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. |