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FISCAL YEAR 2003

MID-SESSION REVIEW

BUDGET OF THE UNITED STATES GOVERNMENT

July 15, 2002

The Honorable J. Dennis Hastert
Speaker of the House
of Representatives
Washington, DC 20515
Dear Mr. Speaker:
Section 1106 of Title 31, United States Code, requires that the President transmit to the
Congress a supplemental update of the Budget that was transmitted to the Congress earlier in the
year. This supplemental update of the Budget, commonly known as the Mid-Session Review,
contains revised estimates of the budget surplus, receipts, outlays, and budget authority for fiscal
years 2002 through 2007 and other summary information required by statute. For the first time,
the Mid-Session Review addresses the vitally important topic of federal management, and
provides detailed updates on executive branch progress on the President’s Management Agenda.

Sincerely,

Mitchell E. Daniels, Jr.
Director
Enclosure

Identical Letter Sent to The President of the Senate

TABLE OF CONTENTS
Page

Transmittal Letter
List of Tables ......................................................................................................................

iii

List of Charts .....................................................................................................................

Summary ............................................................................................................................

Economic Assumptions ......................................................................................................

Receipts ...............................................................................................................................

Spending .............................................................................................................................

Progress Implementing the President’s Management Agenda ......................................

Summary Tables ................................................................................................................

GENERAL NOTES
1. All years referred to are fiscal years unless otherwise noted.
2. All totals in the text and tables display both on-budget and offbudget spending and receipts unless otherwise noted.
3. Details in the tables and text may not add to totals due to
rounding.
4. Web address: http://www.whitehouse.gov/omb/budget

LIST OF TABLES
Page

Table 1.

Changes from 2003 Budget ...........................................................................

Table 2.

Changes from February 2001 ........................................................................

Table 3.

Economic Assumptions ..................................................................................

Table 4.

Change in Receipts ........................................................................................

Table 5.

Change in Outlays .........................................................................................

Table 6.

Budget Totals .................................................................................................

Table 7.

Budget Summary by Category ......................................................................

Table 8.

Impact of Budget Policy on the Surplus ......................................................

Table 9.

Discretionary Totals .......................................................................................

Table 10.

Mandatory Proposals .....................................................................................

Table 11.

Effect of Proposals on Receipts .....................................................................

Table 12.

Receipts by Source .........................................................................................

Table 13.

Discretionary Budget Authority by Agency .................................................

Table 14.

Discretionary Proposals by Appropriations Subcommittee ........................

Table 15.

Outlays by Agency .........................................................................................

Table 16.

Outlays by Function ......................................................................................

Table 17.

Estimated Spending from 2003 Balances of Budget Authority:
Discretionary Programs ............................................................................

Table 18.

Baseline Category Totals ...............................................................................

Table 19.

Outlays for Mandatory Programs Under Current Law ..............................

Table 20.

Federal Government Financing and Debt ....................................................

iii

LIST OF CHARTS
Page

Chart 1.

Income Tax Take Still High Despite Tax Relief ............................................

Chart 2.

Capital Gains Taxes Closely Track the Stock Market ..................................

Chart 3.

A Historically Small Deficit Given War and Recession ................................

Chart 4.

Security Spending Increases Require Restraint Elsewhere ..........................

Chart 5.

Current Spending Trends Lock in Perpetual Deficits ...................................

SUMMARY
When this report was published last year,
the nation was in the midst of a recession
that, predictably, was already having detrimental effects on the government’s finances.
What no one could predict was that just
20 days later, a lethal attack on America
would exacerbate the recession and trigger
extraordinary military, homeland defense, and
repair expenditures that would at least temporarily make an enormous difference in the
fiscal outlook.
By the February 2002 submission of the
Budget for fiscal year 2003, the budgetary
effects of the recession and the war on
terror were well understood. It was also
becoming apparent that the flood of revenue
that produced record surpluses in the late
1990s was driven both by underlying economic
growth, the traditionally decisive factor, and,
in ways not yet fully grasped, by the extraordinary boom in the stock market. The markedly greater dependence of revenues on stock
market developments was not yet understood
by experts either inside or outside the government.
The economic recovery appears to be underway, the one-time costs of recovery are being
paid, and the expense of war-fighting abroad
and new protective resources at home have
been incorporated in budget plans. Taking
all these changes into account, the federal
government is now projected to spend $165
billion more than it receives in revenues
in 2002, up from the $106 billion projected
nearly six months ago. Table 1 below comparing February and July estimates shows
Table 1.

a return to the pre-recession pattern of
surpluses in 2005, and growing surpluses
thereafter. Future improvements, however, depend to a significant extent on two key
factors: 1) restraint of the recent rapid growth
in federal spending; and 2) a resumption
of growth in tax payments produced by
a stronger economy and a stronger stock
market.
Moving Forward Amid the Backdrop of
War
President Bush placed two purposes above
all others in his 2003 Budget: Winning the
war on terror and restoring the economy
to health. On both fronts, initial progress
has been encouraging. Military action in
Afghanistan has depleted the ranks and greatly weakened the operational capabilities of
the terrorists. On the economic front, the
nation’s gross domestic product (GDP) grew
at an impressive 6.1 percent annual rate
in the first quarter of 2002, making the
recession both shorter and shallower than
most and the early recovery far stronger
than assumed in February’s budget.
For the future, we can be certain only
of the intentions of our adversaries and
our own resolve to defeat them. We know
neither the length of the conflict nor the
budgetary expense of victory. Nor can we
be certain the economy will not be weakened
by further shocks. To preserve the flexibility
to respond to future events while maintaining
a fiscal framework that will return the budget
to surplus, it is imperative that spending,

CHANGES FROM 2003 BUDGET
(In billions of dollars)
2002

2003

2004

2005

2006

2007

2003–2007

2003 Budget policy surplus ........................
Enacted legislation ..................................
Supplemental and other adjustments to
Administration policy ...........................
Economic and technical reestimates ......

–106
34

–80
33

–14
17

61
33

86
4

104
2

157
89

–13
–80

–7
–54

–6
–45

–3
–37

–4
–26

–3
–18

–25
–181

Total changes ...............................................
Mid-Session Review policy surplus ............

