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Budget Battles is on hiatus the week of Aug. 25. The column will return Sept. 3.

In its most recent monthly budget review, the Congressional Budget Office says it is likely to estimate that the fiscal 2003 deficit will be $401 billion when it issues its economic and budget update. This will be well below the $455 billion estimate included by the Office of Management and Budget in its midsession review released on July 15.

The CBO estimate will be released on Aug. 26, only about a month before fiscal 2003 ends, so it is likely to be close to what actually occurs. Other than handing out dollar bills and coins on street corners over the next several weeks, there simply isn't much that can be done to change the level of spending that will occur this year.

Fiscal 2004, however, is another story. The forecasting methods required by budget laws almost never provide an accurate picture of what will happen. They are a theoretical prediction that will prove correct only if certain highly unlikely assumptions somehow turn out to be true.

For example, the estimates in the president's budget assume that all spending and revenue proposals will be enacted exactly as the president proposes. That never happens, regardless of which president you are talking about or which party controls the House and Senate.

The president's budget estimates also are based on the assumption that the administration's economic forecast, which is almost always optimistic (sometimes wildly so), will be what actually happens.

The assumptions CBO is required (or has decided) to use are no less cumbersome. Even when it is clear legislation will be enacted that will increase or decrease spending or revenues, CBO usually doesn't include those changes in its forecast until the bill actually passes the House and Senate. Appropriations are assumed to rise by the rate of inflation even though it is rare to see growth limited to that level.

This situation is understandable to a certain extent. In spite of its formal name - The Budget of the United States Government - the president's budget is really little more than what she or he says will happen if the policies are adopted as presented. CBO, meanwhile, has generally tried to prevent itself from becoming part of the political debate by applying rules rather than judgments. And almost 30 years ago the Congressional Budget Act established procedures that continue to be used, or generally misused, today.

It is also understandable because the people who were responsible for drafting the Congressional Budget Act and many of those who have applied it since were worried that estimates and forecasts based on high spending levels will turn out to be a self-fulfilling prophecy. They were concerned, for example, that a baseline assuming a 10 percent growth rate would make it easier for those who want that growth and harder for those who oppose it; spending proponents could say that less than 10 percent was a "cut" from what was assumed.

The rules and procedures were supposed to prevent this by providing a neutral baseline from which proposals could be measured, but they no longer serve that purpose. Instead, they allow the process to move forward without the participants having any real idea about what they are doing. They also make it easier for members of Congress to vote for proposals without having to admit that they know the true impact of what they are doing, and then to express shock and indignation when the bottom line turns out to be different.

Budget analysts generally wring their hands over the thought of changing forecasting methodology. The truth, however, is that it's not that difficult to imagine a better system.

First, keep the current baseline. Second, create a new baseline that takes probable as well as completed legislative action into account.

This would include using something other than inflation to determine the likely level of appropriations. The average annual growth for total discretionary spending over the past 5 or 10 years is likely to be a far more accurate predictor than inflation. This will especially be the case when inflation is remarkably low, as it has been for the past few years.

It would also include some judgment as to what is likely to happen rather than what has happened. Presidential proposals that will or will not get enacted; congressional initiatives that will be seriously considered; and spending for ongoing situations, like U.S. military and peacekeeping activities in Afghanistan and Iraq that the White House refuses to estimate - all would be part of this category.

If CBO is concerned about taking political flak for making judgments about what will happen, it could appoint a bipartisan advisory board similar to the one used in the past to help deal with decisions about the economy, or assign probabilities rather than yes/no decisions to each event. Or perhaps CBO could be made into the independent agency that it always should have been, with its own budget not dependent on annual congressional decisions and its director appointed for a 10-year term.

CBO has actually done something like this before, when it issued multiple forecasts based on different views about how the economy would perform. This would be no different; it would simply add a second baseline to the one it is already doing.

This would make the budget process more politically challenging. There would be constant complaints about the judgments that were made as supporters and opponents took exception with what was decided. But if the new information were to lead to more informed budget decisions, it would be worth the substantial additional hassle.

Question Of The Week

Last Week's Question. Yes, last week's question was indeed lowdown, underhanded and devious. But so many people got it wrong that "Budget Battles" has no doubt that it was worthwhile.

The question was, "Which of the 13 regular fiscal 2004 spending bills has to be taken up first by the House and Senate?" The answer is... none of the above. Even though the defense, military construction and legislative branch appropriations generally seem to be the first ones out of the block each year, there is nothing that actually requires either chamber to take up a particular bill first.

The winner of the "I Won A 2003 Budget Battle" mouse pad, selected at random from the surprisingly very limited number of people who got this one right, is Rex Simmons, who works in the office of the inspector general at the Federal Deposit Insurance Corporation in Washington.

This Week's Question. It's the season when hope springs eternal - that is, when Congress says and federal employees generally believe that a large number of the appropriations will be enacted by the time the fiscal year begins on Oct. 1. That means that it is also time to ask another of "Budget Battles"' traditional questions: How many of the 13 fiscal 2004 appropriations will be signed into law by Oct. 1, 2003?

Click here to send in your response. Because Budget Battles will be taking next week off, you have two weeks to submit an answer, which must be received by 5 p.m. PDT on Saturday, Aug. 30, 2003. If there are multiple winning answers, the "I Won A 2003 Budget Battle" mouse pad will go to the person selected at random from all those who submit the correct response. You must include your mailing address so the mouse pad can be sent if you are the winner.

Note to government employees: Because of security procedures at many offices and facilities, your home address will be the best way to make sure the mouse pad actually gets to you.