Congressional Budget Office

Testimony

CONGRESSIONAL BUDGET OFFICE

SECOND AND D STREETS, S.W.

WASHINGTON, D.C. 20515

Statement of 

Sarah Jennings 

Chief, Defense, International Affairs, and 

Veterans’ Affairs Cost Estimates Unit

Direct Spending and Defense Programs

before the 

Subcommittee on Military Personnel

Committee on Armed Services

U.S. House of Representatives

March 23, 2010

This document is embargoed until it is delivered at 

9:30 a.m. (EDT) on Tuesday, March 23, 2010. The 

contents may not be published, transmitted, or otherwise 

communicated by any print, broadcast, or electronic 

media before that time.

CBO

Chairwoman Davis, Congressman Wilson, and Members of the Subcommittee, I 

appreciate the invitation to appear before you today to discuss the budgetary treatment of direct spending programs (as well as discretionary spending). My statement is 

based on the Congressional Budget Office’s (CBO’s) understanding of the laws and 

rules used to enforce the budget and the agency’s experience with cost estimates that 

involve direct spending. However, CBO is neither expert in, nor responsible for, the 

procedures for enforcing the Congressional budget resolution and the rules of the 

House of Representatives; that expertise and responsibility lie with the Committee on 

the Budget and the Committee on Rules.

Many policy proposals that would result in additional spending on entitlement 

programs, such as the Military Retirement program, encounter difficulties during the 

legislative process because they would increase direct spending. In contrast, authorizations of discretionary appropriations (for instance, most of the provisions in the 

annual defense authorization act) require future appropriation legislation to implement; they are not subject to the same constraints, nor can they be used to offset additional entitlement spending. In my testimony, I hope to clarify these issues.

Direct Spending

Direct spending is the budget authority provided by laws other than appropriation 

acts and the outlays that result from that budget authority.1 Unlike annual appropriation acts, which generally set specific amounts that can be obligated for each program 

in a particular year, the laws governing direct spending often specify benefit formulas 

and eligibility criteria that determine spending year after year without further action 

by the Congress. Synonymous with mandatory spending, direct spending includes 

expenditures for the three largest entitlement programs: Social Security, Medicare, 

and Medicaid.2 Military Retirement is another mandatory program; therefore, any 

change in spending for that program caused by an authorization bill would affect 

direct spending. Numerous other programs, including many that are not entitlements, are funded through direct spending authority.

For 2010, CBO estimates that total federal spending, under an assumption that current laws and policies remain unchanged, will be about $3.5 trillion (see Table 1). Of 

that amount, about $1.4 trillion (40 percent) will be discretionary spending—that is, 

spending derived from annual appropriation acts. The remaining 60 percent will be 

direct spending for either mandatory programs or interest on the debt held by the 

public.

1. Budget authority is the authority provided by law to incur financial obligations that will result in 

immediate or future outlays of federal government funds. Budget authority may be provided in an 

appropriation act (for discretionary spending) or an authorization act (for direct spending).

2. An entitlement is a legal obligation of the federal government to make payments to a person, group 

of people, business, unit of government, or similar entity that meets the eligibility criteria set in law 

and for which the budget authority is not provided in advance in an appropriation act. Spending 

for entitlement programs is controlled through those programs’ eligibility criteria and benefit or 

payment rules.
2

CBO

Table 1.

CBO’s March 2010 Projections of Spending Under the 

Assumptions for Its Baseline

(Billions of dollars)

Source: Congressional Budget Office.

Direct Spending and Budget Enforcement

Proposed changes to direct spending programs receive special scrutiny under various 

budget enforcement rules. The House has a “pay-as-you go” rule specifying that any 

legislation that would increase direct spending or decrease revenues over certain time 

periods is subject to a point of order unless such costs are offset by other provisions in 

the legislation that decrease direct spending or increase revenues by a corresponding 

amount. In addition, the Congress recently enacted the Statutory Pay-As-You-Go Act 

of 2010, which establishes a procedure (called sequestration) for automatically reducing mandatory spending when legislation, on a cumulative basis, would increase 

direct spending or reduce revenues.3

There can be exceptions to the application of the House pay-as-you-go rule or the 

implications of the new statutory pay-as-you-go process. For example, the Congress 

can designate direct spending as an “emergency requirement,” thereby allowing legislation providing such spending to be considered and enacted without being subject to 

the pay-as-you-go requirements. Those exceptions and procedures for considering 

3. Under the Statutory Pay-As-You-Go Act of 2010 (title I of Public Law 111-139), estimated changes 

in the deficit from direct spending and revenues are recorded on 5-year and 10-year “scorecards” by 

the Office of Management and Budget. If either scorecard reflects a net cost in the budget year at 

the end of a Congressional session, that agency is required to order a sequestration of certain direct 

spending.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mandatory Spending

Social Security 702 728 761 799 837 880 929 984 1,043 1,107 1,174

Medicare 531 574 579 637 711 739 800 836 874 970 1,046

Medicaid 277 263 264 275 291 311 335 360 386 414 444

Other spending 633 686 582 568 565 572 595 604 606 634 647

Offsetting receipts -181 -194 -205 -216 -227 -235 -247 -262 -275 -290 -307 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Subtotal 1,961 2,058 1,982 2,063 2,177 2,267 2,412 2,523 2,633 2,834 3,005