–59
–165

–29
–109

–34
–48

–8
53

–26
60

–20
84

–117
41
1

MID–SESSION REVIEW

Chart 1. Income Tax Take Still High Despite Tax Relief
(Individual Income Taxes as a Percent of GDP)
Percent of GDP

12
SOURCES OF CHANGE IN INDIVIDUAL INCOME TAXES
(In billions of dollars)

Individual Income Taxes:
February 2001 Baseline Estimate
Changes:
Tax relief
Economic and other changes

2001

2002

2003

1,073

1,103

1,149

-41
-38

-65
-165

-80
-105

994

873

964

Recession
Current Estimate

9
8
Tax Relief

7
6
1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

Tax relief enacted in 2001 reduced individual income taxes as a share of GDP from
an all-time high, but five-year forecasts keep them among the highest levels in
U.S. history.

especially on programs not related to the
primary objectives of the 2003 Budget, be
tightly restrained.
Emergencies and Response Increase
Outlays
In late March 2002, President Bush requested that Congress provide an additional
$27.1 billion, primarily for our efforts in
the war against terror. More than half of
this amount would fund the war-fighting
activities of the Department of Defense and
the intelligence community. The major remaining portions of the supplemental request
are needed for homeland security, mainly
in the new Transportation Security Administration, and for emergency response and
recovery efforts in New York City. Most
of this spending is one-time in character
and will not be continued in future years.
In June, President Bush called on Congress
to create the Department of Homeland Secu-

rity to meet the new threats to our nation’s
security more effectively. Homeland security
responsibilities are now spread among 100
government entities. The new Cabinet agency
will be organized to better safeguard against
threats at home by integrating similar functions, streamlining communications, coordinating systems, and allowing more comprehensive planning.
Responding to the Effects of Recession
The economic impact of the September
11th attacks and the recession they deepened
exacted an additional toll on federal receipts.
This impact was partly ameliorated by enactment in June 2001 of the President’s tax
relief program. As Chart 1 shows, tax relief
brought individual income taxes as a share
of GDP back from its recent all-time high.
Were it not for the recession, receipts would
still be historically high despite the tax

SUMMARY

cut, and will increase again as the economic
recovery proceeds.
‘‘For once, Congress managed to implement
a contra-cyclical fiscal policy that should
boost economic growth exactly when the economy needs it,’’ said Merrill Lynch’s Bruce
Steinberg around the time the tax relief
bill was passed. Martin Feldstein, president
of the authoritative National Bureau of Economic Research, called the subsequent economic turnaround ‘‘neither an illusion nor
an accident,’’ adding that ‘‘[a] primary reason
for the strength of consumer spending was
the enactment of the tax cut in early 2001.’’
Congressional Budget Office (CBO) Director
Dan L. Crippen told the Senate Budget
Committee in January, ‘‘[T]he tax cuts enacted
in June prevented consumption from slowing
more than it might have otherwise . . .’’
President Bush called on the Congress
in the Fall of 2001 to enact a further
tax stimulus program to counteract the recession. Congress responded in March by enacting
the Job Creation and Worker Assistance
Act. The central feature of this Act was
a set of temporary provisions to encourage
business investment. Specifically, the Act permits firms to write off 30 percent of the
value of their qualified investments in the
year of purchase. To help ease the financial
pressure on Americans directly affected by
the recession, the law also extended for
13 weeks the unemployment benefits available
to those who remained out of work since
the onset of the recession.
The Fall of Receipts
The recession also meant that funds flowing
into the Treasury fell substantially. Receipts
in 2002 are now estimated to decline outright
by $124 billion, or six percent, from 2001
levels. The last time revenues fell to that
extent was in 1955.
The current shortfall represents the mirror
image of the revenue explosion of recent
years. From 1995 to 2000, federal receipts
grew at an average annual rate of more
than eight percent, from $1.4 trillion to
$2.0 trillion. Growth in total receipts exceeded
overall economic growth, driving up the ratio
of receipts to GDP, or tax share, from
18.5 percent to 20.8 percent, a peacetime

3
record. The rise in total receipts was driven
largely by increases in individual income
taxes.
Strong real personal income growth was
responsible for some of the rise in the
tax share during the late 1990s. The taxable
components of personal income per capita
rose 6.8 percent annually from 1995 to 2000,
far exceeding the average 2.5 percent increase
in the Consumer Price Index over this period.
An analysis of the period 1995–99 by CBO
estimates that when measured by adjusted
gross income this real income growth, by
pushing workers into higher tax brackets,
accounted for just under a third of the
rise in the share of individual taxes to
GDP.
The strength in individual income tax receipts traced very directly to a period of
remarkable stock market gains. Estimated
capital gains tax payments almost tripled
from $40 billion in 1995 to $118 billion
in 2000, rising as a share of GDP from
0.5 percent to 1.2 percent. Thus, while capital
gains receipts are a small portion of overall
revenues, they accounted for roughly onethird of the rise in the tax share over
this period. The leap in realized capital
gains was driven primarily by the rise in
the stock market, but also by the development
of inexpensive trading accounts.
The stock market’s rise also increased the
value of assets held in tax deferred accounts.
The value of these accounts rose from $6
trillion in 1994 to $11.7 trillion in 2000.
Withdrawals from these accounts are taxed
as ordinary income. CBO estimates that
growth in taxes paid on retirement withdrawals, Social Security benefits, and other
sources accounts for roughly 10 percent of
the increase in the ratio of individual income
taxes to GDP in the late 1990s.
After surging for more than seven years,
revenue growth slowed dramatically in 2001,
even before accounting for the 2001 tax
relief act, and then fell in 2002. The reversal
was driven predominantly by the recession
and the stock market’s decline. Moreover,
the drop in receipts has been notably larger
than the decline in economic growth. The
difference between receipts growth and GDP
growth in 2002, even after adjustments for

MID–SESSION REVIEW

the 2001 tax relief and the 2002 stimulus
act, is projected to reach eight percentage
points. This is a much larger divergence
than during the 1990–91 recession, even
when adjusted for tax legislation at that
time. The current receipts situation is similar
to those experienced during the far more
severe recessions of the 1970s and early
1980s.
Individual income taxes, as opposed to
payroll taxes, corporate taxes, or other forms
of revenue, account for nearly all of this
year’s projected drop in receipts. Through
May, so-called ‘‘non-withheld payments’’ (largely the final tax payments submitted with
April 15th tax returns) were down $80 billion,
or 28 percent, from this time last year.
Such payments commonly are owed on capital

gains from equities, mutual fund distributions,
and small business income. Likewise, refunds
were up $31 billion, or 23 percent, from
last year. Workers who had too much tax
withheld from their paychecks, and capital
losses suffered by investors are thought to
be the main explanations behind the jump
in refunds.
The precise causes of this year’s income
tax drop-off will not be known for some
time. However, since taxes on capital gains
are often not paid until the April 15th
deadline, the size and timing of the decline
in receipts through May strongly point to
a dramatic decline in net capital gains realizations. (Further discussion of the stock market’s
impact on revenue appears in the following
box and in Chart 2.)

