II

104TH CONGRESS

2D SESSION S. 2170

To establish spending limits for entitlement programs and other mandatory

spending programs, and for other purposes.

IN THE SENATE OF THE UNITED STATES

SEPTEMBER 30, 1996

Mrs. KASSEBAUM introduced the following bill; which was read twice and referred jointly pursuant to the order of August 4, 1977, to the Committees

on the Budget and Governmental Affairs, with instructions that if one

committee reports, the other committee have thirty days to report or be

discharged

A BILL

To establish spending limits for entitlement programs and

other mandatory spending programs, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Save Our Savings Act of 1996’’.

6 (b) TABLE OF CONTENTS.—

Sec. 1. Short title and table of contents.

TITLE I—CAP ENTITLEMENTS AND OTHER MANDATORY

SPENDING

Sec. 101. Definitions.
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Sec. 102. Timetable.

Sec. 103. Direct spending caps.

Sec. 104. Economic assumptions.

Sec. 105. Revisions to the caps for entitlement and other mandatory spending.

TITLE II—ENFORCEMENT PROVISIONS

Sec. 201. Enforcing direct spending caps.

Sec. 202. Reporting excess spending.

Sec. 203. Enforcing direct spending limits.

Sec. 204. Exempt programs and activities.

Sec. 205. Special rules.

Sec. 206. Current law baseline.

1 TITLE I—CAP ENTITLEMENTS AND OTHER

2 MANDATORY SPENDING

3 SEC. 101. DEFINITIONS.

4 For purposes of this Act:

5 (1) The term ‘‘eligible population’’ shall mean

6 those individuals to whom the United States is obli7 gated to make a payment under the provisions of a

8 law creating entitlement authority. Such term shall

9 not include States, localities, corporations, or other

10 non-living entities, except that corporate farms may

11 be part of the ‘‘eligible population’’ for programs ad12 ministered by the Commodity Credit Corporation.

13 (2) The term ‘‘sequester’’ and ‘‘sequestration’’

14 refer to or mean the cancellation of budgetary re15 sources provided by discretionary appropriations or

16 direct spending law.

17 (3) The term ‘‘breach’’ means, for any fiscal

18 year, the amount (if any) by which outlays for that
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1 year (within a category of direct spending) is above

2 that category’s direct spending cap for that year.

3 (4) The term ‘‘baseline’’ means the projection

4 (described in section 206 of this Act) of current lev5 els of new budget authority, outlays, receipts, and

6 the surplus or deficit into the budget year and the

7 outyears.

8 (5) The term ‘‘budgetary resources’’ means new

9 budget authority; unobligated balances; direct spend10 ing authority; and obligation limitations.

11 (6) The term ‘‘discretionary appropriations’’

12 means budgetary resources (except to fund direct

13 spending programs) provided in appropriations Acts.

14 If an appropriations Act alters the level of direct

15 spending or offsetting collections, that effect shall be

16 treated as discretionary spending. Classifications of

17 new accounts or activities and changes in classifica18 tions shall be made in consultation with the Commit19 tees on Appropriations and the Budget of the House

20 of Representatives and the Senate and with the Con21 gressional Budget Office.

22 (7) The term ‘‘direct spending’’ means—

23 (A) budget authority provided by law other

24 than appropriations Acts, including entitlement

25 authority; and
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1 (B) the food stamp program.

2 If a law other than an appropriations Act alters the

3 level of discretionary appropriations or offsetting col4 lections, that effect shall be treated as direct spend5 ing.

6 (8) The term ‘‘entitlement authority’’ means

7 authority (whether temporary or permanent) to

8 make payments (including loans and grants), the

9 budget authority for which is not provided for in ad10 vance by appropriations Acts, to any person or gov11 ernment if, under the provisions of the law contain12 ing such authority, the United States is obligated to

13 make such payments to persons or governments who

14 meet the requirements established by such law.

15 (9) The term ‘‘current’’ means, with respect to

16 OMB estimates included with a budget submission

17 under section 1105(a) of title 31 U.S.C., the esti18 mates consistent with the economic and technical as19 sumptions underlying that budget.

20 (10) The term ‘‘account’’ means, for items not

21 provided for in appropriations Acts, an item identi22 fied in the section ‘‘Federal Programs by Agency

23 and Account’’ as it appears in the Analytical Per24 spectives to the President’s fiscal year 1997 budget

25 proposal at page 383.
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1 (11) The term ‘‘budget year’’ means the fiscal

2 year of the Government that starts on the next Oc3 tober 1.

4 (12) The term ‘‘current year’’ means, with re5 spect to a budget year, the fiscal year that imme6 diately precedes that budget year.

7 (13) The term ‘‘outyear’’ means, with respect

8 to a budget year, any of the fiscal years that follow

9 the budget year.

10 (14) The term ‘‘OMB’’ means the Director of

11 the Office of Management and Budget.

12 (15) The term ‘‘CBO’’ means the Director of

13 the Congressional Budget Office.

14 (16) The terms ‘‘budget outlays’’ and ‘‘outlays’’

15 mean, with respect to any fiscal year, expenditures

16 of funds under budget authority during such year.

17 (17) BUDGET AUTHORITY AND NEW BUDGET

18 AUTHORITY.—

19 (A) IN GENERAL.—The term ‘‘budget au20 thority’’ means the authority provided by Fed21 eral law to incur financial obligations, as fol22 lows: provisions of law that make funds avail23 able for obligation and expenditure (other than

24 borrowing authority), including the authority to

25 obligate and expend the proceeds of offsetting
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1 receipts and collections; borrowing authority,

2 which means authority granted to a Federal en3 tity to borrow and obligate and expend the bor4 rowed funds, including through the issuance of

5 promissory notes or other monetary credits;

6 contract authority, which means the making of

7 funds available for obligation but not for ex8 penditure; and offsetting receipts and collec9 tions as negative budget authority, and the re10 duction thereof as positive budget authority.

11 (B) LIMITATIONS ON BUDGET AUTHOR12 ITY.—Any amount that is precluded from obli13 gation in a fiscal year by a provision of law

14 (such as a limitation or a benefit formula) shall

15 not be budget authority in that year.

