Budget Enforcement Procedures : Senate's Pay-As-You-Go (PAYGO) Rule

This report describes the legislative history of the Senate's PAYGO rule, explains its current features, and reviews Senate actions under the rule .

Order Code RL3194 3 Report for Congres s Distributed by Penny Hill Press http :llpennyhill .com Budget Enforcement Procedures : Senate's Pay-As-You-Go (PAYGO) Rul e June 2, 2003 Bill Heniff Jr . Analyst in American National Government Government and Finance Divisio n Congressional Research Service 4* The Library of Congress Budget Enforcement Procedures : Senate's Pay-As-You-Go (PAYGO) Rul e Summar y The Senate's "pay-as-you-go," or PAYGO, rule generally prohibits th e consideration of direct spending and revenue legislation that is projected to increas e (or cause) an on-budget deficit in any one of three time periods : the first year, the firs t 5 years, and the second 5 years, covered by the most recently adopted budge t resolution . Any increase in direct spending or reduction in revenues resulting fro m such legislation must be offset by an equivalent amount of direct spending cuts, ta x increases, or a combination of the two . Without an offset, such legislation woul d require the approval of at least 60 Senators to waive the rule and be considered on th e Senate floor . The Senate's PAYGO rule does not apply to direct spending or revenue s generated under existing law ; it applies only to legislation considered by the Senate . Consequently, direct spending may increase and revenues may decline in any fisca l year due to factors beyond the control of the PAYGO rule . The Senate's PAYGO rule differs from the statutory PAYGO requirement , established by the Budget Enforcement Act of 1990, in that it is enforced by a poin t of order during consideration of legislation instead of by sequestration after legislation is enacted into law. In addition, the Senate's PAYGO rule has a 10-yea r time frame whereas the statutory PAYGO requirement covers, through FY2006, th e effects of legislation enacted before the end of FY2002 . The Senate's PAYGO rule originated in a budget resolution in 1993 and ha s been modified and extended four times in subsequent budget resolutions over the years . Most recently, the Senate modified and extended the rule through Septembe r 30, 2008, by agreeing to the FY2004 budget resolution (H .Con .Res. 95) . Under the Senate's PAYGO rule in its current form, the spending and revenue policy change s assumed in the FY2004 budget resolution are exempt from the rule's provisions . Beginning in 1993, six points of order under the Senate's PAYGO rule hav e been raised against an entire bill or an amendment . Of these six points of order, four were sustained and two fell upon the adoption of a waiver motion . This report will be updated as developments warrant . Content s Introduction Legislative History of the Senate's PAYGO Rule Current Features of the Senate's PAYGO Rule Points of Order and Waiver Motions Under the Senate's PAYGO Rule Appendix A . Text of the Senate' s Pay-As-You-Go (PAYGO) Rule 1 2 4 5 8 List of Table s Table 1 . Actions Under the Senate's PAYGO Rule, Calendar Year s 1993-2002 7 Budget Enforcement Procedures : Senate's Pay-As-You-Go (PAYGO) Rul e Introductio n The Senate's "pay-as-you-go," or PAYGO, rule generally prohibits th e consideration of direct spending and revenue legislation that is projected to increas e (or cause) an on-budget deficit over a 10-year period .' Any increase in direc t spending or reduction in revenues resulting from such legislation must be offset b y an equivalent amount of direct spending cuts, tax increases, or a combination of th e two . Without an offset, such legislation would require the approval of at least 6 0 Senators to waive the rule and be considered on the Senate floor . Direct spending is provided in substantive law, and funds such mandatory items as Medicare, unemployment compensation, and retirement programs . It is distinguished from discretionary spending, which is controlled through the annua l appropriations process . The Senate's PAYGO rule does not apply to direct spending or revenue s generated under existing law ; it applies only to legislation considered by the Senate . Consequently, direct spending may increase and revenues may decline in any fisca l year due to factors beyond the control of the PAYGO rule . A statutory PAYGO requirement, as well as limits on discretionary spending , was established by the Budget Enforcement Act of 1990 (BEA, Title XIII of P .L. 101-508, the Omnibus Budget Reconciliation Act of 1990) and has been extende d twice, in 1993 and 1997 . 