Chart 2. Capital Gains Taxes Closely Track the Stock Market
Index level of the S&P 500

Taxes paid in billions of dollars

1,600

200

1,400

S&P 500 Index

1,200

150

1,000
800
600
400
Capital Gains Taxes Paid

?
100
?
?
?
?
? 50
?

200
0

0
1990

1992

1994

1996

1998

2000

2002

Capital gains taxes that rose dramatically with the stock market through the latter half
of the 1990s are now falling just as sharply.

SUMMARY

The Growing Role of the Stock Market in Federal Receipts
As seen in the late 1990s, when the economy grows, income tax receipts tend to grow
even faster. Similarly, when the economy slips into recession, income tax receipts tend
to decline faster than the economy. As the structure of the economy and the income tax
evolve, the nature of their interaction may also evolve, often in surprising ways. This,
in fact, appears to have occurred as total tax receipts grew more rapidly than expected
at the end of the last decade, and then declined more rapidly than expected this year. A
good example was the run-up of the stock market in the late 1990s. When combined
with certain market changes, the boom in stocks led to an extraordinary increase in
capital gains tax collections.
While the data are not yet available to uncover all the causes of the recent declines
in individual income tax receipts over and above what would be expected given the
economy’s performance, it is likely that the capital gains tax phenomenon is playing a
major role. It is clear that most forecasters and analysts did not understand the capital
gains tax role previously, or understand it fully today. However, the evidence for this
effect is compelling.
From January 1995 to March 2000, the S&P 500 index of stocks rose over 230 percent. It is estimated that capital gains tax receipts increased from $40 billion in 1995 to
$118 billion in 2000. The increase in tax receipts was partly due to the rise in the stock
market, but it was also likely due in part to the dramatic reduction in the cost of buying and selling equities and the increased ease of doing so through on-line trading.
Both likely translated to a further acceleration of capital gains realizations.
The strength of the stock market also encouraged firms to rely more heavily on performance-linked compensation. Employee stock options were particularly popular at
start-up firms and technology companies. The number of options granted increased 25
percent from 1997 to 2000, while the income from exercised options jumped 150 percent, from $45 billion to $113 billion. Treasury’s Office of Tax Analysis estimates that
individual income taxes on exercised stock options increased from $17 billion in 1997 to
$42 billion in 2000. Much, though certainly not all, of this revenue was offset as corporations deducted the amounts of exercised options from taxable income.
In the same way, the stock market’s decline has likely led to the opposite effect—significantly lower net capital gains receipts. For example, Investment Company Institute
data show that capital gains distributions from mutual funds plunged 80 percent in
2001, declining from $326 billion in 2000 to $69 billion in 2001. Also, much of the dip in
2002 receipts occurred with the April 15, 2002, payments of non-withheld taxes, which
came in roughly $75 billion under expectations. These payments include capital gains
tax liabilities accrued in 2001, along with other sources of tax liability.
As the economy continues to recover, the stock market may well bounce back as a
consequence. But it is unclear whether the stock market will rise sufficiently to generate the higher level of revenues experienced in the late 1990s, or follow a more traditional pattern.
In the near term, there is also the question of the realized and unrealized capital
losses that have been sustained. The decline in the stock market has generated an
enormous amount of capital losses. Some of these losses have already been realized,
i.e., the shares have been sold and the capital losses deducted from long-term gains or
ordinary income. However, there is an annual limit of $3,000 on losses that can be used
to reduce ordinary taxable income, meaning that there probably is a sizable amount of
realized capital losses that taxpayers are carrying forward into next year and into years
beyond.

MID–SESSION REVIEW

The Growing Role of the Stock Market in Federal Receipts—
(Continued)
Moreover, this overhang may grow in the near term. Presumably, a large portion of
the capital losses incurred since the stock market began its decline have not yet been
realized. Some portion of these accrued losses may be realized next year or thereafter,
further adding to the amount being charged against current income or carried forward
to future tax years.
Most of these losses represent equity shares that will not be sold because shareholders choose to ride out the downturn. However, the stock market may have to experience a significant increase before these accrued losses are erased and shareholders
are once again enjoying actual capital gains that would generate tax revenue upon the
sale of their assets.
The stock market and the capital gains receipts it generates have become more important than ever to the federal budget outlook. Their volatilities and uncertainties
merit a very close inspection by those who participate in the budget process.

Uncertainties in Long-Term Budget
Forecasts

2) That no significant events would alter
the budget outlook; and

As documented in the February budget
submission, the exercise of producing 10year budget forecasts is fraught with problems.
Budget forecasters have trouble making accurate predictions for the upcoming year, much
less 10 years into the future. Despite the
clear deficiencies, some have applied a benchmark status to the 10-year forecast the
Administration made over a year ago.

3) That no policy changes would take
place for 10 years.
Obviously, the Administration intended numerous policy changes, the first of which
were presented in the February 2001 Budget.
The other two assumptions were undermined
by events.

In February 2001, the Administration issued
a ‘‘baseline’’ projection reporting that the
federal government would run surpluses totaling $5.6 trillion from 2002 to 2011. Like
all baseline projections, this one was predicated on three major assumptions:

The economy had shown signs of stagnating
throughout 2000. For example, the stock
market began to decline in March 2000,
followed by collapsing business investment
by the end of the year, and higher unemployment rolls beginning in early 2001. The
economy entered official recession in March
2001.

1) That the economy would perform as
expected;

The recession’s profound effect was the
largest factor changing the projected long-

Table 2.

CHANGES FROM FEBRUARY 2001
(In billions of dollars)
2002

2003

2002–2011

February 2001 baseline surplus .........................................................
Economic and technical reestimates ...............................................
Enacted policy:
Tax relief .......................................................................................
Other enacted legislation .............................................................

283
–278

334
–194

5,637
–1,669

–41
–115

–94
–107

–1,491
–760

Subtotal, enacted policy ...................................................................
President’s budget proposals ...........................................................

–156
–15

–202
–47

–2,251
–1,273

Total change ..................................................................................
Mid-Session Review policy surplus .....................................................