16 (C) NEW BUDGET AUTHORITY.—The term

17 ‘‘new budget authority’’ means, with respect to

18 a fiscal year—

19 (i) budget authority that first becomes

20 available for obligation in that year, includ21 ing budget authority that becomes avail22 able in that year as the result of a reap23 propriation; or

24 (ii) borrowing authority, which means

25 authority granted to a Federal entity to
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1 borrow and obligate and expend the bor2 rowed funds, including through the issu3 ance of promissory notes of other monetary

4 credits;

5 (iii) contract authority, which means

6 the making of funds available for obliga7 tion but not for expenditure; and

8 (iv) offsetting receipts and collections

9 as negative budget authority; and the re10 duction thereof as positive budget author11 ity.

12 (18) The term ‘‘tax expenditures’’ means those

13 revenue losses attributable to provisions of the Fed14 eral tax laws which allow a special exclusion, exemp15 tion, or deduction from gross income or which pro16 vide a special credit, a preferential rate of tax, or a

17 deferral of tax liability; and the term ‘‘tax expendi18 tures budget’’ means an enumeration of such tax ex19 penditures.

20 (19) The term ‘‘appropriations Act’’ means an

21 Act referred to in section 105 of title 1 of the Unit22 ed States Code.

23 (20) The term ‘‘deficit’’ means, with respect to

24 a fiscal year, the amount by which outlays exceed re25 ceipts during that year.
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1 (21) The term ‘‘surplus’’ means, with respect to

2 a fiscal year, the amount by which receipts exceed

3 outlays during that year.

4 (22) The term ‘‘government-sponsored enter5 prise’’ means a corporate entity created by a law of

6 the United States that—

7 (A) has a Federal charter authorized by

8 law;

9 (i) is privately owned, as evidenced by

10 capital stock owned by private entities or

11 individuals;

12 (ii) is under the direction of a board

13 of directors, a majority of which is elected

14 by private owners;

15 (iii) is a financial institution with

16 power to—

17 (I) make loans or loan guaran18 tees for limited purposes such as to

19 provide credit for specific borrowers

20 or one sector; and

21 (II) raise funds by borrowing

22 (which does not carry the full faith

23 and credit of the Federal Govern24 ment) or to guarantee the debt of oth25 ers in unlimited amounts; and
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1 (B) does not exercise powers that are re2 served to the Government as sovereign (such as

3 the power to tax or to regulate interstate com4 merce);

5 (i) does not have the power to commit

6 the Government financially (but it may be

7 a recipient of a loan guarantee commit8 ment made by the Government); and

9 (ii) has employees whose salaries and

10 expenses are paid by the enterprise and

11 are not Federal employees subject to title

12 5 of the United States Code.

13 (23) The term ‘‘sale of an asset’’ means the

14 sale to the public of any physical asset owned in

15 whole or in part by the United States.

16 (24) The term ‘‘direct spending caps means the

17 nominal dollar limits for entitlements and other

18 mandatory spending pursuant to section 103 of this

19 Act (as modified by any revisions provided for in

20 this Act).

21 SEC. 102. TIMETABLE.

On or Before Action to be Completed

January 15 .................................... CBO Economic and Budget Update

First Monday in February ............ President’s budget; Includes Sequestration Update based on new assumptions

July 1 ............................................ Cutoff for in-session sequester

August 1 ........................................ Baseline Update—OMB and CBO

August 15 ...................................... Preview report

October 1 ....................................... Start of new fiscal year
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On or Before Action to be Completed

December 15 .................................. OMB Issues Final (look back) Report

for Prior Year and Preview for

Current Year

December 15 .................................. Presidential Sequester Order

1 SEC. 103. DIRECTOR SPENDING CAPS.

2 (a) Effective upon enactment of this Act, the follow3 ing direct spending caps shall apply to all entitlement au4 thority except for undistributed offsetting receipts and net

5 interest outlays. For purposes of enforcing direct spending

6 caps under this Act, each separate entitlement cap shall

7 be defined as a ‘‘category’’. The statement of managers

8 to accompany this Act shall include the account numbers

9 included in each specific category; that is, Medicaid

10 through veterans’ benefits below. All direct spending ac11 counts not included in the Statement of Managers under

12 a separate category shall be included under ‘‘Other Enti13 tlements and Mandatory Spending’’.

[Fiscal years—dollars in millions]

1997 1998 1999 2000 2001 2002

Medicaid ......................................... $106,505 $113,524 $120,576 $128,327 $135,318 $144,758

Food Stamps .................................. 26,001 25,763 26,963 28,282 29,513 30,715

Supplemental Security Income ....... 25,944 25,457 27,011 31,737 28,844 33,910

Family Support .............................. 19,673 20,189 20,832 21,319 21,701 21,791

Earned Income Tax Credit ............. 19,746 20,438 21,228 22,106 22,919 23,642

Social Security ................................ 365,403 383,402 402,351 422,412 444,081 466,767

Medicare ......................................... 188,684 204,807 217,543 232,051 248,109 266,981

Federal retirement:

Civilian/other ........................... 46,083 48,499 51,093 53,888 56,689 59,680

Military ................................... 29,848 30,881 31,949 33,022 34,122 35,259

Unemployment compensation ......... 25,555 26,613 27,644 28,698 29,814 30,989

Veterans’ benefits ........................... 20,179 20,499 20,644 22,243 19,643 22,633

Other entitlements and mandatory

spending ...................................... 25,922 36,380 33,839 35,746 35,224 34,645

Total entitlements and other

mandatory spending ........ 899,543 956,452 1,001,673 1,059,831 1,105,977 1,171,770

14 (b) Legislation enacted subsequent to this Act, which

15 creates new or increased entitlement(s) and/or mandatory
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1 spending, must make necessary revisions (if any) to the