Discretionary Spending

Defense 689 701 695 706 716 730 749 761 773 795 813

Nondefense 677 672 649 639 639 643 652 664 676 689 704 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Subtotal 1,367 1,373 1,344 1,345 1,356 1,372 1,401 1,425 1,449 1,484 1,517

Net Interest 209 238 282 337 399 461 517 572 625 677 728 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____ _____

Total 3,537 3,668 3,608 3,746 3,931 4,100 4,330 4,520 4,707 4,996 5,250

Outlays, by Fiscal Year
3

CBO

legislation in the House (or the Senate) can change from year to year—for example, 

when the House adopts its rules at the beginning of each Congress or pursuant to provisions incorporated in annual budget resolutions. 

Although CBO provides cost estimates for various legislative initiatives and determines whether proposed legislation would result in direct spending, it is the House 

and Senate Budget Committees and the Parliamentarians who interpret and enforce 

the budget rules.

The Budget Process and Spending Allocations

The Congressional budget cycle typically begins each year when the House and Senate Budget Committees formulate and the Congress adopts an annual budget resolution, which establishes a blueprint for federal spending and revenues for the coming 

“budget year” and several subsequent years; the budget resolution for fiscal year 2010 

also covered fiscal years 2011 through 2014. Spending levels specified in the budget 

resolution are divided among the various committees of jurisdiction. For example, all 

discretionary spending assumed in the budget resolution is allocated to the House and 

Senate Committees on Appropriations, while direct spending components, with some 

exceptions, are allocated to authorizing committees. If a committee approves a bill 

that would increase spending above its allocation, it runs the risk that such legislation 

will face procedural hurdles for House and Senate consideration, including being subject to a point of order during floor consideration. 

Most spending related to national defense (totaling about $700 billion in fiscal year 

2010) is discretionary and therefore is allocated annually to the appropriations committees. Spending for mandatory programs related to defense is mostly under the 

jurisdiction of the House and Senate Committees on Armed Services (the HASC and 

the SASC). Such direct spending under the jurisdiction of the HASC totals about 

$136 billion for 20104—equal to the amount in CBO’s March 2009 baseline (which 

assumes that current law for such mandatory programs continues unchanged). The 

amounts used for budget enforcement purposes for fiscal year 2011 will be set by the 

House when it considers a new budget resolution for that year.

Mandatory spending allocated to the HASC is concentrated in several accounts. Over 

half is related to contributions to the Military Retirement Trust Fund and the Department of Defense’s Medicare-Eligible Retiree Health Care Fund (MERHCF), which, 

among other things, funds the TRICARE for Life health care program (see Table 2). 

Those contributions, which CBO estimates will total $73 billion in 2010, are intragovernmental transfers; that is, they are payments from one budget account to 

another. Therefore, for every dollar disbursed from the budget account that shows the 

4. H. Rept. 111-89, Conference Report to Accompany S. Con. Res. 13, Concurrent Resolution on 

the Budget for Fiscal Year 2010, p. 146 (Allocations of Spending Authority to House Committees 

Other Than Appropriations).
4

CBO

Table 2.

Mandatory Spending in CBO’s March 2010 Baseline 

Under the Jurisdiction of the House Committee on 

Armed Services

(Billions of dollars)

Source: Congressional Budget Office.

Note: The figures in this table, based on CBO’s March 2010 baseline, are slightly different from the 

House Armed Services Committee’s allocations in S. Con. Res. 13, the Concurrent Resolution 

on the Budget for Fiscal Year 2010, which was based on CBO’s March 2009 baseline.

a. The Mandatory Trust Fund Contributions represent intragovernmental transfers that are offset 

by receipts recorded in other parts of the federal budget. As a result, those payments have no 

net effect on federal spending

b. The Department of Defense’s Medicare-Eligible Retiree Health Care Fund (MERHCF) includes the 

department’s TRICARE for Life program.

payments to those funds, a dollar of receipts is recorded elsewhere in the federal budget. As a result, those intragovernmental payments have no net effect on federal 

spending. Another $60 billion is for the benefit payments from the Military Retirement Fund and the MERHCF, and about $3 billion is for other programs, which provide for, among other things, the spending of contributions from overseas allies for 

the operation of overseas bases, benefits and compensation for personnel who worked 

in the production and testing of atomic weapons, and education benefits for certain 

reserve personnel.