2 Under the statutory PAYGO requirement, the net effec t of new direct spending and revenue legislation enacted for a fiscal year may not caus e a positive balance (reflecting an increase in the on-budget deficit or a reduction in th e on-budget surplus) on a multiyear PAYGO "scorecard ." For each fiscal year, this scorecard maintains the balances of the accumulated budgetary effects of law s enacted during the session and prior'years . The statutory PAYGO requirement is ' The on-budget deficit excludes the Social Security trust fund surpluses and the net cash flow of the U .S . Postal Service . 2 The BEA amended the Balanced Budget and Emergency Deficit Control Act (Title II o f P.L . 99-177), commonly known as the Gramm-Rudman-Hollings Act . The 1993 and 1.997 extensions were included in Title XIV of the Omnibus Budget Reconciliation Act of 199 . 3 (P.L. 103-66) and the Budget Enforcement Act of 1997 (Title X of P .L. 105-33) , respectively . CRS- 2 enforced by sequestration, which involves automatic, largely across-the-boar d spending cuts in non-exempt programs .3 The Senate's PAYGO rule differs from the statutory PAYGO requirement i n that it is enforced by a point of order during consideration of legislation instead of b y sequestration after legislation is enacted into law . In addition, the Senate's PAYGO rule has a 10-year time frame whereas the statutory PAYGO requirement covers , through FY2006, the effects of legislation enacted before the end of FY2002 . 4 The Senate's PAYGO rule, like many other budget enforcement procedures , expired on September 30, 2002 . 5 On October 16, however, the Senate agreed t o restore and extend the PAYGO point of order through April 15, 2003 . Subsequently, prior to its expiration, the Senate agreed to extend the rule through September 30, 2008 . This report describes the legislative history of the Senate's PAYGO rule, explains its current features, and reviews Senate actions under the rule . Legislative History of the Senate's PAYGO Rul e The Senate's PAYGO rule originated in a budget resolution in 1993 and ha s been modified and extended in subsequent budget resolutions over the years .6 3 For further information on the statutory PAYGO requirement, see CRS Report 98-721 , Introduction to the Federal Budget Process, by Robert Keith and Allen Schick ; and CRS Report RL31194, Pay-As-You-Go Requirement for FY2002 : A Procedural Assessment, by Robert Keith . 4 At the end of the 107 `x' Congress, the House and Senate passed and President Bush signed legislation (P.L. 107-312, 116 Stat . 2456) that removed the positive balances on the PAYG O scorecard through FY2006, thereby preventing any future PAYGO sequestration unless th e budget enforcement mechanism is restored . For further information, see CRS Report RS21378, Termination of the "Pay-As-You-Go" (PAYGO) Requirement for FY2003 an d Later Years, by Robert Keith . 5 The statutory limits on discretionary spending and the statutory PAYGO requirement fo r direct spending and revenue-legislation, first established by the BEA, expired on Sept . 30, 2002, as well. For additional information on the extension of these budget enforcemen t mechanisms, see the applicable section in CRS Report RL31478, Federal Budget Process Reform: Analysis of Five Reform Issues, by James V . Saturno and Bill Heniff Jr . In addition, the three-fifths vote requirements in the Senate to waive certain points of orde r under the Congressional Budget Act of 1974 (CBA, Titles 1-IX of P .L, 93-344), as amended , and to sustain an appeal of a ruling of the chair on a point of order under the CBA, expired on Sept . 30, 2002 . These supermajority waiver requirements, however, were restored an d extended in 2002 through Apr . 15, 2003, and again in 2003 through Sept . 30, 2008, along with the Senate PAYGO point of order . Such procedural provisions may be included in a budget resolution under the authorit y provided by Sec . 301(b)(4), the so-called "elastic clause," of the CBA . This section gives Congress the option to include in a budget resolution other matters and procedure s consistent with the purposes of the Budget Act . CRS-3 Tn 1993, the Senate created the PAYGO rule as a provision in the FY1994 budget resolution (H .Con .Res . 64) for the purpose of preventing the deficit reductio n expected to be achieved in a subsequent reconciliation bill from being used to offset the costs of any new direct spending or revenue legislation.? Section 12(c) of H.Con .Res. 64 prohibited the consideration of any direct spending and revenue legislation that would increase the deficit in the FY1994 budget resolution for an y fiscal year through FY1998 or would increase the deficit for any other fiscal yea r through FY2003 . In this initial form, the Senate's PAYGO rule had no expiration date. The Senate has modified and extended its PAYGO rule four times in subsequen t budget resolutions. First, Section 23 of H .Con.Res. 218, the FY1995 budge t resolution, modified the PAYGO