2 caps contained in the table above as follows—

3 (1) create a new entitlement cap or caps; and

4 (2) for each fiscal year contained in the table

5 below specify—

6 (A) increases/decreases (if any) in the

7 cap(s) for specific categories enumerated in that

8 table, as revised pursuant to Section 105 of this

9 Act if applicable; and or

10 (B) increases/decreases (if any) to the

11 cap(s) for ‘‘Total Entitlements and Other Man12 datory Spending’’ enumerated in that table

13 above, as revised pursuant to Section 105 of

14 this Act if applicable; or

15 (3) the new/increased entitlement/mandatory

16 spending created pursuant to such legislation shall

17 be included under the ‘‘Other Entitlements and

18 Mandatory Spending’’ cap in the table above, as re19 vised pursuant to Section of this Act if applicable.

20 SEC. 104. ECONOMIC ASSUMPTIONS.

21 Subject to periodic reestimation based on changed

22 economic conditions or changes in eligible population, de23 terminations of the direct spending caps under section 103

24 of this Act, any breaches of such caps, and actions nec-
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1 essary to remedy such breaches shall be based on the fol2 lowing economic assumptions (fiscal years).

Preliminary 1 Forecast

1996 1997 1998 1999 2000 2001 2002

Nominal GDP (Billions of dollars) 7,491 7,853 8,225 8,627 9,047 9,489 9,952

Nominal GDP (percentage change) 4.3 4.8 4.7 4.9 4.9 4.9 4.9

Real GDP 2 (percentage change) 1.8 2.0 2.0 2.1 2.1 2.1 2.1

Chain-type GDP

Price Index (percentage change) 2.6 2.8 2.7 2.7 2.7 2.7 2.7

CPI-U 3 (percentage

change) .............. 2.7 3.1 3.1 2.9 2.9 2.9 3.0

Unemployment

Rate (percent) .... 5.7 6.0 6.0 6.0 6.0 6.0 6.0

Three-Month Treasury Bill Rate

(percent) ............ 5.0 4.8 4.8 4.8 4.8 4.8 4.8

Ten-Year Treasury

Note Rate (percent) ................... 6.0 6.3 6.4 6.4 6.4 6.4 6.4

Tax bases (billions

of dollars:

Corporate profits ............... 595 609 618 618 626 643 665

Other taxable

income ........ 1,578 1,643 1,731 1,834 1,933 2,033 2,132

Wage and salary disbursements .......... 3,548 3,719 3,889 4,076 4,272 4,475 4,688

Total ........... 5,721 5,972 6,237 6,529 6,831 7,151 7,485

Tax Bases (Percentage of GDP):

Corporate profits ............... 7.9 7.8 7.5 7.2 6.9 6.8 6.7

Other taxable

income ........ 21.1 20.9 21.0 21.3 21.4 21.4 21.4

Wage and salary disbursements .......... 47.4 47.4 47.3 47.3 47.2 47.2 47.1

Total ........... 76.4 76.0 75.8 75.7 75.5 75.4 75.2

Source: The Congressional Budget Office, The Economic and Budget Outlook:

Fiscal Years 1997–2006, p. 15. 1Consistent with the first official estimate for 1995 published on March 5,

1996. 2 Based on chained (1992) dollars.

3CPI-U is the consumer price index for all urban consumers.
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1 SEC. 105. REVISIONS TO THE CAPS FOR ENTITLEMENTS

2 AND OTHER MANDATORY SPENDING.

3 REVISIONS TO DIRECT SPENDING CAPS

4 (a) AUTOMATIC ADJUSTMENTS TO CAPS FOR ENTI5 TLEMENTS AND OTHER MANDATORY SPENDING.—When

6 the President submits the budget under section 1105(a)

7 of title 31, United States Code, for any year, and when

8 reports are submitted pursuant to section 201 calculate

9 (in the order set forth below), and the budget and reports

10 shall include, adjustments to the direct spending caps (and

11 those limits as cumulatively adjusted) for the current year,

12 the budget year and each outyear, to reflect the following:

13 (1) CHANGES IN CONCEPTS AND DEFINI14 TIONS.—The adjustments produced by changes in

15 concepts and definitions shall equal the baseline lev16 els of new budget authority and outlays using up-to17 date concepts and definitions minus those levels

18 using the concepts and definitions in effect before

19 such changes. Such changes in concepts and defini20 tions may only be made in consultation with the

21 Committees on Appropriations, the Budget, Govern22 ment Reform and Oversight, and Governmental Af23 fairs of the House of Representatives and the Senate

24 and the Congressional Budget Office.
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1 (2) CHANGES IN NET OUTLAYS.—Changes in

2 net outlays for all programs and activities exempt

3 from sequestration under section 204 of this Act.

4 (3) CHANGES IN INFLATION.—Inflation adjust5 ment factors shall equal the ratio between the level

6 of year-over-year inflation measured for the fiscal

7 year most recently completed and the applicable esti8 mated level for that year as set forth in the table at

9 section 104 (Economic Assumptions) of this Act. In10 flation shall be measured as Assumptions) of this

11 Act. Inflation shall be measured as follows: for in12 dexed programs, inflation shall be measured by the

13 changes in the index specified in law; for programs

14 providing health care, inflation shall be measured by

15 changes in the consumer price index for all urban

16 consumers for medical care components (CPI–U

17 medical care); and for all other programs, inflation

18 shall be measured by changes in the consumer price

19 index for all urban consumers (CPI–U). The base20 line and the direct spending caps shall be adjusted

21 to reflect those changes.

22 (4) CHANGES IN UNEMPLOYMENT AND INTER23 EST RATES.—For direct spending caps, OMB shall

24 make adjustments in new budget authority and out25 lays for changes in actual unemployment and inter-
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1 est rates. The adjustment factor for unemployment

2 shall equal the ratio between the level of year-over

3 unemployment measured for the fiscal year most re4 cently completed and the applicable estimated level

5 for that year set forth in the table at section 104

6 (Economic Assumptions) of this Act. The adjust7 ment factor for inflation shall equal the level of year8 over-year inflation measured for the fiscal year most

9 recently completed and the applicable estimated level

10 for that year set forth in the table at section 104

11 (Economic Assumptions) of this act. The baseline

12 and the direct spending caps shall be adjusted to re13 flect those changes.

