The House is scheduled to consider H.R. 2920, on Wednesday, July 22, 2009, likely under a structured rule. H.R. 2920 was introduced on June 17, 2009, by Rep. Steny Hoyer (D-MD) and referred to the Committee on the Budget. However, no hearings or mark-ups were held prior to bringing the bill to the floor. H.R. 2920 as considered reflects an amendment in the nature of a substitute that replaced the original text of the bill on July 20, 2009.

H.R. 2920 would institute new, permanent statutory pay-as-you-go (PAYGO) budgeting requirements.  The statutory rules differ from the PAYGO rules that expired in 2002 in a number of significant ways.   The bill would require the Congressional Budget Office (CBO) to score bills for the purpose of applying PAYGO, provide for sequestration from a limited number of programs if deficits increase, increase the current baseline to allow the extension of certain provisions of law to be PAYGO compliant, and exempt dozens of mandatory spending programs from PAYGO restrictions.  The specific provisions of the bill are outlined below.

PAYGO Estimates:  The bill would require CBO to score and tabulate the cost of mandatory spending legislation against the current baseline for the purposes of determining PAYGO compliance.  CBO would be required to determine the effect of legislation on spending or deficits.  If a CBO estimate does not accompany a bill that affects mandatory spending, the Office of Management and Budget (OMB) would estimate the cost of the bill.

OMB would then be required to use the CBO scores to maintain public PAYGO scorecards with estimates of the legislation's budgetary effects.  In determining the budgetary effects of legislation, OMB would be required to determine the total effect over five and ten year periods (including the current budget year) and divide the total cost by five or ten years, depending on the applicable scorecard.  The average cost per year would then be applied to each year on the applicable scorecard.  Using this average cost scoring method, legislation that has high estimated costs in the early years with revenue increases in later years could be averaged to lower the apparent cost each year.

Sequestration:  H.R. 2920 would require OMB to publish their CBO-based PAYGO scorecards at the end of each session of Congress.  If either of the two scorecards shows a deficit, OMB and the President would be required to issue a sequestration order that would reduce nonexempt mandatory spending by an amount equal to the deficit.  If both scorecards show a different deficit, OMB would be required to offset the larger of the two.

In carrying out a sequestration order, OMB would be required to reduce nonexempt mandatory spending by a uniform percentage.  However, mandatory programs that are exempt from PAYGO requirements would not be subject to sequestration.  According to CBO's analysis, "the threat of sequestration would apply only to relatively modest amounts of mandatory spending because the vast majority of such spending would be exempt from that enforcement (as was the case under the BEA's PAYGO framework).  As a result, any feasible sequestration would not generate enough reductions in spending to offset the costs of major new spending or revenue initiatives."

Exemptions:  The bill has numerous exceptions to the PAYGO requirements that allow legislation with high mandatory costs to be enacted without offsets, in spite of the statutory PAYGO restrictions.

Emergency Legislation:  Mandatory spending provisions designated as emergency legislation would not be scored as having a budgetary effect by CBO for the purpose of PAYGO enforcement.

Discretionary Spending:  The bill exempts discretionary spending-approximately 40 percent of federal spending-from being subject to PAYGO budget neutrality requirements.

Exempt Programs:  Under the Budget Enforcement Act of 1990 (BEA), which first established statutory PAYGO requirements and expired in 2002, dozens of mandatory programs are exempt from PAYGO requirements.  H.R. 2920 includes all of the exempt mandatory spending programs under BEA and adds mandatory programs passed since 2002, such as the Troubled Asset Relief Program (TARP) and the State Children's Health Insurance Program (SCHIP), to the exempt list.  Under the bill, more than 100 mandatory spending programs are exempt from statutory PAYGO requirements.

Baseline Modifications:  H.R. 2920 would adjust the current baseline by adding billions of dollars in new spending assumptions to allow provisions that are set to expire under current law to be extended without having to meet PAYGO requirements.  It would also assume the extension of certain tax relief.  The bill would change the baseline to assume the extension of four areas of the budget:

• Increased Medicare payments for physicians ($285 billion).
• Tax relief from 2001 and 2003 for taxpayers earning less than $200,000 for individuals and $250,000 for joint filers (President Obama's "Making Work Pay Tax Credit"). 
• The Alternative Minimum Tax (AMT) patch for individuals.
• The estate and gift tax continued at FY 2009 levels.

Congress first instituted statutory pay-as-you-go (PAYGO) legislation in the Budget Enforcement Act of 1990 (BEA).  The legislation instituted a statutory PAYGO requirement for new mandatory spending and set limits on certain discretionary spending.  Under the law, the President was required to enforce the PAYGO requirements through sequestration, reducing nonexempt mandatory spending.  The statutory PAYGO restrictions under the BEA expired in 2002.

In 2007, the newly elected Democrat Majority enacted their own version of PAYGO restrictions, with Speaker Nancy Pelosi declaring that, "After years of historic deficits, this new Congress will commit itself to a higher standard: pay as you go, no new deficit spending.  Our new America will provide unlimited opportunity for future generations, not burden them with mountains of debt."  However, since that time the Democrat Majority has presided over the most unprecedented spending spree in our nation's history.  Since the Democrat takeover, the public debt has nearly doubled from $4.8 trillion in 2006 to $8.6 trillion in 2010.  Over the same period, the nation's deficit has exploded by more than ten-fold, from $162 billion in FY 2007 under the Republican's last budget, to $1.8 trillion in FY 2009.  Rather than reduce deficit spending, Democrats have used loopholes to get around their own PAYGO rules or simply waived the rule to pass numerous bills that increased deficits by $420 billion in the 110^th Congress alone.

A CBO score for H.R. 2920 is not yet available. However, a CBO analysis of the original version of the legislation states, "In keeping with the principle that proposed legislation should be scored to quantify its incremental effects relative to the current budget resolution baseline, CBO believes that H.R. 2920 itself should be scored as increasing mandatory spending."

While adamantly supporting fiscal responsibility and reducing increased federal spending, many Members recognize that Democrat's PAYGO gimmicks have done nothing to curb runaway mandatory spending or reduce deficits and debt.  Members have expressed various concerns since the Democrats took control in 2006 and promised "no more deficit spending."   However, the Democrats' PAYGO standards have failed and done nothing to curb spending or control the deficit.  Concerns Members may have with the Democrats PAYGO include its numerous loopholes, inability to address increased appropriated spending or spending under current law, and tendency to encourage increased taxes in lieu of fiscal discipline.

Loopholes:  Members may be concerned that H.R. 2920 contains many loopholes that would allow spending to continue to increase without being subject to PAYGO restrictions.

• Discretionary spending, which accounts for 40 percent of all spending and is being increased by 8 percent this year, is excluded from PAYGO requirements under the bill.
• Emergency legislation that increases mandatory spending is not subject to PAYGO restrictions.
• Hundreds of mandatory spending programs are exempt from any PAYGO sequester (enforcement), which not only limits the programs that must be offset, but weakens the bill's sequestration component by limiting the number of bills that may be reduced to offset costs.  According to CBO "sequestration would not generate enough reductions in spending to offset the costs of major new spending" as a result of these exemptions.

Modified Baseline:  Although supporting reform of the formula used to provide Medicare reimbursements to doctors, Members may be concerned that the bill simply assumes billions in Medicare spending has no cost and needs no offset, all in order to mask a $239 billion deficit increase resulting from H.R. 3200, the Democrat health reform bill.

Entitlements:  Members may be concerned that the legislation does not address the entitlement spending crisis projected under current law or the mandatory unfunded liabilities that will continue to drive debt and deficits in years to come.