Options When Legislation Would Affect Direct Spending

When a bill or amendment would increase direct spending (as is often the case with 

proposals that would increase military retirement benefits or health care benefits for 

retirees), the authorizing committee working on such legislation has several avenues 

available to offset those costs. However, each of those options has its own set of 

obstacles.

The authorizing committee proposing an increase in direct spending can find an offset within the direct spending programs under its jurisdiction, but doing so can be 

difficult for a number of reasons. In the case of the HASC, for example, proposals to 

expand payments for concurrent receipt of retirement and disability pay or for survi2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mandatory Trust Fund Contributionsa 76 79 82 84 88 91 94 98 101 105

Benefits Paid from the Military

Retirement Fund 51 52 53 54 55 56 58 59 61 63

Benefits Paid from the MERHCFb 9 9 10 11 12 12 13 14 16 17

Other 3 3 2 2 2 2 2 2 2 2 ____ ____ ____ ____ ____ ____ ____ ____ ____ ____

Total 139 143 147 152 156 162 168 174 180 187

Outlays, by Fiscal Year
5

CBO

vor benefits would often result in direct spending in the billions of dollars over the 

10-year budget window. Although the HASC has about $136 billion in spending for 

2010 under its jurisdiction, it is difficult to find offsets within those funds that will 

not affect other benefits for military retirees. Almost half of the spending in the 

committee’s jurisdiction consists of trust fund contributions, which are intragovernmental transactions; any reductions in them would cause corresponding losses of offsetting receipts and, therefore, would provide no net savings. The accounts providing 

benefit payments from the Military Retirement Fund and the MERHCF are the only 

places under the HASC’s jurisdiction where sizable offsets could be found. Most other 

programs under the committee’s jurisdiction are too small to provide the needed savings or cannot be changed without affecting other benefits (such as benefits for disabled atomic energy workers). 

Another option would be to increase federal revenues through changes in tax policy. 

The difficulty with this option is that the HASC does not have jurisdiction over 

changes to the tax code because such changes are within the purview of the House 

Committee on Ways and Means and the Senate Committee on Finance.

Another possibility would be to increase federal receipts through the sale of federal 

assets. The HASC has frequently used that method to offset direct spending in the 

annual National Defense Authorization Act (NDAA), but identifying such assets can 

be difficult and may not produce receipts in sufficient amounts to offset the cost of 

the desired change in benefits. For instance, section 1412 of the National Defense 

Authorization Act for Fiscal Year 2010 (Public Law 111-84) authorized the sale of 

cobalt currently stockpiled by the Department of Defense; according to CBO’s 

estimates, those sales will produce receipts of about $10 million over the 2010–2011 

period.

During the committee’s consideration of the NDAA, there are often proposals that 

seek to offset increases in direct spending with reductions in discretionary authorizations found elsewhere in the bill. However, such authorizations provide guidelines for 

future appropriation action but do not result in spending by the federal government 

until appropriations are provided in the annual Department of Defense Appropriations Act, a separate piece of legislation. Consequently, reductions to the amounts 

authorized in the NDAA for discretionary appropriations cannot be used to offset 

increases in direct spending proposed in other parts of the bill for the purposes of 

enforcing the Congressional budget resolution or pay-as-you-go procedures. For 

example, reducing the number of warships or fighter aircraft authorized for purchase 

by the NDAA would not result in savings that could be used to offset direct spending 

proposed in the bill, because the funding source of those weapons would be a subsequent appropriation act, not the NDAA.

The options discussed above for offsetting the cost when a bill or amendment would 

increase direct spending represent some of the more common strategies, but other 

options may be available. In addition, authorizing committees sometimes work 

directly with the Committee on Appropriations to identify ways to reallocate existing 
6

CBO

funding or to develop priorities for new funding. As one type of such coordination, 

the committees could identify existing discretionary funding that could be rescinded 

in an authorizing bill in order to cover the cost of some new desired spending. In the 

Congressional budget process, the budgetary impact of such a rescission is credited to 

the committee that takes the action—in this example, the authorizing committee—

even though the affected spending was originally categorized as discretionary.

The House Committee on the Budget is the official scorekeeper for the House of 

Representatives and the entity responsible for enforcement of the Congressional budget resolution within the House. Questions about spending jurisdiction, budget 

enforcement procedures, or options for dealing with legislation that would increase 

direct spending should be addressed to that committee.