14 (5) CHANGES IN ELIGIBLE POPULATIONS.—For

15 direct spending caps, OMB shall make adjustments

16 in new budget authority and outlays for changes in

17 the number of eligible beneficiaries (the eligible pop18 ulation), in the year most recently completed, com19 pared to the number projected to be eligible in the

20 calculation of CBO’s Estimates of the President’s

21 Budgetary Proposals contained in The Economic

22 and Budget Outlook: Fiscal Years 1997–2006. The

23 baseline and the direct spending caps shall be ad24 justed to reflect those changes.
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1 (6) INTRA-BUDGETARY PAYMENTS.—From dis2 cretionary accounts to mandatory accounts. The

3 baseline and the discretionary spending caps shall be

4 adjusted to reflect those changes.

5 (b) PERMISSIBLE REVISIONS TO DIRECT SPENDING

6 CAPS.—Direct spending caps as enacted pursuant to sec7 tion 103 of this Act may be revised as follows: Except as

8 required pursuant to section 105(a) of this Act, direct

9 spending caps may only be amended by recorded vote. It

10 shall be a matter of highest privilege in the House of Rep11 resentatives and the Senate for a Member of the House

12 of Representatives or the Senate to insist on a recorded

13 vote solely on the question of amending such caps.

14 TITLE II—ENFORCEMENT PROVISIONS

15 SEC. 201. ENFORCING DIRECT SPENDING CAPS.

16 (a) GENERAL STATEMENT ON SPENDING CAPS.—

17 This title provides enforcement of the direct spending caps

18 on categories of spending established pursuant to section

19 103 of this Act. The provisions of this title trigger seques20 tration of direct spending that exceeds an applicable

21 spending cap.

22 (b) OVERALL RULES.—

23 (1) ELIMINATING A BREACH.—Each non-ex24 empt account within a category shall be reduced by

25 a dollar amount calculated by multiplying the base-
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1 line level of sequestrable budgetary resources in that

2 account at that time by the uniform percentage nec3 essary to eliminate a breach within that category.

4 (2) PROGRAMS, PROJECTS, OR ACTIVITIES.—

5 Except as otherwise provided, the same percentage

6 sequestration shall apply to all programs, projects

7 and activities within a budget account (with pro8 grams, projects and activities as delineated in the

9 appropriation Act or accompanying report for the

10 relevant fiscal year covering that account, or for

11 amounts not included in appropriations Acts, as

12 identified in the section ‘‘Federal Programs by

13 Agency and Account’’ as it appears in the Analytical

14 Perspectives to the President’s FY 1997 Budget

15 Proposal beginning at page 383.

16 (3) ADMINISTRATIVE EXPENSES ASSOCIATED

17 WITH CERTAIN PROGRAMS.—Notwithstanding any

18 exemption, general rule or special rule in this Act,

19 administrative expenses associated with all programs

20 shall be fully subject to sequestration under this sec21 tion.

22 (4) INDEFINITE AUTHORITY.—Except as other23 wise provided, sequestration in accounts for which

24 obligations are indefinite shall be taken in a manner

25 to ensure that obligations in the fiscal year of a se-
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1 questration and succeeding fiscal years are reduced,

2 from the level that would actually have occurred, by

3 the applicable sequestration percentage or percent4 ages.

5 (5) CANCELLATION OF BUDGETARY RE6 SOURCES.—Budgetary resources sequestered from

7 any account other than an entitlement trust, special

8 or revolving fund account shall revert to the Treas9 ury and be permanently canceled or repealed.

10 (6) IMPLEMENTING REGULATIONS.—Adminis11 trative regulations or similar actions implementing

12 the sequestration of a program or activity shall be

13 made within 30 days of the effective date of the se14 questration of that program or activity.

15 SEC. 202. REPORTING EXCESS SPENDING.

16 (a) ANALYSIS OF ACTUAL SPENDING LEVELS.—Fol17 lowing the end of any fiscal year the Director of the Office

18 of Management and Budget shall compile a statement of

19 actual direct spending for that year. The statement shall

20 identify such spending by categories contained in section

21 103 of this Act.

22 (b) ESTIMATE OF NECESSARY SPENDING REDUC23 TION.—Based on the statement provided under subsection

24 (a), the Director of the Office of Management and Budget

25 shall issue a report to the President and the Congress on
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1 December 15 of any year in which such statement identi2 fies actual or projected spending, in the current and/or

3 immediately preceding fiscal years, in excess of the total

4 direct spending cap(s) in section 103 of this Act, as ad5 justed pursuant to section 105 of this Act, by more than

6 one percent of the total direct spending cap(s) for such

7 year(s).

8 (1) All instances in which actual direct spend9 ing has exceeded the direct spending cap or caps

10 identified in the preceding paragraph;

11 (2) For the current fiscal year, the difference

12 between the amount of spending available under the

13 direct spending caps identified under paragraph (b)

14 above and estimated actual spending for the cat15 egories associated with such caps;

16 (3) The amounts by which direct spending must

17 be reduced in the current fiscal year so that total ac18 tual and estimated direct spending for all cap cat19 egories identified under paragraph (b) for the cur20 rent and immediately preceding fiscal years shall not

21 exceed the amounts available under the direct spend22 ing caps for such fiscal years; and

23 (4) If the excess spending, in whole or in part,

24 has resulted solely from changes in inflation, interest

25 rates, unemployment or eligible population, the
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1 amounts by which such spending has resulted solely

2 from such factors.

