Budget Enforcement Procedures: The Senate Pay-As-You-Go (PAYGO) Rule
Released: 2018-01-09T00:00:00

Introduction

The Senate pay-as-you-go, or PAYGO, rule generally requires that any legislation projected to increase direct spending or reduce revenues must also include equivalent amounts of direct spending cuts, revenue increases, or a combination of the two so that the legislation does not increase the on-budget deficit in the current fiscal year, the budget year, a six-year period, or an 11-year period (the latter two periods beginning with the current fiscal year). Without such offsetting provisions, the legislation would require the support of at least 60 Senators to waive the rule and allow it to be considered on the Senate floor.

Direct spending , also referred to as mandatory spending, is provided or controlled by laws other than appropriations acts, generally continues without any annual legislative action, and provides spending authority for such programs as Medicare, unemployment compensation, and federal retirement programs. It is distinguished from discretionary spending , which is controlled through the annual appropriations process. Furthermore, direct spending is under the jurisdiction of the respective authorizing committees, while discretionary spending is under the jurisdiction of the Senate Committee on Appropriations. Revenues , which are under the jurisdiction of the Senate Committee on Finance, are the funds collected from the public primarily as a result of the federal government's exercise of its sovereign powers. They consist of receipts from individual income taxes, social insurance taxes (or payroll taxes, such as Social Security and Medicare taxes), corporate income taxes, excise taxes, duties, gifts, and miscellaneous receipts.

The Senate PAYGO rule does not apply to direct spending or revenues generated under existing law; it applies only to legislation considered by the Senate. Consequently, direct spending may increase and revenues may decline in any fiscal year due to factors beyond the control of the PAYGO rule.

The Senate PAYGO rule exists alongside a similar PAYGO requirement in statute. Like the Senate rule, the Statutory Pay-As-You-Go Act of 2010 (Title I of P.L. 111-139 , 124 Stat. 8-29), enacted on February 12, 2010, is intended to discourage or prevent Congress from taking certain legislative action that would increase the on-budget deficit. It generally requires that legislation affecting direct spending or revenues not increase the deficit over the six-year and 11-year time periods, as in the Senate rule.

While the Senate PAYGO rule and the statutory requirement are similar, they are different in significant ways relating to when and how they are enforced. The Senate rule applies the PAYGO requirement during the consideration of legislation on the Senate floor, generally applies to each measure individually, and is enforced by a point of order. The Statutory PAYGO Act, in contrast, applies the requirement to legislation after it has been enacted, applies to the net effect of all legislation enacted during a session of Congress, and is enforced by sequestrationâthe cancellation of budgetary resources provided by laws affecting direct spendingâto eliminate any increase in the deficit resulting from the enactment of legislation.

This report explains the current features of the Senate PAYGO rule, reviews Senate procedural actions under the rule, and describes its legislative history, including key changes to the rule since it was established in 1993.

Current Features of the Senate PAYGO Rule

The current Senate PAYGO rule prohibits the consideration of direct spending or revenue legislation that is projected to increase or cause an on-budget deficit in any of the following four time periods: (1) the current fiscal year; (2) the budget year; (3) the six-year period consisting of the current fiscal year, the budget year, and the 4 ensuing fiscal years; or (4) the 11-year period consisting of the current year, the budget year, and the ensuing nine fiscal years. The rule generally requires that each measure (including amendments) affecting direct spending and revenues not increase the on-budget deficit in any of the four time periods specified. That is, to comply with the rule, each measure projected to increase direct spending or reduce revenues must also include changes to existing law that would result in a reduction in direct spending, an increase in revenues, or both by at least equivalent amounts. The full text of the Senate PAYGO rule in its current form is provided in the Appendix .

The Senate PAYGO rule provides for a "pay-as-you-go ledger" to record any projected deficit reduction resulting from legislation (except reconciliation legislation) enacted since the beginning of the calendar year and not accounted for in the baseline, as defined by the rule. This is presumably intended to provide some flexibility to the bill-by-bill application of the requirement. A measure projected to increase the on-budget deficit may use any deficit reduction balance on this ledger as an offset to comply with the PAYGO rule.

