some on the right will begin calling for an extension of the spending caps to maintain fiscal discipline.

In terms of what’s happened, here it is. The House passed the “Labor, Health and Human Services, Education, Defense, State, Foreign Operations, and Energy and Water Development Appropriations Act, 2020” (H.R. 2470) on June 19 by a 226-203 vote.

The House will soon wrap up consideration of the five-bill package of measures (H.R. 3055) that includes the following FY 2020 appropriations bills:

  • Commerce-Justice-Science;
  • Agriculture, Rural Development, and Food and Drug Administration;
  • Interior and Environment;
  • Military Construction and Veterans Affairs;
  • Transportation and Housing and Urban Development

The House still needs to consider three more bills to finish the initial step of passing bills:

  • FY 2020 Legislative Branch
  • FY 2020 Financial Services and General Government
  • FY 2020 Homeland Security

The House Rules Committee met yesterday to consider a rule for the “Financial Services and General Government Appropriations Act, 2020” (H.R. 3351) and the “Emergency Supplemental Appropriations for Humanitarian Assistance and Security at the Southern Border Act, 2019” (H.R. 3401). However, it is not clear when the House will begin consideration of the FY 2020 Homeland Security and Legislative Branch bills.

Budget Day, Part II

Too bad the budget wasn’t released in February this year, then Groundhog Day jokes would be a natural since the Administration will be released the substance of the budget request today a week after making a splash with its summary and other limited materials. Check here for the Appendix, Analytical Perspectives, Historical Tables, Supplemental materials and other much more precise data on the FY 2020 budget request. Check the departments and agencies websites for their budgets in brief (e.g. the Pentagon’s Comptroller’s site with detailed information.) There’ll be more coming later.