–448
–165

–443
–109

–5,193
444

SUMMARY

term budget surplus. The $1.7 trillion change
in the projected cumulative surplus is due
to economically driven lower receipts. This
change reflects the recession’s immediate impact and a more cautious outlook about
long-term revenues.
Other external events had an obvious and
dramatic impact on the budget. The September
11th terrorist attacks on New York City,
on Washington, and in the Pennsylvania
skies had the dual fiscal effect of deepening
the recession and requiring unplanned spending of tens of billions of dollars to recover
and to protect against future attacks. Spending
in response to those attacks, the additional
deadly assaults carried out with anthrax,
and the necessary additional increases in
defense and homeland security spending further reduced projected surpluses.
The assumption of no new policy is, of
course, just a budgeting convention. Some
policy changes were intended at the Administration’s inception; changed circumstances
have prompted other shifts.
The surplus also changed because the President believed that some portion of it should
be returned to the taxpayers. Prior to 2001,
he called for tax relief to strengthen the
economy in the long run, and stated his
concern about the possibility of economic
slowdown in the near term. Congress agreed
and enacted the bipartisan Economic Growth
and Tax Relief Reconciliation Act (EGTRRA)
in June 2001. This legislation changed the
10-year projected surplus by $1.5 trillion
from 2002 to 2011. Its impact in 2002
was very limited, accounting for less than
10 percent of the $448 billion total shift
in expected surpluses for 2002. (See Table
2 for details.) Clearly, the tax cut did not
eliminate the surplus, and, in fact, was
remarkably well-timed and well-designed for
addressing the recession.
The President’s February 2001 Budget also
included some new spending measures, for
example, the costs associated with the President’s Medicare prescription drug proposal,
his education reforms, and his initial defense
rebuilding proposals. Collectively, these three
initiatives would combine to reduce estimated
surpluses by approximately $300 billion.

A further impact came from higher than
planned discretionary appropriations for 2002,
and this year’s economic stimulus and farm
bills. The latest projected surplus for the
2002–11 period is $444 billion. (For the
10 years 2003–12, that figure grows to $827
billion.) Even this amount depends on congressional adherence to the President’s call for
spending discipline.
The 10-year, $5.6 trillion baseline surplus
projection was a good-faith estimate, consistent
with CBO and contemporary forecasts, which
also assumed no programmatic changes, no
recession, no September 11th, and no war
on terror. The 2001 tax cut was the correct
fiscal policy response to the recession, had
little effect on short-term surpluses, and
is not the predominant cause of the reduction
in the projected surplus.
An Improved Economic Outlook Over the
Horizon
The combination of higher spending necessitated by the attacks of September 11th
and lower than expected receipts meant a
sharp fiscal reversal from the $127 billion
surplus posted in 2001. Nonetheless, the
deficit as a percentage of GDP is small
historically, as Chart 3 shows.
This period in deficit should be brief,
because economic fundamentals have stayed
strong. The budget outlook for 2003 is more
favorable than 2002, assuming overall spending growth is held to a more sustainable
five percent. With a rebound in receipts
from depressed 2002 levels, the projected
deficit for 2003 is $109 billion, down from
$165 billion currently projected for 2002.
The pattern is repeated in fiscal year 2004,
where four percent spending growth coupled
with seven percent revenue growth reduces
the deficit to $48 billion.
Current estimates show a return to surplus
in 2005. The strong fundamentals of the
U.S. economy—low inflation, strong productivity growth, and a healthy labor market—
should combine to deliver growing surpluses
and the opportunity to resume paying down
the national debt in the years beyond.

MID–SESSION REVIEW

Chart 3. A Historically Small Deficit
Given War and Recession
Percent of GDP
3
2
1
0
-1
-2
-3

2002 Deficit
1.6% Share
of GDP

-4
-5
-6
-7
1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

Note: Shaded areas show fiscal years with recession troughs.

The 2002 deficit’s 1.6 percent share of gross domestic product is small compared to
deficits incurred in the last 40 years.

Spending Restraint Is Key
The budget outlook, as always, is subject
to innumerable uncertainties. New developments or a widening of the war on terror
may require additional outlays, potentially
for years to come. A weaker economy than
projected may lead to additional revenue
disappointments, whereas a resurgent stock
market may reverse the recent declines in
net capital gains receipts. These still-unfolding
events provide new reasons to dispense with
the misplaced emphasis on 10-year budget
projections, as the Administration has previously suggested. Even the latter years contained in five-year estimates, which the Administration is required by statute to present,
must be viewed warily.

priations in response to September 11th and
the Administration’s proposed supplemental
funding, discretionary budget authority rises
$72 billion, or 11 percent, from 2001. Overall
outlays are up an estimated $169 billion,
or nine percent, from 2001, of which $36
billion is the result of emergency appropriations in response to September 11th, including
the Administration’s proposed supplemental
funding. The risks to our long-term fiscal
health will decline greatly if policymakers
act to slow the recent rapid growth in
discretionary spending. Overall appropriations
have been allowed to grow an average of
seven percent annually since 1998. Chart
4 shows pressures for continued rapid spending growth have not subsided even amid
the new fiscal realities.

Despite these uncertainties, the risks remain
manageable, provided policymakers exercise
appropriate discipline. Overall non-emergency
discretionary budget authority for 2002 is
up an estimated $45 billion, or seven percent,
from 2001. If one includes emergency appro-

Achieving the restrained spending growth
detailed in the President’s Budget is essential
if we are to return to budget balance. To
that end, the Administration renews its call
for legally enforceable budget discipline tools,
such as making the budget resolution law

SUMMARY

Chart 4. Security Spending Increases
Require Restraint Elsewhere
Percentage growth in budget authority

12.3%
12

*10.0%

Other

6.7%

Other

7.0%
Other

Dept. of
Defense

4
2
0

Dept. of
Defense

0.8%

Dept. of
Defense

Other

1990 - 1998
Deficits and
BEA Caps

1998 - 2001
Surplus Era

2002
Actual

Homeland
Security

2003
President's
Budget

2003
Senate Level

Note: Data for Homeland Security not available before 2001.
* On 7-03-02 the President requested $10 billion for the war on terrorism, raising the 2003 increase from 8.5% to 10%.

To start back toward balanced budgets, the required increases for the war on terrorism
and homeland security must be balanced by a slower rate of increase of two percent
in other government spending.

and reimposing caps on overall spending
levels.
Even absent the budgetary demands of
war and the need to return to balance,
fiscal discipline is needed to address looming
fiscal threats posed by entitlement, or mandatory, spending growth. For the moment, Medicare and Social Security spending, both of
which are estimated to increase by approximately 4.5 percent in 2003, help to moderate
total federal spending growth rates. Other
mandatory spending programs, such as agricultural and veterans spending, are growing
more rapidly.
With the recent enactment of the farm
bill, mandatory agriculture commodity and
conservation spending will increase by an
estimated 25 percent in 2003. Veterans mandatory spending is projected to increase by
15 percent. Even so, Congress is considering
significant expansions in agriculture for

drought assistance, in Medicare, and in veterans mandatory spending. As Chart 5 illustrates, continued unconstrained growth in
discretionary spending and expansion in mandatory spending would eliminate any hope
of balanced budgets, let alone surpluses and
debt reduction.
In the long run, Social Security, Medicare,
and Medicaid spending will accelerate with
the retirement of the baby boom generation.
The President has proposed a long-term reform
plan for Medicare that includes a prescription
drug benefit. Meanwhile, the President’s Commission on Social Security Reform confirmed
what others have demonstrated: the Social
Security system is heading for acute financial
difficulties in the not-too-distant future.
It bears repeating: a return to balanced
budgets depends on slowing the recent growth
in discretionary spending. Just as interest
compounds rapidly to the benefit of savers,