3 (c) TIMETABLE.—

Date Actions to be completed

January 15 .................................... CBO Economic and Budget Update

First Monday in February ............ President’s Budget (Includes Sequestration Update Based on New Assumptions

August 1 ........................................ CBO and OMB Updates

August 15 ...................................... Preview Report

December 15 .................................. OMB Issues Final (look back) Report

for Prior Year and Preview for

Current Year

December 15 .................................. Presidential Sequester Order

4 SEC. 203. ENFORCING DIRECT SPENDING LIMITS.

5 (a) IN GENERAL.—All direct spending (except mat6 ters exempted from the caps under section 204 of this Act)

7 shall be subject to caps on total direct spending outlays

8 for each fiscal year. Consistent with the cap on total out9 lays, separate caps are established for—

10 (1) any program (named in the table at section

11 103 of this Act,

12 (2) such other program or groups of programs

13 for which additional caps shall be established in sub14 sequent legislation, or

15 (3) the remainder of direct spending programs,

16 except that the separate caps in section 103 of this

17 Act, plus any additional direct spending under such

18 additional separate caps as shall be established in

19 subsequent legislation, shall not exceed the cap for
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1 total direct spending in section 103, as adjusted in

2 accordance with section 105 of this Act.

3 (b) For all direct spending programs (except matters

4 exempted under section 204, and programs subject to spe5 cial rules set forth under section 205, of this Act), not6 withstanding any other provisions of law, any sequestra7 tion required under this Act shall reduce benefit levels by

8 an amount sufficient to eliminate all excess spending iden9 tified in the report issued pursuant to section 202, while

10 maintaining the same uniform percentage reduction in the

11 monetary value of benefits subject to reduction under this

12 subsection.

13 (c) GENERAL RULES.—For programs subject to di14 rect spending caps—

15 (1) sequestration is triggered if total direct

16 spending subject to the caps exceeds or is projected

17 to exceed by more than 1 percent in any year the

18 aggregate cap for direct spending for the current or

19 immediately preceding fiscal year; or

20 (2) sequestration shall reduce spending under

21 each separate direct spending cap in proportion to

22 the amounts each category of direct spending con23 tributes or contributed to the overage.

24 (3) UNIFORM PERCENTAGES.—In calculating

25 the uniform percentage applicable to the sequestra-
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1 tion of all spending programs or activities within

2 each category, or the uniform percentage applicable

3 to the sequestration of nonexempt direct spending

4 programs or activities with each category, the

5 sequestrable base for direct spending programs and

6 activities is the total level of outlays for the fiscal

7 year for those programs or activities in that category

8 each current law baseline.

9 (4) PERMANENT SEQUESTRATION OF DIRECT

10 SPENDING.—Obligations in sequestered direct spend11 ing accounts shall be reduced in the fiscal year in

12 which a sequestration occurs and in all succeeding

13 fiscal years. Notwithstanding any other provision of

14 this section, after the first direct spending seques15 tration, any later sequestration shall reduce direct

16 spending by an amount in addition to, rather than

17 in lieu of, the reduction in direct spending in place

18 under the existing sequestration or sequestrations.

19 (5) For any direct spending program in

20 which—

21 (A) outlays pay for entitlement benefits,

22 (B) a current-year sequestration takes ef23 fect after the first day of the budget year, and
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1 (C) that delay reduces the amount of enti2 tlement authority that is subject to sequestra3 tion in the budget.

4 The uniform percentage otherwise applicable to the

5 budget-year sequestration of a program or activity is

6 increased due to the delay, then it shall revert to the

7 uniform percentage calculated under paragraph (3)

8 when the budget year is completed.

9 (6) INDEXED BENEFIT PAYMENTS.—If, under

10 any entitlement program—

11 (A) benefit payments are made to persons

12 or governments more frequently than once a

13 year, and

14 (B) the amount of entitlement authority is

15 periodically adjusted under existing law to re16 flect changes in a price index (commonly called

17 ‘‘cost of living adjustments’’).

18 Sequestration shall first be applied to the cost of liv19 ing adjustment before reductions are made to the

20 base benefit. For the first fiscal year to which a se21 questration order applies, the benefit payment re22 ductions in such programs accomplished by the

23 order shall take effect starting with the payment

24 made at the beginning of January following a final

25 sequester order. For the purposes of this subsection
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1 Veterans Compensation shall be considered a pro2 gram that meets the conditions of the preceding sen3 tence.

4 (7) LOAN PROGRAMS.—For all loans made, ex5 tended or otherwise modified on or after the date of

6 sequestration, under loan programs subject to direct

7 spending caps—

8 (A) the sequestrable base shall be total

9 fees associated with all loans made extended or

10 otherwise modified on or after the date of se11 questration; and

12 (B) the fees paid by borrowers shall be in13 creased by a uniform percentage sufficient to

14 produce the dollar savings in such loan pro15 grams for the fiscal year or years of the seques16 trations required by this section. Notwithstand17 ing any other provision of law, in any year in

18 which a sequester is in effect, all subsequent

19 fees shall be increased by the uniform percent20 age and all proceeds from such fees shall be

21 paid into the general fund of the Treasury.

22 (8) INSURANCE PROGRAMS.—Any sequestration

23 in a Federal program that sells insurance contracts

24 to the public (including the Federal Crop Insurance

25 fund, the National Insurance Development fund, the
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1 National Flood Insurance fund, insurance activities

2 of the Overseas Private Insurance Corporation, and

3 Veterans’ Life insurance programs)—

4 (A) the sequestrable base shall be all fees

5 associated with all contracts executed, extended

6 or otherwise modified on or after the date se7 questration takes effect; and

8 (B) shall be accomplished by increasing

9 premiums on contracts entered into extended or

10 otherwise modified, after the date a sequestra11 tion order takes effect by a uniform sequestra12 tion percentage sufficient to produce the dollar

13 savings in such programs required by the se14 questration.

15 Notwithstanding any other provision of law, for any

16 year in which a sequester affecting such programs is

17 in effect, subsequent premiums shall be increased by

18 the uniform percentage and all proceeds from the

19 premium increase shall be paid from the insurance

20 fund or account to the general fund of the Treasury.

