Introduction

The Congressional Budget Office (CBO) was created by the Congressional Budget and Impoundment Control Act of 1974. It began operating on February 24, 1975, with the appointment of its first Director, Alice M. Rivlin. CBO's mission is to provide the Congress with the objective, timely, nonpartisan analyses needed for economic and budget decisions and with the information and estimates required for the Congressional budget process. Compared with the missions of the Congress's other support agencies--the Congressional Research Service and the General Accounting Office--CBO's mandate is relatively narrow. But its subject matter gives it a broad reach, reflecting the wide array of activities that the federal budget covers and the major role the budget plays in the U.S. economy.

A substantial part of what CBO does is to support the work of the House and Senate Committees on the Budget, which were also created by the 1974 Congressional Budget Act. Those committees are in charge of the process, spelled out in the act, by which the Congress sets its own targets for the federal budget, including the overall levels of revenues and spending, the surplus or deficit that results, and the distribution of federal spending by broad functional categories. Each spring the Congress adopts the end result of that process, the Congressional budget plan, in the form of a concurrent resolution. The resolution imposes an overall framework and discipline on the way appropriations, other spending measures, and tax legislation are passed.

The policies and principles that have shaped the Congressional Budget Office since its inception are a key factor in its effectiveness. CBO is a professional, nonpartisan staff office; it does not make recommendations on policy. That nonpartisan stance has been instrumental in preserving the agency's reputation for professionalism and has enhanced the credibility of its products. CBO prepares independent analyses and estimates relating to the budget and the economy and presents options and alternatives for the Congress to consider. It routinely discloses the assumptions and methods it uses, which enhances the general perception of its products as objective and impartial.

Some of CBO's activities are statutory tasks; others are carried out at the request of Congressional committees. According to the Budget Act, CBO must give priority first to requests for services from the House and Senate Budget Committees; second, to requests from the two appropriations committees, the House Committee on Ways and Means, and the Senate Committee on Finance; and finally, to requests from all other Congressional committees. CBO prepares various types of analyses for the Congress, including cost estimates for bills that individual Members have introduced or plan to introduce. But committee requests always take priority. CBO handles requests from individual Members only to the extent that its resources permit.

CBO's services can be grouped in four categories: helping the Congress formulate a budget plan, helping it stay within that plan, helping it assess the impact of federal mandates, and helping it consider issues related to the budget and to economic policy.

Helping the Congress Develop a Plan for the Budget

The House and Senate Budget Committees prepare the annual Congressional budget plan, drawing on the views and estimates of the other committees. A major part of CBO's role in that process is to prepare an annual report that provides economic and budget projections for the next 10 years. Typically, that report also includes a discussion of some current economic or budget policy issue, such as recent changes in the budget process. CBO customarily updates its economic and budget projections in midyear.

Economic Forecasts and Projections. CBO is the only part of the legislative branch whose mandate includes making economic forecasts and projections. Its forecasts cover 18 to 24 months and involve the major economic variables--gross domestic product (GDP), unemployment, inflation, and interest rates. CBO does not attempt to forecast cyclical fluctuations in the economy more than two years ahead; instead, its longer-term projections are based on trends in the labor force, productivity, and saving.

CBO draws the information for its forecasts from the major econometric models and commercial economic forecasting services. It also relies on the advice of a distinguished panel of advisers that meets twice a year (for a list of those advisers, see CBO's Panel of Economic Advisers). Usually, CBO's forecasts are fairly close to the consensus of private forecasters. CBO regularly publishes an evaluation of its economic forecasting record.

Baseline Budget Projections. The purpose of CBO's budget projections is to give the Congress a baseline for measuring the effects of proposed changes in tax and spending laws. The projections start with the Congress's most recent budgetary decisions and show what would happen to the federal budget if no new policy decisions were made over the projection period. The budget committees use the projections to develop their annual budget resolutions and directives to other committees. CBO uses them to produce cost estimates for proposed legislation and in scorekeeping tabulations.

For revenues and entitlement programs, such as Social Security or Medicare, the baseline projections generally assume that current laws will continue without change. For discretionary spending, which is controlled by annual appropriation bills, CBO bases its projections on the most recent appropriations and the statutory limits on future appropriations. For fiscal years 1998 through 2002, the Balanced Budget Act of 1997 set limits on discretionary spending, extending the limits first put in place by the Budget Enforcement Act of 1990.

Analysis of the President's Budget and Other Assistance. Each year, at the request of the Senate Committee on Appropriations, CBO analyzes the President's budget to see how its revenue and spending proposals would affect CBO's baseline budget projections. In the analysis, CBO uses its own economic assumptions and estimating techniques to recast the budget the President has proposed and submitted to the Congress. In addition, as the Congress moves toward adopting its annual budget resolution, CBO helps the budget and other committees estimate the effects of alternative budget plans. Frequently, the office is asked to testify before Congressional committees about the outlook for the economy and the budget and about other matters related to developing the annual budget plan.

Long-Term Budgetary Pressures and Policy Options. The 10-year time frame CBO uses for preparing budget projections is not sufficient to show the dramatic effects that the projected demographic changes in the U.S. population over the next three decades will have on the federal budget. The upcoming retirement of the large baby-boom generation and the continuing growth of per-enrollee health care costs will place growing pressure on the budget, largely because they will increase spending on Social Security, Medicare, and other programs that serve the elderly. Since 1996, CBO has prepared several reports on the long-term budgetary outlook and on some of the policy options for controlling the growth of spending in those programs.

