The budget buzz in Washington last week was about the higher surpluses reported by the Office of Management and Budget and the Congressional Budget Office in their midsession reviews, and what Congress and the president were going to do with them. Why not? No previous budget forecast in U.S. history has ever shown surpluses of this magnitude (an increase of over $1 trillion), or as big of an increase in just the on-budget (not counting Social Security) surplus. No Congress or White House has ever had this many cookies in their budget cookie jars.
The truth about these numbers, however, is far different than it seemed at first glance. First, they really do not represent that big of a change in the budget outlook. Second, they should not be taken that seriously.
Not That Different?
Although it may seem impossible for re-estimates of this size to be relatively pedestrian, that is in fact the case when the changes are measured as a percentage of either the total budget or total economy. In much the same way that a 100-point loss or gain in the Dow Jones Industrial Average is no longer as worrisome or important a change as it used to be, the revisions reported last week by OMB and CBO are similarly unimpressive.
For example, OMB said that the fiscal 2000 surplus would be about $25 billion more than the $117 billion it estimated in the president's February budget. But compared to total spending, that seemingly important change is really only a slightly more than 1 percent increase. And the increase is even smaller when you realize that it is the result of changes in both spending and receipts. As a percentage of the combination of the two, the increase just reported by OMB is about 0.7 percent, barely enough to dignify with the term "rounding error."
The fiscal 2001 number is similarly insignificant. The total increase in the surplus of about $34 billion reported by OMB is 1.7 percent of spending and only 0.9 percent of the combination of spending and revenues, not really statistically significant.
As a percentage of the economy, the changes are even smaller. The fiscal 2000 and 2001 increases are 0.3 percent and 0.4 percent, respectively, of gross domestic product.
Finally, even though the 10-year re-estimated surpluses are big numbers, they too are actually quite insignificant. Between fiscal 2000 and 2009, OMB's total increase in the surplus is what appears to be a whopping $517 billion. But this is only 1.2 percent of total spending and revenues and slightly less that 0.5 percent of total GDP over this period.
In other words, the seemingly big numbers do not tell the real story: Nothing much has actually changed from February.
Not Taken Seriously?
Even if you think these latest numbers are a big change, the truth is that they should not be taken all that seriously. As noted above, the short-term (fiscal 2000) numbers are not much different from the February estimates. More importantly, the long-term (generally defined in Washington as anything past lunch time) federal budget projections are notoriously inaccurate. They simply cannot be considered to be anything other than guesses based on assumptions about current behavior, naturally occurring events and the economy-all of which are very likely to be wrong.
The most recent example of how fast federal budget projections can change is the same OMB and CBO midsession reviews that Washington budget participants so quickly embraced last week as a reason for higher spending and lower taxes. In just the five months since OMB prepared the president's fiscal 2000 budget and CBO released its economic and budget outlook report, both groups made changes to what they thought would occur. If these revisions occurred in such a short period of time, it is safe to assume that additional changes will be added in the not too distant future.
In addition, the biggest changes in the surplus outlook occur over the longest period of time-which is when budget projections are most likely to be wrong. OMB projected a $25 billion increase in fiscal 2000, a $179 billion increase between 2000 and 2004, a $338 billion increase between 2005 and 2009, and an additional $564 billion increase between 2010 and 2014. In other words, almost 98 percent of the increase in the estimated surplus is projected to occur after the year in which the budget forecast is most likely to be accurate.
How inaccurate could these new forecasts be? Keep in mind that they are based on the assumption that the current caps on appropriations will be maintained in fiscal 2000-2002, something that we know is highly unlikely. They are also based on the assumption that there will be no natural or man-made disasters that will require emergency funds to be provided over the full 14-year period, something that has already been proven this year to be wrong.
The fact that the budget projections have improved since February is certainly good news. But it is not as good news as many have been saying.
The test is simple. Ask how Congress and the White House would have reacted if the projections had been worse rather than better. Would they have demanded that OMB's and CBO's estimating methods be revised or investigated? Would they have ignored the numbers saying that the changes are actually too small to be of much value? Would they have refused to look beyond the usual five-year estimating period that is typical of federal budgeting, because to look longer would have required you to cut spending or increase revenues too much to offset the changes? If the answer to any of these questions is yes, then the latest OMB and CBO projections should be taken with at least a grain of salt, and used very cautiously.
Budget Battles Fiscal Y2K Countdown
As of today there are only 34 potential legislative days left before the start of fiscal 2000. If Mondays and Fridays, when Congress typically does not conduct legislative business, are excluded, only 20 legislative days are left.
Question Of The Week
Last Week's Question. In the history of Budget Battles, no other question generated so many wrong answers as did last week's question of the week. When will the pay-as-you-go rules of the Budget Enforcement Act expire? The answer is that PAYGO expires on "September 30, 2006," according to section 275(c) of the Balanced Budget and Emergency Deficit Control Act. However, it only applies with respect to direct spending or receipts legislation enacted "before October 1, 2002," according to section 252(b)(1) of that act. Therefore, for bills enacted through FY 2002, estimates for the current year, the budget year, and the four subsequent years are placed on the PAYGO scorecard and, if the scorecard entries show that the net of all such bills do not fully pay for themselves in any fiscal year through FY 2006, there is a PAYGO sequester when that year is reached to make up the savings shortfall.
This week's "I Won A Budget Battle" T-shirt goes to Ronald Sissel, a budget analyst with the Occupational Safety and Health Administration in Washington, who was selected at random from the handful of correct responses. A T-shirt also goes to Richard Kogan of the House Budget Committee, who provided the detailed response to the question you see above.
This Week's Question. There will not be a winner with this question for about a month, but the wait will be worth the effort. How many fiscal 2000 appropriations conference reports will be passed by both the House and Senate by the start of the August-Labor Day recess? Send your response to scollender@njdc.com and you could be wearing an "I Won A Budget Battle" T-shirt during the early fall sales at the local mall.
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