USDA's Application of Administrative PAYGO to Its Mandatory Spending Programs

In fiscal year 2010, about 80 percent of the U.S. Department of Agriculture's (USDA) total outlays of about $129 billion was used to fund mandatory spending programs--programs with at least some spending that is controlled through eligibility rules, benefit formulas, and other parameters that are set in law other than appropriations acts. At USDA, mandatory spending programs include the majority of the department's nutrition assistance, farm commodity, crop insurance, and export promotion programs, as well as a number of its conservation programs. A May 23, 2005, memorandum from the Director of Office of Management and Budget (OMB) to the heads of departments and agencies provided guidance on a new OMB review process that would apply to administrative actions not required by law that would increase mandatory spending. As directed by the memorandum, in submitting to OMB for review such proposed actions, agencies must include one or more proposals for other administrative actions to be taken by the agency that would comparably reduce mandatory spending. This process for controlling spending is referred to as "administrative pay-as-you-go (PAYGO)." Administrative actions subject to administrative PAYGO include regulations, demonstrations, program notices, guidance to states or contractors, or other similar actions not required by law that would increase mandatory spending. Among other things, the memorandum states the following: (1) Proposals of actions subject to administrative PAYGO submitted without an offset will be returned to the agency for reconsideration. (2) Questions concerning whether a proposed administrative action is subject to administrative PAYGO will be resolved at the discretion of the OMB Director. (3) If an agency determines that a proposed administrative action that would increase mandatory spending is required by law and therefore not subject to administrative PAYGO, the agency's general counsel must provide an opinion explaining that conclusion. (4) The materials submitted to OMB on the proposed administrative action should include a first-year cost estimate and, whenever possible, 5- and 10-year cost estimates. (5) When there is a difference between cost estimates for the action as submitted for review and as assumed in the most recent projection in the budget or mid-session review, the agency must explain the discrepancy. (6) If OMB determines that a proposed offset is inappropriate, OMB may request that an agency propose alternative offsets. (7) Exceptions to the budget-neutrality requirement set forth in the memorandum must be requested by the agency head and will be granted only when the OMB Director determines that the exception is appropriate in light of extraordinary need or other compelling circumstances. (8) The agency head may appeal the OMB Director's decision to the Budget Review Board. Separate from OMB's review process for agency proposals that would increase mandatory spending, the Congressional Budget Office (CBO) prepares a "baseline," in accordance with the provisions of the Balanced Budget and Emergency Deficit Control Act of 1985 (Deficit Control Act) and the Congressional Budget and Impoundment Control Act of 1974 and publishes this information annually in a report. In this context, Congress asked us to review USDA's actions concerning administrative PAYGO. Our objectives were to determine (1) what additional guidance, if any, exists for the use of administrative PAYGO in mandatory spending programs; (2) the extent to which USDA applied administrative PAYGO to its programs during fiscal years 2005 through 2010, documented these actions, and followed related guidance; and (3) the budgetary and operational impact, if any, of administrative PAYGO actions, as identified by USDA, OMB, and the CBO.