rule to require direct spending and revenu e legislation to be deficit neutral for any one of the three time periods contained in th e current PAYGO rule (explained below) and added an expiration date of Septembe r 30, 1998 . Second, Section 202 of H .Con .Res. 67, the FY1996 budget resolution , restated the existing PAYGO rule language and extended its expiration date t o September 30, 2002 . Third, Section 207 of H .Con.Res. 68, the FY2000 budge t resolution, modified the PAYGO rule to allow on-budget surpluses to be used t o offset tax reductions or spending increases . After decades of on-budget deficits, th e federal government recorded a small on-budget surplus for FY 1999 and an on-budge t surplus of $87 billion for FY2000. Lastly, Section 505 of H .Con .Res. 95, th e FY2004 budget resolution, modified and extended the rule through September 30 , 2008, as explained further below . During the 107'" Congress, several attempts were made on the Senate floor t o extend the PAYGO rule before it was scheduled to expire on September 30, 2002 . On June 5, 2002, Senators Judd Gregg and Russell Feingold offered an amendmen t (S.Amdt. 3687) that would have extended expiring budget enforcement procedures , including the Senate's PAYGO rule, to H .R . 4775, the Supplemental Appropriation s Act, 2002 . The amendment fell on a point of order.8 The next day, June 6, Senate Majority Leader Tom Daschle offered an amendment (S .Amdt. 3764) that woul d have extended the Senate's PAYGO rule, among other budget enforcemen t procedures, through FY2007 to H .R. 4775, but that amendment also fell on a poin t 7 See U .S. Congress, Conference Committee, FY1994 Budget Resolution, conference report to accompany H.Con .Res. 64, 103 rd Cong ., 1s' sess ., (Washington : GPO, 1993), p . 47 . The reconciliation bill enacted later that session, P.L. 103-66 (the Omnibus Budget Reconciliation Act of 1993), was estimated at the time as reducing the deficit by about $50 0 billion over FY1994-FY1998 . The amendment was subject to a point of order under Sec . 306 of the CBA, whic h prohibits consideration of any measure within the jurisdiction of the Budget Committe e unless it is reported by the Budget Committee, is discharged from the committee, or is a n amendment to such a measure. A motion to waive the point of order requires a three-fifth s vote in the Senate . A motion to waive the point of order raised against the amendment wa s rejected by a 49-49 vote. See Congressional Record, daily edition, vol . 148 (June 5, 2002) , pp. S5004-S5015 . CRS-4 of order. Another attempt was made on June 20, 2002, during consideration of S . 2514, the Defense Authorization Act for FY2003 . Senator Feingold offered an amendment (S .Amdt . 3915), which was modified by an amendment (S .Amdt . 3916 ) offered by Senators Harry Reid and Kent Conrad, that also would have extended th e expiration date of the Senate's PAYGO rule, among other things, through FY2007 . This amendment also fell on a point of order . 10 On October 16, 2002, the Senate restored and extended the PAYGO point o f order through April 15, 2003 .' 1 The Senate agreed by unanimous consent to S .Res. 304, as amended by the modified amendment offered by Senators Conrad, Pet e Domenici, .Gregg, and Feingold (S .Amdt. 4886).12 During the 108 t1i Congress and prior to the expiration of the PAYGO point o f order on April 15, the Senate extended the rule through September 30, 2008, b y agreeing to the conference report on the FY2004 budget resolution (H .Con .Res. 95 , H.Rept. 108-71) . 13 On April 11, 2003, the Senate agreed to the conference report o n H.Con .Res . 95 by a 51-50 vote . Section 505 of the FY2004 budget resolutio n contains the current language of the Senate's PAYGO point of order, which i s explained in the next section . Current Features of the Senate's PAYGO Rul e The Senate's PAYGO rule prohibits the consideration of direct spending o r revenue legislation that would increase or cause an on-budget deficit in any one o f three time periods : the first year, the first 5 years, and the second 5 years, covered b y the most recently adopted budget resolution . However, under the rule in its curren t form, legislation implementing the direct spending or revenue policy change s assumed in the FY2004 budget resolution is exempt from the rule, even though i t 9 On June 6, 2002, cloture was invoked on H.R. 4775 . Under cloture, a point of order may be raised against nongermane amendments . The chair ruled that Senator Daschle' s amendment was not germane to the FY2002 supplemental appropriations act, and th e amendment fell . See Congressional Record, daily edition, vol . 148 (June 5, 2002), pp . S5015-55018 ; and Congressional Record, daily edition, vol . 148 (June 6, 2002), pp . S5114S5120 . 