The rule specifies that the levels of new direct spending and revenues for a fiscal year must be determined on the basis of estimates made by the Senate Budget Committee (SBC). Generally, the estimates used by the SBC would be based on the cost estimates prepared by the Congressional Budget Office (CBO) and, for revenue legislation, the Joint Committee on Taxation (JCT), but the SBC has the authority to make its own estimates, which may vary from the CBO and JCT estimates. The rule also specifies that the estimates used in determining whether a measure increases the on-budget deficit, and thus violates the PAYGO requirement, must use the baseline surplus or deficit used for the most recently adopted budget resolution. Congress usually uses the baseline provided by CBO. In producing its baseline estimates, CBO projects revenue, spending, and deficit or surplus levels under existing law (i.e., assuming no legislative changes). For fiscal years not covered by the current budget resolution, the estimates must be calculated using the rules set forth in "subsections (b) through (d)" of the Balanced Budget and Emergency Deficit Control Act of 1985 (see 2 U.S.C. 907(b)-(d)).

The Senate PAYGO rule may be waived or set aside by unanimous consent. A motion to waive the rule, or to sustain an appeal of the ruling of the presiding officer on the point of order, requires an affirmative vote of three-fifths of Senators, duly chosen and sworn (i.e., 60 Senators if no more than one vacancy). Note that like any other Senate rule, the Senate PAYGO rule is not self-enforcing. A Senator must raise a point of order under the rule to prevent the consideration of legislation that violates the rule. It is possible, therefore, for the Senate to consider and pass legislation if it does not adhere to the PAYGO rule even if no waiver motion is agreed to so long as a point of order is not raised.

Finally, the current Senate PAYGO rule has no expiration date.

Procedural Actions Under the Senate PAYGO Rule

The Senate PAYGO rule, when it has been enforced through a point of order, has generally been successful in preventing the consideration of matters projected to increase the deficit: Most motions to waive the rule have been rejected. During the period between 1993, when the rule was established, and the end of the first session of the 115 th Congress, the PAYGO rule was used to prevent the consideration of 44 amendments. A total of 58 points of order under the PAYGO rule were raised (see Table 1 ). In most cases, a motion to waive the PAYGO point of order was made. The Senate voted to waive the PAYGO rule 14 times, allowing consideration of the matter: five times in relation to a measure, seven times in relation to an amendment (four of these amendments were full-text substitutes to a bill), and twice in relation to the disposition of a House amendment. The Senate rejected the remaining 44 motions, and in each case, the point of order was sustained, preventing consideration of the matter.

Although the Senate PAYGO point of order, when raised, has generally been successful, the rule has not completely prevented the Senate from considering and passing legislation that was projected to increase the deficit or reduce the surplus during the period the rule has been in effect. In addition to directly waiving the PAYGO rule, as noted above, the Senate has considered and passed such legislation (1) by fitting legislation within the available on-budget surplus or assuming a deficit increase in the budget resolution in accordance with the provisions of the rule as adopted in the FY2002 and FY2004 budget resolutions, respectively; (2) by designating the spending or revenue provisions as emergency requirements; and (3) by not raising the point of order to enforce the rule (in cases for which available cost estimates projected a net budgetary impact that would increase the deficit).

Legislative History of the Senate PAYGO Rule

The Senate established the PAYGO rule in the FY1994 budget resolution in 1993. It has been modified and extended seven times in subsequent budget resolutions and once in a Senate simple resolution. Moreover, other proposed modifications to the Senate PAYGO rule have been considered, especially during the consideration of the budget resolution.

Key Changes to the Senate PAYGO Rule

In 1993, the Senate established the PAYGO rule as a provision in the FY1994 budget resolution ( H.Con.Res. 64 , 103 rd Congress) for the purpose of preventing the deficit reduction expected to be achieved in a subsequent reconciliation bill from being used to offset the costs of any new direct spending or revenue legislation. Section 12(c) of H.Con.Res. 64 prohibited the consideration of any direct spending and revenue legislation that would increase the deficit assumed in the FY1994 budget resolution for any fiscal year through FY1998 or increase the deficit for any other fiscal year through FY2003. In this initial form, the Senate PAYGO rule had no expiration date.

The changes in the rule since 1993 have occurred for several reasons, including to establish, extend, and repeal the expiration date; to allow on-budget surpluses to offset revenue reductions and direct spending increases; and to exempt increases in the deficit assumed in the budget resolution. The key changes are summarized in Table 2 .

In 1994, a year after establishing the PAYGO rule, the Senate modified the rule to prohibit the consideration of direct spending and revenue legislation that would increase the deficit in any of the following three time periods: (1) the first fiscal year covered by the most recently adopted budget resolution, (2) the first five fiscal years covered by the budget resolution, and (3) the next five fiscal years after that. In addition, the modification provided that direct spending and revenue legislation would violate the rule only if it increased the deficit individually and also increased the deficit when combined with any legislation enacted since the enactment of the previous year's reconciliation legislation (i.e., the Omnibus Budget Reconciliation Act of 1993, P.L. 103-66 ). This modification to the rule basically permitted the use of any deficit reduction provided in other legislation as an offset for any subsequent deficit increasing legislation. The 1994 modification also added an expiration date of September 30, 1998.

