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Thursday, August 26, 2010

OMB Controls on Agency Mandatory Spending Programs: “Administrative PAYGO” and Related Issues for Congress

Clinton T. Brass
Analyst in Government Organization and Management

Jim Monke
Specialist in Agricultural Policy

On May 23, 2005, during President George W. Bush's second term, then-Office of Management and Budget (OMB) Director Joshua B. Bolten issued a memorandum to the heads of agencies. The memorandum announced that OMB would involve itself systematically in some aspects of how agencies execute laws related to mandatory spending. Under the process outlined in the OMB memorandum, if an agency wished to use discretion under current law in a way that would "increase mandatory spending," the memorandum required the agency to propose the action to OMB. Such actions might include regulations, demonstration program notices, and other forms of program guidance. For purposes of OMB's process, an increase was defined as spending more than the amount that the Administration assumed in its most recent projection of what is required under current law to fund the mandatory spending program. To offset such a difference in spending, the memorandum also required the agency to propose actions that would "comparably reduce" mandatory spending. The memorandum did not address, however, whether agencies' administrative actions and corresponding spending changes would be consistent with congressional intent or expectations, or whether agencies' proposals and OMB's decisions would be transparent to Congress and the public. 

For the most part, mandatory spending programs are provided for in substantive laws under the jurisdiction of House and Senate authorizing committees. The Administration characterized the OMB review process as "augmenting its ... controls" on agency decisions. It also referred to the process as "administrative PAYGO." In using the term "PAYGO," the Administration juxtaposed this OMB involvement in agency decision making with a statutory and comparatively transparent mechanism that Congress has used when carrying out its legislative function. 

In 2009, the Barack Obama Administration said it would continue the OMB memorandum's process. After several years of implementation, however, very little is publicly known about the scope and effect of OMB's process, the rationales for OMB determinations, or whether the process has achieved its stated purpose of constraining mandatory spending. In one case, concerning a program in the U.S. Department of Agriculture, some details about OMB's process were disclosed publicly in June 2010. The disclosure prompted congressional concerns about the relationships between congressional intent, agency policy implementation, and the role of OMB. Even though OMB's process is not transparent, it is possible to analyze some of the memorandum's other potential implications, if its process were used. While potentially limiting spending, the OMB process may have measurable effects on program outcomes for entitlement programs, for example, and may impose administrative burdens on federal agencies. Moreover, if agencies experience difficulty in identifying plausible offsets, it is conceivable that agencies may choose to not consider, pursue, or submit to OMB an administrative action that would cost money, regardless of the agency's perception of a policy's merits or whether it would be consistent with congressional intent. Differences may arise between OMB and CBO baselines of projected federal spending. 

In approaching the subject of OMB controls on agency mandatory spending, Congress might assess at least five general options. First, if Congress sees no need to engage in lawmaking or oversight of the process, it might continue with the status quo. Second, if Congress wished to learn more about the process, Congress could conduct oversight. If Congress wished to address the topic prospectively through lawmaking, Congress might consider three other options: increasing transparency of OMB's process, legislating in greater detail, or modifying how OMB's process operates.

Date of Report: August 19, 2010
Number of Pages: 34
Order Number: R41375
Price: $29.95

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