MID–SESSION REVIEW

Chart 5. Recent Spending Trends Lock In Perpetual Deficits
In billions of dollars

400

Surpluses
President's Budget Path

200

$2.0 Trillion
Surplus Reduction

-200
Possible Mandatory Expansions
Surplus Reduction
of $0.5 Trillion

-400

Deficits

Continued 1998-2003
Discretionary Growth of 7.4%

-600
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Continuing discretionary spending growth as its recent rate produces permanent deficits
by spending $2 trillion more through 2012 vs. the President’s Budget path, which, by
contrast, would return the budget to surpluses beginning in 2005.

so, too, does incremental spending compound
to add dramatically to future outlays. Chart
5 illustrates the effect, with the widening
difference between the current spending course
and the President’s budgetary path amounting
to $2 trillion by 2012. The problem is exacerbated by the unfortunate illogic through which
each program’s funding level this year is
treated as the starting point for next year’s
budget deliberations. The effect is a bias
toward increasing spending, with too little
attention given to identifying what works,
what doesn’t, and what isn’t worth keeping
at all. Measuring and acting on the performance of government programs is a major
point of emphasis for the Administration.
This initiative, long sought by government
reform advocates, must culminate in a commitment to make these practices routine and

their contributions to better government permanent.
The kind of restraint the President has
called for should not be difficult to achieve.
Most states are demonstrating it now. Overall
state spending growth for 2002 was held
to two percent, the same figure the President
has recommended for non-war, non-homeland
defense activities. Governors’ proposed budgets
for 2003 collectively foresee a 1.4 percent
rise in spending, the smallest since 1983.
For now, the fundamentals of the economy
and the federal government’s fiscal outlook
remain strong. The best way to protect both,
as we do what we must to defend the
lives of Americans, is to approach all other
governmental spending increases with great
caution in the years directly ahead.

ECONOMIC ASSUMPTIONS
Introduction
The U.S. economy has displayed remarkable
resilience in the face of unprecedented shocks.
The economic slowdown that began in mid2000 turned into a full-blown recession in
March 2001. The disruption to economic activity caused by the September 11th attacks
contributed to the brief contraction of economic
activity.
Thanks to timely fiscal and monetary policy
responses and the willingness of households
and businesses to trust in the future, a
recovery in economic activity is underway,
making the recent recession the mildest on
record. Economic growth resumed in the
fourth quarter of last year, accelerated sharply
in the first quarter of 2002, and continued
in the second quarter, albeit at a slower
pace. Growth will continue to be supported
by higher after-tax incomes resulting in part
from the tax relief enacted last year and
by the incentives for business investment
in the recently enacted stimulus package.
The brevity of the contraction and the
strength of the subsequent recovery were
not anticipated in forecasts made at the
turn of the year. Since January, forecasters—
including the Administration’s—have raised
their projections for growth over the nearterm. If the upturn in capital spending is
delayed or if consumer spending weakens,
the balance of the recovery might be weaker
than projected. Still, the longer-term economic
outlook remains favorable. The recent strong
productivity performance, even during the
recession, provides encouraging evidence that
the improvement in business productivity observed during the last half of the 1990s
has become a structural feature of our economy.
The Administration’s economic projections
are virtually identical to the consensus of
private sector forecasts. They anticipate a
healthy but reasonable expansion that will
create more private-sector jobs, higher incomes, and growing profits. The Administration’s economic policies—providing tax relief,

shifting spending to the most effective, highpriority programs, promoting efficient regulation, and freeing resources to be used more
effectively in the private sector—will be important factors in achieving a strong, sustained
expansion.
Fiscal Policy: Fiscal policy played a valuable
role in enabling the economy to return quickly
to sustained, noninflationary growth. In June
2001, the President signed the Economic
Growth and Tax Relief Reconciliation Act
(EGTRRA), which provided substantial tax
relief to the American people. The goal of
the Act was to reduce tax burdens permanently. The Act, however, could not have
been better timed from a cyclical perspective.
Beginning in July 2001, 85 million taxpayers
received rebate checks totaling $36 billion
reflecting the new, lower 10 percent tax
bracket. In addition, income tax withholding
schedules were reduced to incorporate the
first stage of the lower marginal income
tax rates for those in the 28 percent tax
bracket and higher. In January 2002, withholding schedules were lowered again to reflect
the 10 percent tax bracket. The rebate and
lower withholding rates reduced personal income tax liabilities by $44 billion in calendar
year 2001 and by $52 billion in 2002. Altogether, EGTRRA reduced taxpayers’ 2002 calendar year liabilities by about $70 billion.
Fiscal policy provided further support to
the recovery with the passage in March
2002 of the Job Creation and Worker Assistance Act. The Act provides an incentive
for businesses to invest by permitting them
to expense 30 percent of the value of qualified
new capital assets including equipment and
software. The balance is depreciated according
to existing schedules. The expensing provisions, which expire in September 2004, reduce
the cost of capital and so provide an additional
incentive for businesses to invest during the
vulnerable initial phase of the expansion.
The Act also provides up to 13 weeks of
additional unemployment benefits for the long11

12
term unemployed who exhaust regular unemployment insurance benefits.
Budget Surpluses and Interest Rates: Recent
years have featured repeated assertions that
large federal surpluses were necessary to
keep interest rates low. Although there is
no historical correlation between the fiscal
net position and interest rates, this view
still seems to have its adherents. It is
important, therefore, to note that a return
to deficits has coincided so far with falling
and extraordinarily low interest rates (see
next section).
Monetary Policy: Low inflation has permitted
the Federal Reserve to pursue a monetary
policy focused on reviving economic activity.
During the first eight months of 2001, the
Federal Reserve reduced the federal funds
rate from 61⁄2 percent to 31⁄2 percent. Then,
after September 11th, the rate was cut to
just 13⁄4 percent by December, the lowest
level since the early 1960s; it has remained
at that level during the first half of 2002.
Short-term interest rates declined sharply
as the Federal Reserve reduced the federal
funds rate.
At the longer end of the maturity spectrum,
rates declined significantly in late 2000 and
remained close to those levels during 2001
and the first half of 2002. The yield on
the 10-year Treasury note was around five
percent in late 2001 and the first five months
of 2002. Except for a brief period in 1998
and again in early 2001, this was its lowest
level in 35 years. The rate on 30-year conventional mortgages was around seven percent
in 2001 and the first five months of 2002,
also one of the lowest levels since the mid1960s. In June, long-term rates edged down
further.
Recent Developments
Real Gross Domestic Product (GDP) grew
at a 1.7 percent annual rate in the fourth
quarter of 2001, following a 1.3 percent
decline in the third quarter. In the first
quarter of 2002, growth accelerated to a
6.1 percent pace, the fastest advance in
over two years. The recovery in economic
activity was led by the household sector,
with additional contributions to growth from
higher government spending, and a much