21 (9) STATE GRANT FORMULAS.—For all State

22 grant programs subject to direct spending caps—

23 (A) for all State grant programs subject to

24 direct spending caps, the total amount of funds
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1 available for all States shall be reduced by the

2 amount required to be sequestered; or

3 (B) for State grant programs subject to di4 rect spending caps, if in the absence of caps

5 States would receive increased funding in the

6 current year compared to the immediately pre7 ceding fiscal year, sequestration shall first be

8 applied to the estimated increases before reduc9 tions are made compared to actual payments to

10 States in the previous year—

11 (i) the reductions shall be applied first

12 to the total estimated increases for all

13 States; then

14 (ii) the uniform reduction shall be

15 made from each State’s grant; and

16 (iii) the uniform reduction shall apply

17 to the base funding levels available to

18 States in the immediately preceding fiscal

19 year only to the extent necessary to elimi20 nate any remaining excess over the direct

21 spending cap(s).

22 (d) WITHIN SESSION SEQUESTER.—If a bill or reso23 lution providing direct spending for a fiscal year in

24 progress is enacted before July 1 of that fiscal year and

25 causes a breach within a direct spending cap or caps for
27

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1 that fiscal year, 15 days later there shall be a sequestra2 tion to eliminate that breach within that cap or caps fol3 lowing the procedures set forth in subsection (a).

4 SEC. 204. EXEMPT PROGRAMS AND ACTIVITIES.

5 (a) The following budget accounts, activities within

6 accounts, or income shall be exempt from sequestration:

7 (1) Net interest.

8 (2) All payments to trust funds from excise

9 taxes or other receipts or collections properly cred10 itable to those trust funds.

11 (3) Offsetting receipts and collections.

12 (4) All payments from one Federal direct

13 spending budget account to another Federal budget

14 account; all intragovernmental funds including those

15 from which funding is derived primarily from other

16 Government accounts.

17 (5) Expenses to the extent they result from pri18 vate donations, bequests, or voluntary contributions

19 to the Government.

20 (6) Nonbudgetary activities, including but not

21 limited to—

22 (A) credit liquidating and financing ac23 counts;

24 (B) the Pension Benefit Guarantee Cor25 poration Trust funds;
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1 (C) the Thrift Savings fund;

2 (D) the Federal Reserve System; and

3 (E) appropriations for the District of Co4 lumbia to the extent they are appropriations of

5 locally raised funds.

6 (7) Payments resulting from Government insur7 ance, Government guarantees, or any other form of

8 contingent liability, to the extent those payments re9 sult from contractual or other legally binding com10 mitments of the Government at the time of any se11 questration.

12 (8) The following accounts, which largely fulfill

13 requirements of the Constitution or otherwise make

14 payments to which the Government is committed:

15 Bureau of Indian Affairs, miscellaneous trust funds,

16 tribal trust funds (14–9973–0–7–999); claims, de17 fense; claims, judgments and relief act (20–1895–0–

18 1–806); Compact of Free Association, economic as19 sistance pursuant to Public Law 99–658 (14–0415–

20 0–1–806); compensation of the President (11–0001–

21 0–1–802); Customs Service, miscellaneous perma22 nent appropriations (20–9992–0–2–852); Eastern

23 Indian land claims settlement fund (14–2202–0–1–

24 806); Farm Credit System Financial Assistance Cor25 poration, interest payments (20–1850–0–1–351); In-
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1 ternal Revenue collections of Puerto Rico (20–5737–

2 0–2–852; payments of Vietnam and USS Pueblo

3 prisoner-of-war claims (15–0104–0–1–153); pay4 ments to copyright owners (03–5175–0–2–376); sal5 aries of article III judges (not including cost of liv6 ing adjustments); Soldier’s and Airman’s Home,

7 payment of claims (84–8930–0–7–705); and Wash8 ington Metropolitan Area Transit Authority, interest

9 payments (46–0300–0–1–401).

10 (9) The Following Noncredit Special, Revolving,

11 or Trust-Revolving Funds: Exchange Stabilization

12 fund (20–4444–0–3–155); and Foreign Military

13 Sales trust fund (11–82232–0–7–155).

14 (b) OPTIONAL EXEMPTION OF MILITARY PERSON15 NEL—.

16 (1) The President may, with respect to any

17 military personnel account, exempt that account

18 from sequestration or provide for a lower uniform

19 percentage reduction that would otherwise apply.

20 (2) The President may not use the authority

21 provided by paragraph (1) unless he notifies the

22 Congress of the manner in which such authority will

23 be exercised on or before the initial snapshot date

24 for the budget year.
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1 SEC. 205. SPECIAL RULES.

2 (a) CHILD SUPPORT ENFORCEMENT PROGRAM.—

3 Any sequestration order shall accomplish the full amount

4 of any required reduction in payments under sections 455

5 and 458 of the Social Security Act by reducing the Fed6 eral matching rate for State administrative costs under

7 the program, as specified (for the fiscal year involved) in

8 section 455(a) of such Act, to the extent necessary to re9 duce such expenditures by that amount.

10 (b) COMMODITY CREDIT CORPORATION.—

11 (1) EFFECTIVE DATE.—For the Commodity

12 Credit Corporation, the date on which a sequestra13 tion order takes effect in a fiscal year shall vary for

14 each crop of a commodity. In general, the sequestra15 tion order shall take effect when issued, but for each

16 crop of a commodity for which 1-year contracts are

17 issued as an entitlement, the sequestration order

18 shall take effect with the start of the sign-up period

19 for that crop that beings after the sequestration

20 order is issued. Payments for each contract in such

21 a crop shall be reduced under the same terms and

22 conditions.

23 (2) DAIRY PROGRAM—

24 (A) As the sole means of achieving any re25 duction in outlays under the milk price-support

26 program, the Secretary of Agriculture shall pro-
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1 vide for a reduction to be made in the price re2 ceived by producers for all milk in the United

3 States and marketed by producers for commer4 cial use.

5 (B) That price reduction (measured in

6 cents per hundred-weight of milk marketed)

7 shall occur under subparagraph (A) of section

8 201(d)(2) of the Agricultural Act of 1949 (7

9 U.S.C. 1446(d)(2)(A)), shall begin on the day

10 any sequestration order is issued, and shall not

11 exceed the aggregate amount of the reduction

12 in outlays under the milk price-support pro13 gram, that otherwise would have been achieved

14 by reducing payments made for the purchase of

15 mild or the products of milk under this sub16 section during that fiscal year.