10 The amendment was subject to a point of order under Section 306 of the CBA. A motion to waive the point of order raised against the amendment was rejected by a 59-40 vote . Se e Congressional Record, daily edition, vol . 148 (June 19, 2002), pp . S5762-S5767 ; and Congressional Record, daily edition, vol . 148 (June 20, 2002), pp . S5808-S5821 . ' 1 Under the Congressional Budget Act, Apr . 15 is the target date for Congress to complet e action on the annual budget resolution . '2 See Congressional Record, daily edition, vol . 148 (Oct . 16, 2002), pp . 510527-51053 1 and S 10553. The legislation also restored and extended through April 15, 2003, the three fifths vote requirement for certain waivers of the Congressional Budget Act of 1974. 10 Like the temporary extension agreed to in 2002, the FY2004 budget resolution als o contained an extension through Sept . 30, 2008, of the three-fifths vote requirement for certain waivers of the Congressional Budget Act of 1974 . CRS-5 might be projected to increase or cause an on-budget deficit.14 For example, legislation consistent with the reconciliation instructions contained in Title II o f H.Con .Res. 95 would not violate the rule . A motion to waive the PAYGO rule, or to sustain an appeal of the ruling of the chair on a point of order raised under the rule, requires an affirmative vote of three fifths of the membership, duly chosen and sworn (i .e., 60 Senators if no seats are vacant) . The full text of the Senate's PAYGO rule in its current form is provided i n Appendix A . As noted above, under the recent extension, the current rule i s scheduled to expire on September 30, 2008 . Points of Order and Waiver Motions Under the Senate's PAYGO Rul e Beginning in 1993, six points of order have been raised under the Senate' s PAYGO rule (see Table 1) . Of these six points of order, two were raised agains t entire bills and the remaining four were raised against amendments . The two points of order against entire bills fell upon the adoption of a waiver motion, thus allowin g consideration of the bills to proceed . All four points of order against amendments were sustained and thus the amendments fell . A total of seven waiver motions under the PAYGO rule have been made i n relation to the six points of order . Two waiver motions were successful, while five were rejected . Two separate waiver motions were made relating to the point of orde r raised against H .R. 3167 (103`d Congress) . As indicated in Table 1, the first waiver was rejected on a 59-38 vote on October 26, 1993 . The next day, however, th e Senate agreed to a motion to reconsider the vote on this waiver motion by voice vote . The Senate, subsequently, approved the waiver motion by a 61-39 vote, and the poin t of order against H .R . 3167 fell . Like any other Senate rule, the Senate's PAYGO rule is not self-enforcing . A Senator must raise a point of order under the rule in order to prevent th e consideration of legislation that violates the rule . During the period the rule has bee n in effect, the Senate has at times considered legislation significantly increasing direc t spending or decreasing revenues without interference from the Senate's PAYG O rule, either because a point of order was not raised or, following the change in th e FY2002 budget resolution, because the legislation fit within the available on-budget surpluses . In the past 2 years especially, such legislation has incurred sizeabl e 14 The joint explanatory statement of the committee of conference on the FY2004 budget resolution indicates that the budget resolution assumes direct spending increases an d revenue reductions totaling $1,755 .957 billion over the period FY2003-FY2013 . See U.S . Congress, Committee on Conference, Concurrent Resolution on the Budget-Fiscal Yea r 2004, conference report to accompany H.Con.Res. 95, 108`x' Cong .,1s` sess., H.Rept. 108-7 1 (Washington : GPO, 2003), pp . 122-123 . CRS-6 balances on the statutory PAYGO scorecard, but PAYGO sequesters have bee n averted by directed scoring . ' 15 See CRS Report RL31155, Techniques for Preventing a Budget Sequester, by Rober t Keith . CRS-7 Table 1 . Actions Under the Senate's PAYGO Rule, Calendar Years 1993-200 2 Date t}hject of Point of Order Disposition o f Point of Orde r `Waiver 11 lotion 10/26/1993 Emergency Unemployment Compensation (H .R. 3167) To extend the emergency unemployment compensation program, and to establish a system of worker profiling . Rejected, 59-38 Fell on reconsidered vote on waiver motio n (see next item) 10/27/1993 Emergency Unemployment Compensation (H .R. 3167) To extend the emergency unemployment compensation program, and to establish a syste m of worker profiling . Approved, 61-39 Fell 10127/1993 Emergency Unemployment Compensation (H .R. 3167)Bumpers modified amendment no . 