In 1995, the Senate modified the PAYGO rule to allow only deficit reduction resulting from legislation enacted since the beginning of the calendar year as an offset for subsequent legislation in order to comply with the rule. The rule, however, expressly prohibited the use of the deficit reduction resulting from reconciliation legislation as an offset. The Senate also extended the rule's expiration date to September 30, 2002.

After decades of on-budget deficits, the federal government recorded a small on-budget surplus for FY1999. Moreover, at the time, baseline budget projections showed on-budget surpluses increasing each year well into the future. Subsequently, in 1999, the Senate modified the PAYGO rule to reflect this change in the federal government's budget outlook by allowing on-budget surpluses to be used to offset tax reductions or spending increases. That is, the rule was modified to prohibit only direct spending and revenue legislation that was projected to cause an on-budget deficit (or increase the on-budget deficit) instead of such legislation that was projected to increase the unified budget deficit. The Senate retained the existing expiration date of September 30, 2002.

In 2002, the rule was allowed to expire on September 30. Two weeks later, however, on October 16, 2002, the Senate adopted S.Res. 304 (107 th Congress), restoring and extending the PAYGO rule through April 15, 2003. S.Res. 304 retained the basic features of the rule with one addition: It was expanded to cover any direct spending or revenues included in appropriations acts, effectively curtailing the use of such measures to potentially evade the rule (due to expired discretionary spending limits and the absence of a budget resolution for FY2003).

The following year, in 2003, the Senate modified the PAYGO rule to exempt legislation implementing the direct spending and revenue policy changes assumed in the most recently adopted budget resolution, even though it might have been projected to increase or cause an on-budget deficit. Reconciliation legislation considered in 2003 ( S. 1054 and H.R. 2 , 108 th Congress), for example, although projected at the time to increase the on-budget deficit, did not violate the rule because it was consistent with the reconciliation instructions contained in Title II of the FY2004 budget resolution. The Senate also extended the rule through September 30, 2008.

In 2007, the Senate once again made significant changes to the PAYGO rule. It eliminated the exemption for direct spending and revenue changes assumed in the budget resolution. In addition, the Senate changed the rule's applicable time periods to prohibit an on-budget deficit increase in either of two time periods: (1) the current fiscal year and the following five fiscal years, and (2) the current fiscal year and the following 10 fiscal years.

The 2007 version of the PAYGO rule largely reflects its current form, with two subsequent modifications. First, in 2015, the Senate repealed the expiration date; the rule was scheduled to expire on September 30, 2017. Second, in 2017, the Senate added the current fiscal year and the budget year as applicable time periods for which legislation may not cause an increase in the on-budget deficit.

Further information on the PAYGO rule in its current form is provided in the " Current Features of the Senate PAYGO Rule " section above.

Consideration of Proposed Changes to the Senate PAYGO Rule

The Senate PAYGO rule drew considerable attention on the Senate floor during the previous decade, in most cases in the context of the budget resolution.

Action in the 107th Congress

During the 107 th Congress, several attempts were made on the Senate floor to extend the PAYGO rule before it was scheduled to expire on September 30, 2002. On June 5, 2002, Senators Judd Gregg and Russell Feingold offered an amendment ( S.Amdt. 3687 ) that would have extended expiring budget enforcement procedures, including the Senate PAYGO rule, to H.R. 4775 , the Supplemental Appropriations Act, 2002. The amendment fell on a point of order. The next day, June 6, Senate Majority Leader Tom Daschle offered an amendment ( S.Amdt. 3764 ) to H.R. 4775 that would have extended the Senate PAYGO rule, among other budget enforcement procedures, through FY2007, but that amendment also fell on a point of order. Another attempt was made on June 20, 2002, during consideration of S. 2514 , the Defense Authorization Act for FY2003. Senator Feingold offered an amendment ( S.Amdt. 3915 ), which was modified by an amendment ( S.Amdt. 3916 ) offered by Senators Harry Reid and Kent Conrad, that would also have extended the expiration date of the Senate PAYGO rule, among other things, through FY2007. This amendment also fell on a point of order.

Without any successful extension prior to its expiration, the Senate PAYGO rule, like many other budget enforcement procedures, expired on September 30, 2002. Subsequently, on October 16, 2002, the Senate restored and extended the PAYGO point of order through April 15, 2003. The Senate agreed by unanimous consent to S.Res. 304 , as amended by the modified amendment offered by Senators Conrad, Pete Domenici, Gregg, and Feingold ( S.Amdt. 4886 ).