17 (3) EFFECT OF DELAY.—For purposes of sub18 section (b)(1), the sequestrable base for Commodity

19 Credit Corporation is the current-year level of gross

20 outlays resulting from new budget authority that is

21 subject to reduction under paragraphs (1) and (2).

22 (4) CERTAIN AUTHORITY NOT TO BE LIM23 ITED.—Nothing in this Act shall restrict the Cor24 poration in the discharge of its authority and re25 sponsibility as a corporation to buy and sell com-
32

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1 modities in world trade, or limit or reduce in any

2 way any appropriation that provides the Corporation

3 with funds to cover its realized losses.

4 (c) EARNED INCOME TAX CREDIT.—

5 (1) The sequestrable base for Earned Income

6 Tax Credit Program is the dollar value of all current

7 year benefits to the entire eligible population.

8 (2) All Earned Income Tax Credits shall be re9 duced, whether or not such credits otherwise would

10 result in cash payments to beneficiaries, by a uni11 form percentage sufficient to produce the dollar sav12 ings required by the sequestration.

13 (d) REGULAR AND EXTENDED UNEMPLOYMENT

14 COMPENSATION.—

15 (1) A State may reduce each weekly benefit

16 payment made under the regular and extended un17 employment benefit programs for any week of unem18 ployment occurring during any period with respect

19 to which payments are reduced under any sequestra20 tion order by a percentage not to exceed the percent21 age by which the Federal payment to the State is to

22 be reduced for such week as a result of such order.

23 (2) A reduction by a State in accordance with

24 paragraph (1) shall not be considered as a failure to
33

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1 fulfill the requirements of section 3304(a)(11) of the

2 Internal Revenue Code of 1986.

3 (e) FEDERAL EMPLOYEES HEALTH BENEFITS

4 FUND.—For the Federal Employees Health Benefits

5 Fund, a sequestration order shall take effect with the next

6 open season. The sequestration shall be accomplished by

7 annual payments from that fund to the General Fund of

8 the Treasury. Those annual payments shall be financed

9 solely by charging higher premiums. The sequestrable base

10 for the Fund is the current-year level of gross outlays re11 sulting from claims paid after the sequestration order

12 takes effect.

13 (f) FEDERAL HOUSING FINANCE BOARD.—Any se14 questration of the Federal Housing Board shall be accom15 plished by annual payments (by the end of each fiscal

16 year) from that Board to the general fund of the Treasury,

17 in amounts equal to the uniform sequestration percentage

18 for that year times the gross obligations of the Board in

19 that year.

20 (g) FEDERAL PAY.—

21 (1) IN GENERAL.—New budget authority to pay

22 Federal personnel from direct spending accounts

23 shall be reduced by the uniform percentage cal24 culated under section 203(3), as applicable, but no

25 sequestration order may reduce or have the effect of
34

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1 reducing the rate of pay to which any individual is

2 entitled under any statutory pay system (as in3 creased by any amount payable under section 5304

4 of title 5, United States Code, or any increase in

5 rates of pay which is scheduled to take effect under

6 section 5303 of title 5, United States Code, section

7 1109 of title 37, United States Code, or any other

8 provision of law.

9 (2) DEFINITIONS.—For purposes of this sub10 section:

11 (A) The term ‘‘statutory pay system’’ shall

12 have the meaning given that term in section

13 5302(1) of title 5, United States Code.

14 (B) The term ‘‘elements of military pay’’

15 means—

16 (i) the elements of compensation of

17 members of the uniformed services speci18 fied in section 1009 of title 37, United

19 States Code,

20 (ii) allowances provided members of

21 the uniformed services under sections

22 403(a) and 405 of such title, and

23 (iii) cadet pay and midshipman pay

24 under section 203 of such title.
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1 (C) The term ‘‘uniformed services’’ shall

2 have the same meaning given that term in sec3 tion 101(3) of title 37, United States Code.

4 (h) MEDICARE.—

5 (1) TIMING OF APPLICATION OF REDUC6 TIONS.—

7 (A) IN GENERAL.—Except as provided in

8 subparagraph (B), if a reduction is made in

9 payment amounts pursuant to sequestration

10 order, the reduction shall be applied to payment

11 for services furnished after the effective date of

12 the order. For purposes of the previous sen13 tence, in the case of inpatient services furnished

14 for an individual, the services shall be consid15 ered to be furnished on the date of the individ16 ual’s discharge from the inpatient facility.

17 (B) PAYMENT ON THE BASIS OF COST RE18 PORTING PERIODS.—In the case in which pay19 ment for services of a provides of services is

20 made under title XVIII of the Social Security

21 Act on a basis relating to the reasonable cost

22 incurred for the services during a cost reporting

23 period of the provider, if a reduction is made in

24 payment amounts pursuant to a sequestration

25 order, the reduction shall be applied to payment
36

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1 for costs for such services incurred at any time

2 during each cost reporting period of the pro3 vider any part of which occurs after the effec4 tive date of order, but only (for each such cost

5 reporting period) in the same proportion as the

6 fraction of the cost reporting period that occurs

7 after the effective date of the order.

8 (2) NO INCREASE IN BENEFICIARY CHARGES IN

9 ASSIGNMENT-RELATED CASES.—If a reduction in

10 payment amounts is made pursuant to a sequestra11 tion order for services for which payment under part

12 B of title XVIII of the Social Security Act is made

13 on the basis of an assignment described in section

14 1842(b)(3)(B)(ii), in accordance with section

15 1842(b)(6)(B), or under the procedure described in

16 section 1870(f)(1) of such Act, the person furnishing

17 the services shall be considered to have accepted

18 payment of the reasonable charge for the services,

19 less any reduction in payment amount made pursu20 ant to a sequestration order, as payment in full.

21 (3) PART B PREMIUMS.—In computing the

22 amount and method of sequestration from part B of

23 title XVIII of the Social Security Act—

24 (A) the amount of sequestration shall be

25 calculated by multiplying the total amount by
37

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1 which Medicare spending exceeds the appro2 priate spending cap by a percentage that re3 flects the ratio of total spending under part B

4 to total Medicare spending; and

5 (B) sequestration in the part B program

6 shall be accomplished by increasing premiums

7 to beneficiaries.