Helping the Congress Stay Within Its Budget Plan

Once the Congress adopts the annual budget resolution, the budget committees take the lead in enforcing its provisions. To help them, CBO supplies estimates of the budgetary impact of bills reported by the different committees and up-to-date tabulations (referred to as scorekeeping) of the status of Congressional actions on legislation that affects the budget. CBO also prepares a series of sequestration reports that advise the Congress and the Administration on two matters: whether the appropriation limits on discretionary spending have been exceeded, and whether the enactment of any legislation that affects direct spending or receipts has increased the projected deficit or reduced the projected surplus.

Cost Estimates for Bills. CBO is required to develop a cost estimate for virtually every bill reported by a Congressional committee to show how it would affect spending or revenues over the next five years or more. For most tax legislation, CBO uses estimates provided by the Joint Committee on Taxation, a separate Congressional analytic group that works closely with the two tax-writing committees. CBO also prepares cost estimates for use in drafting bills (especially in the early stages), formulating floor amendments, and working out the final form of legislation in conference committees. To the extent that its resources permit, CBO estimates the cost of bills at the request of individual Members. In the past, where appropriate, CBO's estimates contained the projected costs to state and local governments of carrying out the proposed legislation. In March 1995, enactment of the Unfunded Mandates Reform Act greatly expanded CBO's responsibilities in that area (see below).

CBO's cost estimates have become an integral part of the legislative process, and committees increasingly refer to them at every stage of drafting bills. The estimates may also have an impact on the final outcome of legislation because they are used to determine whether committees are complying with the annual budget resolutions and reconciliation instructions.

Another CBO responsibility is providing estimates to the appropriations committees of the Congress. The numbers contained in appropriation bills usually represent budget authority, and the resulting outlays must be estimated. (Outlays are generally checks issued by the Treasury or cash-equivalent transactions that are used to calculate the budget surplus or deficit.) CBO's estimates may be critical in determining whether a bill complies with allocations in the annual budget resolution and with statutory limits on discretionary appropriations.

Scorekeeping. One of CBO's most important functions is to keep track of all spending and revenue legislation considered each year so the Congress can know whether it is acting within the limits set by the annual budget resolution. CBO provides the budget and appropriations committees with frequent tabulations of Congressional action on both spending and revenue bills--although the bulk of CBO's scorekeeping involves spending legislation. The scorekeeping system keeps track of all bills that affect the budget from the time they are reported out of committee to the time they are enacted into law.

Sequestration Reports. Each year, CBO prepares three sequestration reports as part of the procedure specified by the Budget Enforcement Act--and extended by the Balanced Budget Act of 1997--for enforcing the 1990, 1993, and 1997 budget agreements between the Congress and the Administration. Those reports are advisory and serve only as a benchmark for judging the accuracy of similar sequestration calculations by the Office of Management and Budget (OMB). Under the law, OMB can trigger the cancellation of budgetary resources in two circumstances: when the limits on discretionary appropriations are breached, or when direct-spending or receipt legislation increases the deficit.

In addition to the sequestration reports, the Budget Enforcement Act requires CBO to notify the Congress whenever it or OMB projects a recession in the next year (defined as two consecutive quarters with real economic growth of less than zero) or whenever the Department of Commerce reports two consecutive quarters with real economic growth of less than 1 percent. If the President concurs, the Congress can then elect to set aside the statutory limits on appropriations and other budget enforcement procedures.

Helping the Congress Assess Federal Mandates

To better assess the impact of its laws on state, local, and tribal governments and the private sector, the Congress passed the Unfunded Mandates Reform Act of 1995. The act amends the Congressional Budget Act to require CBO to give authorizing committees a statement about whether reported bills contain federal mandates. If the five-year direct costs of an intergovernmental or private-sector mandate exceed specified thresholds, CBO must provide an estimate of those costs (if feasible) and the basis of the estimate.

CBO's statement must also include an assessment of what funding is authorized in the bill to cover the costs of the mandates and, for intergovernmental mandates, an estimate of the appropriations needed to fund such authorizations for up to 10 years after the mandate is effective. When requested, CBO is also required to assist committees by preparing studies of legislative proposals containing federal mandates. The law took effect January 1, 1996.

Helping the Congress Consider Budget and Economic Policy Issues

CBO's responsibilities also entail analyzing specific program and policy issues that affect the federal budget and the economy. For the most part, requests for those analyses come from the Chairman or Ranking Minority Member of a full committee or subcommittee. The leadership of either party in the House or Senate may also request a CBO analysis.

The analyses cover a variety of federal activities, examining current policies, suggesting other approaches, and projecting how the alternatives would affect current programs, the federal budget, and the economy. In keeping with its nonpartisan mandate, CBO does not offer recommendations on policy in those reports.

Some of the analyses take nine to 12 months, or sometimes longer, to complete. Other analyses may be conducted in a much shorter time frame, usually appearing as papers or memorandums. Many CBO reports have helped shape public discussion of the issues they address, not only on Capitol Hill but in the nation at large. A list of CBO's recent publications shows the broad range of their subject matter.