Action in the 108th Congress

During the 108 th Congress, in 2003, the Senate modified and extended its PAYGO rule in the FY2004 budget resolution. The following year, in 2004, the Senate agreed to an amendment restoring the rule to its pre-108 th Congress form in the FY2005 budget resolution, but ultimately it did not agree to a conference report to the budget resolution, thereby retaining the version set forth in the FY2004 budget resolution.

On March 14, 2003, the Senate Budget Committee reported S.Con.Res. 23 , the FY2004 budget resolution, without written report. The reported resolution modified the PAYGO rule to exempt legislation assumed in the budget resolution and extend it through September 30, 2008. After six days of consideration, the Senate agreed to S.Con.Res. 23 , as amended, on March 26, by a vote of 56-44. While the Senate considered and agreed to several amendments to S.Con.Res. 23 , none was related to the PAYGO provision. Subsequently, on April 11, the Senate agreed to the conference report on H.Con.Res. 95 ( H.Rept. 108-71 ) by a 51-50 vote. Section 505 of the FY2004 budget resolution contained the Senate language without change, which exempted legislation assumed in the budget resolution and extended the rule through September 30, 2008.

In 2004, during the second session of the 108 th Congress, modification of the Senate PAYGO rule was reportedly a major obstacle to reaching an agreement on the FY2005 budget resolution ( S.Con.Res. 95 ). On March 10, during consideration of the FY2005 budget resolution, Senator Feingold offered an amendment ( S.Amdt. 2748 ) that would have restored the Senate PAYGO rule to its pre-108 th Congress form, under which it did not exempt legislation assumed in the budget resolution. The Senate adopted the Feingold amendment by a vote of 51-48. On March 12 (legislative day, March 11), the Senate subsequently agreed to S.Con.Res. 95 , as amended by the Feingold amendment, among others, by a vote of 51-45 vote. The House-passed FY2005 budget resolution ( H.Con.Res. 393 ), agreed to on March 25, however, included no modification to the existing PAYGO rule.

The conference report included a provision (Section 407 of S.Con.Res. 95 , H.Rept. 108-498 ) similar to the Senate language, but it exempted the reconciliation legislation provided for in the budget resolution (Title II) and expired on April 15, 2005. While the House agreed to the conference report to S.Con.Res. 95 , the Senate never considered it. The 2003 version of the PAYGO rule (Section 505 of H.Con.Res. 95 , 108 th Congress), therefore, continued to remain in effect.

Action in the 109th Congress

During the 109 th Congress, in the context of considering the budget resolutions for FY2006 and FY2007, the Senate considered modifications to the PAYGO rule. In each case, an amendment to the budget resolution would have restored the Senate PAYGO rule to its pre-108 th Congress form, under which it did not exempt legislation assumed in the budget resolution. In each case, however, the Senate rejected the amendment. As in the previous Congress, therefore, the 2003 version of the PAYGO rule (Section 505 of H.Con.Res. 95 , 108 th Congress) continued to remain in effect through the 109 th Congress.

On March 16, 2005, during the consideration of the FY2006 budget resolution ( S.Con.Res. 18 ), Senator Feingold offered an amendment ( S.Amdt. 186 ) that proposed to modify the PAYGO rule by removing the exemption for legislation assumed in the budget resolution. The Senate rejected the Feingold amendment by a vote of 50-50. On March 17, the Senate agreed to S.Con.Res. 18 , as amended, by a vote of 51-49. Subsequently, on April 28, the Senate agreed to the conference report on S.Con.Res. 18 ( H.Rept. 109-62 ) by a 52-47 vote.

In 2006, during the consideration of the FY2007 budget resolution ( S.Con.Res. 83 ), Senator Conrad offered an amendment ( S.Amdt. 3013 ) similar to the one offered by Senator Feingold in the previous year. The Senate rejected the Conrad amendment by a vote of 50-50. On March 16, the Senate agreed to S.Con.Res. 83 , as amended, by a vote of 51-49. Subsequently, however, the House and Senate did not take final action to adopt a conference report for the FY2007 budget resolution in 2006.

Action in the 110th Congress

Even before the 110 th Congress began, the new Democratic leadership in both chambers indicated that it intended to "restore" PAYGO rules. Accordingly, the House adopted its own PAYGO rule as part of its opening-day rules package. The Senate, subsequently, modified its PAYGO rule in the FY2008 budget resolution.