1084, to repeal the retroactive income, estate, and gift tax increase and compensate for the lost revenue by terminating the Space Station program . Rejected, 36-61 Sustaine d 12/01/1994 GATT (H.R. 5110)To approve and implement the trade agreements concluded in the Uruguay Round o f multilateral trade negotiations . Approved, 68-32 Fell 09/11/1996 Treasury/Postal Service Appropriations, 1997 (H .R. 3756) Wyden-Kennedy amendment no . 5206 (to committee amendment beginning on page 16 , line 16, through page 17, line 2), to prohibit the restriction of certain types of medica l communications between a health care provider and a patient . Rejected, 51-48 Sustained 05/07/1998 IRS Reform (H .R. 2676)Coverdell amendment no . 2353, to prohibit the use of random audits . Rejected, 37-60 Sustained 07/28/1998 Treasury/Postal Service Appropriations, 1999 (S . 2312) Hutchinson amendment no . 3249, to terminate the Internal Revenue Code of 1986 . Rejected, 49-49 Sustained Source : Congressional Record, especially the Daily Digest section, various years, searched through the Legislative Information System [http ://www .congress .gov] . CRS- 8 Appendix A . Text of the Senate's Pay-As-You-Go (PAYGO) Rul e (Section 505 of H .Con.Res. 95, Budget Resolution for FY2004 ) SEC. 505 . PAY-AS-YOU-GO POINT OF ORDER IN THE SENATE . (a) POINT OF ORDER (1) IN GENERAL .-It shall not be in order in the Senate to consider an y direct spending or revenue legislation that would increase the on-budget defici t or cause an on-budget deficit for any one of the three applicable time periods as measured in paragraphs (5) and (6) . (2) APPLICABLE TIME PERIODS .-For purposes of this subsection, th e term "applicable time period" means any 1 of the 3 following periods : (A) The first year covered by the most recently adopted concurrent resolution on the budget . (B) The period of the first 5 fiscal years covered by the most recentl y adopted concurrent resolution on the budget . (C) The period of the 5 fiscal years following the first 5 fiscal years covered in the most recently adopted concurrent resolution on the budget . (3) DIRECT-SPENDING LEGISLATION .-For purposes of this subsection and except as provided in paragraph (4), the term "direct-spendin g legislation" means any bill, joint resolution, amendment, motion, or conferenc e report that affects direct spending as that term is defined by, and interpreted fo r purposes of, the Balanced Budget and Emergency Deficit Control Act of 1985 . (4) EXCLUSION .-For purposes of this subsection, the terms "direct spending legislation" and "revenue legislation" do not include(A) any concurrent resolution on the budget ; or (B) any provision of legislation that affects the full funding of, and continuation of, the deposit insurance guarantee commitment in effect o n the date of enactment of the Budget Enforcement Act of 1990 . (5) BASELINE.-Estimates prepared pursuant to this section shall (A) use the baseline surplus or deficit used for the most recentl y adopted concurrent resolution on the budget as adjusted for any change s in revenues or direct spending assumed by such resolution ; and CRS- 9 (B) be calculated under the requirements of subsections (b) throug h (d) of section 257 of the Balanced Budget and Emergency Deficit Contro l Act of 1985 for fiscal years beyond those covered by that concurren t resolution on the budget. (6) PRIOR SURPLUS .-If direct spending or revenue legislation increase s the on-budget deficit or causes an on-budget deficit when taken individually, i t must also increase the on-budget deficit or cause an on-budget deficit whe n taken together with all direct spending and revenue legislation enacted since th e beginning of the calendar year not accounted for in the baseline under paragraph (5)(A), except that direct spending or revenue effects resulting in net defici t reduction enacted pursuant to reconciliation instructions since the beginning o f that same calendar year shall not be available . (b) WAIVER-This section may be waived or suspended in the Senate only by the affirmative vote of three-fifths of the Members, duly chosen and sworn . (c) APPEALS .-Appeals in the Senate from the decisions of the Chair relatin g to any provision of this section shall be limited to 1 hour, to be equally divide d between, and controlled by, the appellant and the manager of the bill or join t resolution, as the case may be . An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of th e ruling of the Chair on a point of order raised under this section . (d)DETERMINATION OF BUDGET LEVELS .-For purposes of this section, the levels of new budget authority, outlays, and revenues for a fiscal year shall b e determined on the basis of estimates made by the Committee on the Budget of th e Senate. (e) SUNSET .-This section shall expire on September 30, 2008 .