8 (4) NO EFFECT ON COMPUTATION OF AAPCC.—

9 In computing the adjusted average per capita cost

10 for purposes of section 1876(a)(4) of the Social Se11 curity Act, the Secretary of Health and Human

12 Services shall not take into account any reductions

13 in payment amounts which have been or may be ef14 fected under this part.

15 (i) POSTAL SERVICE FUND.—Any sequestration of

16 the Postal Service fund shall be accomplished by annual

17 payments from that fund to the General Fund of the

18 Treasury, and the Postmaster General of the United

19 States and shall have the duty to make those payments

20 during the first fiscal year to which the sequestration

21 order applies and each succeeding fiscal year. The amount

22 of each annual payment shall be—

23 (1) the uniform sequestration percentage, times

24 (2) the estimated gross obligations of the Postal

25 Service fund in that year other than those obliga-
38

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1 tions financed with an appropriation for revenue for2 gone that year.

3 Any such payment for a fiscal year shall be made as soon

4 as possible during the fiscal year, except that it may be

5 made in installments within that year if the payment

6 schedule is approved by the Secretary of the Treasury.

7 Within 30 days after the sequestration order is issued, the

8 Postmaster General shall submit to the Postal Rate Com9 mission a plan for financing the annual payment for that

10 fiscal year and publish that plan in the Federal Register.

11 The plan may assume efficiencies in the operation of the

12 Postal Service, reductions in capital expenditures, in13 creases in the prices of services, or any combination, but

14 may not assume a lower fund surplus or higher fund defi15 cit and must follow the requirements of existing law gov16 erning the Postal Service in all other respects. Within 30

17 days of the receipt of that plan, the Postal Rate Commis18 sion shall approve the plan or modify it in the manner

19 that modifications are allowed under current law. If the

20 Postal Rate Commission does not respond to the plan

21 within 30 days, the plan submitted by the Postmaster

22 General shall go into effect. Any plan may be later revised

23 by the submission of a new plan to the Postal Rate Com24 mission, which may approve or modify it.
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1 (j) POWER MARKETING ADMINISTRATIONS AND

2 TVA.—Any sequestration of the Department of Energy

3 power marketing administration funds or the Tennessee

4 Valley Authority fund shall be accomplished by annual

5 payments from those funds to the General Fund of the

6 Treasury, and the administrators of those funds shall have

7 the duty to make those payments during the fiscal year

8 to which the sequestration order applies and each succeed9 ing fiscal year. The amount of each payment by a fund

10 shall be—

11 (1) the direct spending uniform sequestration

12 percentage, times

13 (2) the estimated gross obligations of the fund

14 in that year other than those obligations financed

15 from discretionary appropriations for that year.

16 Any such payment for a fiscal year shall be made as soon

17 as possible during the fiscal year, except that it may be

18 made in installments within that year if the payment

19 schedule is approved by the Secretary of the Treasury. An20 nual payments by a fund may be financed by reductions

21 in costs required to produce the pre-sequester amount of

22 power (but those reductions shall not include reductions

23 in the amount of power supplied by the fund), by reduc24 tions in capital expenditures, by increases in tax rates, or

25 by any combination, but may not be financed by a lower
40

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1 fund surplus, a higher fund deficit, additional borrowing,

2 delay in repayment of principal on outstanding debt and

3 must follow the requirements of existing law governing the

4 fund in all other respects. The administrator of a fund

5 or the TVA Board is authorized to take the actions speci6 fied above in order to make the annual payments to the

7 Treasury.

8 (k) BUSINESSLIKE TRANSACTIONS.—Notwithstand9 ing any other provision of law, for programs which provide

10 a businesslike service in exchange for a fee, sequestration

11 shall be accomplished through a uniform increase in fees

12 (sufficient to produce the dollar savings in such programs

13 for the fiscal year of the sequestration required by section

14 202(a)(2), all subsequent fees shall be increased by the

15 same percentage, and all proceeds from such fees shall be

16 paid into the general fund of the Treasury, in any year

17 for which a sequester affecting such programs are in ef18 fect.

19 SEC. 206. THE CURRENT LAW BASELINE

20 (a) DETERMINATION OF THE BUDGET BASELINE.—

21 The Directors of the Congressional Budget Office and the

22 Office of Management and Budget shall submit to the

23 President and the Congress reports setting forth the budg24 et baselines for the budget year and at least the subse25 quent nine fiscal years. The CBO report shall be submit-
41

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1 ted on or before January 15. The OMB report shall ac2 company the President’s budget. The budget baseline shall

3 be based on the common economic assumptions set forth

4 in Section 104 of this Act, adjusted to reflect revisions

5 pursuant to (b) below. The budget baseline shall consist

6 of a projection of current year levels of budget authority,

7 outlays, revenues and the surplus or deficit into the budget

8 year and the relevant outyears based on current enacted

9 laws as of the date of the projection.

10 (b) REVISIONS TO THE BASELINE.—The baseline

11 shall be adjusted for up-to-date economic assumptions

12 when CBO submits its Economic and Budget Update and

13 when OMB submits their its Budget Update, and by Au14 gust 1 each year, when CBO and OBM submit their Mid15 year Reviews. For Discretionary spending items, the base16 line shall be the spending caps in effect pursuant to sec17 tion 601(a)(2) of the Congressional Budget Act of 1974

18 as amended. For years in which there are no caps, the

19 baseline for discretionary spending shall be the same as

20 in the last year for which there were statutory caps. For

21 all other expenditures, and for revenues, the baseline shall

22 be adjusted by comparing unemployment, inflation, inter23 est rates, growth and other economic indicators—and

24 changes ineligible population—for the most recent period

25 for which actual data are available, compared to the as-
42

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1 sumptions contained in section 104 of this Act. The budg2 et baseline shall provide the basis for scorekeeping proce3 dures pursuant to title II of this Act.

Æ