On March 15, 2007, the Senate Budget Committee reported S.Con.Res. 21 , the FY2008 budget resolution, without written report. The reported resolution modified the PAYGO rule by eliminating the exemption for direct spending and revenue changes assumed in the budget resolution, generally restoring the rule to its pre-108 th Congress form. During the four days of consideration on the floor, the Senate did not consider any amendments proposing to modify the reported version of the PAYGO rule. Senator Jeff Sessions, however, offered an amendment ( S.Amdt. 466 ) proposing to exempt legislation "that would provide for the extension of the tax relief provided in" the reconciliation measures enacted in 2001 ( P.L. 107-16 ), 2003 ( P.L. 108-27 ), and 2006 ( P.L. 109-222 ) from several budget-related points of order, including the modified PAYGO point of order. The Senate rejected the Sessions amendment by a 46-52 vote. On March 23, the Senate agreed to S.Con.Res. 21 , as amended, by a 52-47 vote.

Subsequently, after resolving legislative differences with the House, the Senate agreed to the conference report to accompany the FY2008 budget resolution ( H.Rept. 110-153 ) by a vote of 52-40 on May 17. The conference agreement included a modified version of the Senate-passed PAYGO rule. This modified version of the Senate PAYGO rule, which is similar to the current version, as described above, generally prohibited the consideration of direct spending and revenue legislation that was projected to increase the on-budget deficit in either of two time periods: (1) the current fiscal year and the following five fiscal years, or (2) the current fiscal year and the following 10 fiscal years.

Appendix. Text of the Senate Pay-As-You-Go (PAYGO) Rule

(Section 4106 of H.Con.Res. 71 , Budget Resolution for FY2018)

SEC. 4106 . PAY-AS-YOU-GO POINT OF ORDER IN THE SENATE.

(a) Point of Orderâ

(1) IN GENERALâIt shall not be in order in the Senate to consider any direct spending or revenue legislation that would increase the on-budget deficit or cause an on-budget deficit for any of the applicable time periods as measured in paragraphs (5) and (6).

(2) APPLICABLE TIME PERIODSâFor purposes of this subsection, the term 'applicable time period' means any ofâ

(A) the period of the current fiscal year;

(B) the period of the budget year;

(C) the period of the current fiscal year, the budget year, and the ensuing 4 fiscal years following the budget year; or

(D) the period of the current fiscal year, the budget year, and the ensuing 9 fiscal years following the budget year.

(3) DIRECT-SPENDING LEGISLATIONâFor purposes of this subsection and except as provided in paragraph (4), the term 'direct spending legislation' means any bill, joint resolution, amendment, motion, or conference report that affects direct spending as that term is defined by, and interpreted for purposes of, the Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 900 et seq.).

(4) EXCLUSIONâFor purposes of this subsection, the terms 'direct-spending legislation' and 'revenue legislation' do not includeâ

(A) any concurrent resolution on the budget; or

(B) any provision of legislation that affects the full funding of, and continuation of, the deposit insurance guarantee commitment in effect on November 5, 1990.

(5) BASELINEâEstimates prepared pursuant to this subsection shallâ

(A) use the baseline surplus or deficit used for the most recently adopted concurrent resolution on the budget; and

(B) be calculated under the requirements of subsections (b) through (d) of section 257 of the Balanced Budget and Emergency Deficit Control Act of 1985 (as in effect prior to September 30, 2002) for fiscal years beyond those covered by that concurrent resolution on the budget.

(6) PRIOR SURPLUSâIf direct spending or revenue legislation increases the on-budget deficit or causes an on-budget deficit when taken individually, it must also increase the on-budget deficit or cause an on-budget deficit when taken together with all direct spending and revenue legislation enacted since the beginning of the calendar year not accounted for in the baseline under paragraph (5)(A), except that direct spending or revenue effects resulting in net deficit reduction enacted in any bill pursuant to a reconciliation instruction since the beginning of that same calendar year shall never be available on the pay-as-you-go ledger and shall be dedicated only for deficit reduction.

(b) Supermajority Waiver and Appealsâ

(1) WAIVERâThis section may be waived or suspended in the Senate only by the affirmative vote of three-fifths of the Members, duly chosen and sworn.

(2) APPEALSâAppeals in the Senate from the decisions of the Chair relating to any provision of this section shall be limited to 1 hour, to be equally divided between, and controlled by, the appellant and the manager of the bill or joint resolution, as the case may be. An affirmative vote of three-fifths of the Members of the Senate, duly chosen and sworn, shall be required to sustain an appeal of the ruling of the Chair on a point of order raised under this section.

(c) Determination of Budget LevelsâFor purposes of this section, the levels of new budget authority, outlays, and revenues for a fiscal year shall be determined on the basis of estimates made by the Senate Committee on the Budget.