MID–SESSION REVIEW

reduced rate of inventory liquidation. Business
capital spending and the foreign sector remained ongoing restraints on growth. Although the growth rate in the second quarter
of 2002 will not be announced until the
end of July, it appears that the economy
continued to expand, although at a more
moderate pace than in the first quarter.
Consumer confidence, and with it consumer
spending, fell sharply immediately after the
September terrorist attacks, but the successful
pursuit of the war on terrorism and some
strengthening in the stock market during
the closing months of 2001 helped restore
consumers’ confidence. This confidence was
manifested in a new willingness to spend,
especially on big-ticket discretionary purchases. In the fourth quarter, motor vehicle
sales set a record high, boosted by generous
sales incentive programs including zero-percent financing. On average, consumer spending
adjusted for inflation increased at a 41⁄2
percent annual rate during the fourth quarter
of 2001 and the first quarter of 2002, up
from only a 13⁄4 percent rate during the
prior half year. Because consumption accounts
for two-thirds of GDP, the resurgence of
consumer spending was key to restoring economic growth.
The housing sector also contributed significantly to the turnaround in the economy,
boosted by low mortgage rates and restored
confidence. During the first five months of
2002, combined new and existing home sales
reached the highest level on record and
new housing starts reached the highest level
in three years. Residential investment adjusted for inflation rose at a rapid 141⁄2
percent annual rate in the first quarter
of 2002, the fastest quarterly gain in nearly
six years.
Government spending on consumption and
investment also increased. In the fourth quarter, combined federal and State/local spending
rose at a 10 percent annual rate, and in
the first quarter of this year, at a seven
percent pace. At the federal level, defense
spending, driven by the war on terrorism,
increased sharply. At the State/local level,
the spending increase was led by construction.
In contrast to the household and government
sectors, business capital spending continued

ECONOMIC ASSUMPTIONS

to restrain overall growth. During the fourth
quarter of last year and the first quarter
of 2002, investment in business structures
declined sharply. Investment in equipment
and software continued to fall in the fourth
quarter, but at a slower rate, and increased
marginally in the first quarter, the first
gain in over a year. Forward-looking indicators
of equipment spending during the spring
suggest that business capital spending is
firming.
A widening of the U.S. net export deficit
also restrained GDP growth, especially in
the first quarter of 2002. Slow growth in
the economies of our trading partners curtailed
U.S. exports, while rapid growth of household
spending boosted imports. The large monthly
trade deficits of the first quarter widened
further in April to the highest level on
record.

Revised Economic Assumptions
The economic assumptions for the MidSession Review, summarized in Table 3, have
been revised from those used in the Administration’s 2003 Budget to incorporate the unanticipated strength and timing of the recovery,
and the passage of the Job Creation and
Worker Assistance Act (JCWAA). Real GDP
growth this year is now expected to be
considerably higher than anticipated in the
budget. Private sector forecasters have made
a similar upward revision. Over the nearand longer-term, the Mid-Session Review projections are close to the consensus of private
sector forecasts. The rates of GDP growth
and unemployment during the second half
of the projection period are the same as
in the budget; inflation and interest rate
projections are nearly identical to those in
the budget.

The turnaround in the economy helped
improve the labor market. The nation’s payrolls expanded in May and June, following
13 consecutive months of declines. In the
hard-hit manufacturing sector, job losses in
recent months were much smaller than during
the prior year and the workweek, a leading
indicator of economic growth, lengthened. The
unemployment rate in June was 5.9 percent,
about the same level as in April and May,
but somewhat higher than the 5.6 percent
average of the prior six months.

Real GDP, Potential GDP, and Unemployment: Real GDP growth in the fourth quarter
of 2001 and the first quarter of this year
was stronger than expected in the budget
assumptions. As a result, actual growth last
year was 1.2 percent on a year-over-year
basis, compared with the 1.0 percent estimated
in the budget, and growth this year is
projected to be 2.6 percent, compared with
0.7 percent in the budget. Growth during
the next few years is projected to be slightly
less than anticipated in the budget because
the recovery appears to be more front-loaded
than expected previously. Growth during
2002–12 averages 3.2 percent per year, the
same as in the Blue Chip consensus, an
average of 50 private sector forecasts. During
2008–2012, assumed growth is 3.1 percent
yearly, the same as in the budget assumptions
and the Blue Chip consensus. This is the
Administration’s estimate of the nation’s potential GDP growth rate.

In financial markets, the 3-month Treasury
bill rate was 1.7 percent in June while
the yield on the 10-year Treasury note was
4.9 percent, resulting in a steeply upward
sloping yield curve. Equity prices fell sharply
in the second quarter. By the end of June,
major indexes had lost most, or in some
cases all, of the gains achieved in the fourth
quarter.

As in the budget assumptions, the unemployment rate is projected to decline during
the next few years to 4.9 percent in 2007
and then remain at that low level. That
rate is the Administration’s estimate of the
long-run unemployment rate that is consistent
with stable inflation. It is also the same
as the outyear projection of the Blue Chip
consensus.

Inflation remained low even as the expansion got underway. During the first five
months of 2002, core inflation in the Consumer
Price Index (CPI), which excludes the volatile
food and energy components, increased at
only a 2.3 percent annual rate. For the
first five months of the year, the overall
CPI increased at a 3.0 percent annual rate.

14
Inflation: For 2002, the GDP measure of
inflation has been reduced 0.7 percentage
point compared with the budget projection
to 1.3 percent on a year-over-year basis
to incorporate recent lower-than-expected data.
The CPI measure of inflation is projected
to be 1.7 percent, slightly below the budget
projection. Thereafter, during 2003–2012, the
GDP and CPI inflation projections are nearly
identical to those in the budget. The GDP
chain-price index is expected to rise just
under two percent each year, and the CPI
by slightly less than 21⁄2 percent.
Interest rates: The interest rate projections
are very close to those in the budget. Shortterm interest rates are assumed to rise
as the recovery increases credit demands.
The 91-day Treasury bill rate, currently at
1.7 percent, is assumed to increase to 4.3
percent in 2004 and remain at that level.
The yield on the 10-year Treasury note
is projected to remain steady at 5.2 or
5.3 percent during 2002–2012. The larger
gain in short-term rates than in long-term
rates is consistent with the interest rate
movements that usually occur at this stage
of the business cycle.
Income Shares: The share of taxable income
in nominal GDP has been revised from the
budget assumptions, primarily because of revisions to corporate profits and wages and
salaries. Recent data and the passage of
the stimulus bill have affected the projection
of corporate profits; information about the
annual revision to the National Income and
Product Accounts that will be released at
the end of July has affected the projection
of wages and salaries.
The projection of corporate book profits
before tax during the next few years incorporates two factors that work in opposite
directions. Book profits have been raised
because recent data reveal that the recovery
raised profits more than had been anticipated

MID–SESSION REVIEW

in the budget assumptions. On the other
hand, the temporary 30-percent expensing
provision of JCWAA raises corporate book
depreciation through September 11, 2004 and
accordingly lowers book profits; thereafter,
book profits are raised because the remaining
depreciation on the investments eligible for
expensing will be lower. Taking both of
these factors into account, the share of book
profits before tax in GDP is projected to
be about the same as in the budget assumptions during 2002–2004 and higher than
the budget assumptions during the following
years. That difference is gradually reduced
so that by the end of the projection horizon
there is little difference between the two
projections.
Recent information on State personal income
reveals that the levels of wages and salaries
in the National Income and Product Accounts
for 2001 and early 2002 are currently substantially overestimated. These levels will be
revised downward officially on July 31st when
the Bureau of Economic Analysis releases
its annual GDP revision covering the past
three years. Starting at a lower level suggests
that the wage and salary share in GDP
is likely to rise slightly during the projection
period, rather than decline as assumed in
the budget projections. The projection incorporates this rise.
A lower level of wages and salaries helps
to explain some of the shortfall of individual
income tax receipts experienced in 2002.
The downward revision in the level of wages
and salaries will not affect projections of
future budget receipts because the level of
current receipts is known and not subject
to revision. Projections of the growth in
future tax receipts depend on the growth
rate in wages and salaries, which edges
up as a share of GDP through 2006 as
the labor compensation share of GDP returns
to its historical average.

ECONOMIC ASSUMPTIONS 1

(Calendar years; dollar amounts in billions)
Actual
2001
Gross Domestic Product (GDP):
Levels, dollar amounts in billions:
Current dollars ....................................................................................
Real, chained (1996) dollars ................................................................
Chained price index (1996 = 100), annual average ..........................
Percent change, fourth quarter over fourth quarter:
Current dollars ....................................................................................
Real, chained (1996) dollars ................................................................
Chained price index (1996 = 100) .......................................................
Percent change, year over year:
Current dollars ....................................................................................
Real, chained (1996) dollars ................................................................
Chained price index (1996 = 100) .......................................................
Incomes, billions of current dollars:
Corporate profits before tax ................................................................
Wages and salaries 2 ............................................................................
Other taxable income 3 ........................................................................
Consumer Price Index (all urban): 4
Level (1982–84 = 100), annual average .............................................
Percent change, fourth quarter over fourth quarter .........................
Percent change, year over year ..........................................................
Unemployment rate, civilian, percent:
Fourth quarter level ............................................................................
Annual average ....................................................................................
Federal pay raises, January, percent:
Military 5 ...............................................................................................
Civilian 6 ...............................................................................................
Interest rates, percent:
91-day Treasury bills 7 ........................................................................
10-year Treasury notes .......................................................................

Projections
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

10,208 10,619 11,206 11,822 12,452 13,111 13,793 14,497 15,230 16,001 16,811 17,662
9,334 9,581 9,922 10,279 10,629 10,983 11,338 11,694 12,056 12,430 12,816 13,214
109.4 110.8 112.9 115.0 117.1 119.4 121.6 124.0 126.3 128.7 131.2 133.6
2.3
0.5
1.9

5.5
3.7
1.6

5.6
3.7
1.9

5.4
3.5
1.8

5.3
3.4
1.9

5.3
3.3
1.9

5.2
3.2
1.9

5.1
3.1
1.9

3.4
1.2
2.2

4.0
2.6
1.3

5.5
3.6
1.9

5.5
3.6
1.8

5.3
3.4
1.9

5.3
3.3
1.9

5.2
3.2
1.9

5.1
3.1
1.9

698
5,098
2,296

731
5,245
2,357

885
5,562
2,453

954
5,904
2,543

1,196
6,265
2,600

1,213
6,596
2,675

1,245
6,919
2,806

1,278
7,262
2,931

1,319
7,624
3,038

1,365
8,007
3,146

1,409
8,410
3,229

1,461
8,833
3,335

177.1
1.9
2.8

180.1
2.5
1.7

184.6
2.4
2.5

189.1
2.4
2.4

193.6
2.4
2.4

198.3
2.4
2.4

203.0
2.4
2.4

207.9
2.4
2.4

212.7
2.3
2.3

217.6
2.3
2.3

222.6
2.3
2.3

227.8
2.3
2.3

5.6
4.8

5.8
5.8

5.5
5.6

5.3
5.3

5.1
5.1

5.0
5.0

4.9
4.9

3.7
3.7

6.9
4.6

4.1
2.6

3.4
3.4

3.4
5.0

2.0
5.2

3.5
5.2

4.3
5.2

4.3
5.3

ECONOMIC ASSUMPTIONS

Table 3.

1 Based

on information available as of early June 2002.
with the May 24, 2002 Department of Commerce National Income and Product Accounts release for the first quarter of 2002. Does not reflect an anticipated large downward revision to wages and salaries for 2001 and the first quarter of 2002 expected as part of the annual NIPA revision at the end of July. The downward revision in the level of wages and salaries will not affect projections of future budget receipts because the level of current receipts is known and not subject to revision. Projections of the growth in future tax receipts depend on the growth rate in wages and salaries, which is assumed to return the wage and salary share in GDP to
its historical average.
3 Rent, interest, dividend and proprietor’s components of personal income.
4 Seasonally adjusted CPI for all urban consumers.
5 Percentages apply to basic pay only; 2002 figure is average of various rank- and longevity-specific adjustments; 2003 figure does not include proposed targeted pay
raises; adjustments for housing and subsistence allowances will be determined by the Secretary of Defense.
6 Overall average increase, including locality pay adjustments.
7 Average rate, secondary market (bank discount basis).
2 Consistent

RECEIPTS
The current estimates of receipts for 2002
and 2003 are below the February budget
estimates by $78.7 billion and $19.1 billion,
respectively. The current estimates are below
the February budget estimates by smaller
amounts in 2004, 2006 and 2007, and above
the February budget estimate in 2005, resulting in a net downward revision in receipts
of $21.9 billion over the 5-year period, 2003
through 2007. These changes are the net
effect of enactment of the Job Creation and
Worker Assistance Act (Economic Stimulus
Bill); modification of the Administration’s proposals to reflect enactment of the Job Creation
and Worker Assistance Act, the Administration’s plan to aid small businesses, and
other new initiatives announced since February; revised economic projections; and technical reestimates.
The Job Creation and Worker Assistance
Act, which was signed by President Bush
on March 9, 2002, provides $57.8 billion
in tax relief over the 6-year period, 2002
through 2007. The major tax relief provided
in this Act allows businesses to expense
30 percent of the cost of new capital assets
acquired after September 10, 2001 and before
September 11, 2004, in addition to the normal
depreciation deduction allowed on the remaining cost basis; extends from two years to
five years the carryback period for net operating losses generated in taxable years 2001
Table 4.

and 2002; temporarily extends a number
of tax reductions that had expired on December 31, 2001; and provides a number of
tax incentives to help an area of New York
City referred to as the Liberty Zone recover
from the September 11th terrorist attacks.
Because the tax relief provided in this Act
is less than the total tax relief proposed
by President Bush in the budget, receipts
are increased relative to the February budget
proposals by $182.3 billion over the six years,
2002 through 2007.
The Administration’s policy initiatives (see
Table 11) are estimated to reduce receipts
by $5.8 billion in 2003 and $86.9 billion
over the 5-year period, 2003 through 2007.
These initiatives include permanent extension
of the provisions of the Economic Growth
and Tax Relief Reconciliation Act of 2001
that sunset on December 31, 2010, and
tax incentives for charitable giving, education,
the disabled, health care, farmers, the environment, energy conservation and alternative
fuels, which were proposed in the February
budget. They also include Administration proposals announced since February to: (1) combat abusive tax avoidance transactions; (2)
limit related party interest deductions; (3)
establish a uniform definition of a child;
and (4) aid small businesses by allowing
firms that invest less than $325,000 ($200,000
under current law) annually to expense up

CHANGE IN RECEIPTS
(In billions of dollars)

February estimate ..................................
Revisions due to:
Enacted legislation, relative to February proposals 1, 2 ...........................
Proposed legislation 1 .........................
Economic assumptions and technical
restimates ........................................

2002

2003

2004

2005

2006

2007

1,946.1

2,048.0

2,175.3

2,338.0

2,455.3

2,571.7

12.7
–0.6

37.2
–5.8

33.7
–10.9

49.7
–18.2

25.6
–24.0

23.5
–28.0

169.6
–86.9

–90.8

–50.5

–28.8

–18.3

–6.4

–0.6

–104.5
–21.9

Total change ....................................

–78.7

–19.1

–6.0

13.1

–4.7

–5.1

Mid-Session estimate .............................

1,867.4

2,029.0

2,169.3

2,351.2

2,450.5

2,566.5

2003–2007

1 Affects

both outlays and receipts; only the receipt effect is shown here.
Job Creation and Worker Assistance Act reduced receipts in each year, 2002 through 2004, and increased
receipts in each year, beginning in 2005. The Administration’s initiatives would have provided tax reductions in each
year.
2 The

18
to $40,000 ($24,000 for 2002 and $25,000
for 2003 under current law) of the firstyear cost of new capital assets.
Revised economic projections and technical
adjustments reduce receipts by $90.8 billion
in 2002 and $50.5 billion in 2003, relative
to the February budget. These factors reduce
receipts by declining amounts in 2004 through
2007, resulting in a net reduction in receipts
of $104.5 billion over the five years, 2003
through 2007. Shortfalls in individual and
corporation income tax collections account
for most of the downward adjustment in

MID–SESSION REVIEW

2002 receipts. These shortfalls in collections
are attributable to significantly weaker-thanestimated individual and corporation income
tax liability for tax years 2001 and 2002,
as reflected in lower-than-expected final payments and higher-than-expected refunds of
payments of 2001 tax liability, and lowerthan-expected estimated and withheld payments of 2002 liability. A significant portion
of the shortfall in 2002 receipts collections
is expected to be explained by revisions
to components of national income that will
be released by the Bureau of Economic Analysis on July 31, 2002.

SPENDING
Total outlays for 2002 are now estimated
to be $2,032.5 billion, $19.8 billion below
the February budget estimate. The reduction
is the combined effect of the enactment
of legislation, largely the Job Creation and
Worker Assistance Act, which differed from
the Administration proposal, the proposed
emergency supplemental funding for defense
and homeland security, and revisions to estimating assumptions. For 2003, the estimate
of total outlays has increased by $9.9 billion
relative to February, to $2,138.2 billion. The
increase results from continued spending of
the proposed supplemental and revisions to
economic and technical assumptions.
Policy changes
In total, policy changes reduce outlays
by $8.7 billion in 2002 and increase them
by $6.3 billion in 2003. Over the five years,
2003 through 2007, policy changes increase
outlays by $18.8 billion.
Since the transmittal of the budget, the
Administration requested $27.1 billion in supplemental discretionary funding, primarily to
support the war on terrorism and enhancements of homeland security. Because the
funding would be spent over a period of
time, outlays increase by $14.0 billion in
2002, $6.6 billion in 2003, and smaller
amounts in subsequent years.
The Job Creation and Worker Assistance
Act provided temporary extended unemployment benefits in all States. The Act also
provided 2002 funding for Temporary Assistance for Needy Families (TANF) supplemental
grants, changed the formula used to determine
premiums for the Pension Benefit Guaranty
Corporation, and increased payments for Puerto Rico and the Virgin Islands. In total,
the Act increased current law outlays by
$6.7 billion in 2002 and $3.0 billion in
2003. Because the budget had assumed enactment of a more costly stimulus proposal,
the Act had the effect of lowering outlays

by $20.3 billion in 2002 and $5.0 billion
in 2003 relative to the budget.
The Farm Security and Rural Investment
Act made numerous changes to agriculture
programs. The Act provided additional assistance to producers to protect them against
low commodity prices by adding a new program that establishes target prices for corn,
wheat, cotton, and other crops, by increasing
the marketing loan rate for many commodities
and by providing a new fixed payment to
soybean producers. The Act also provided
a large increase in funding for conservation
programs, extending and expanding existing
programs such as the Environmental Quality
Incentives Program and the Wetland Reserve
Program, and creating new programs such
as the Conservation Security Program and
the Grasslands Reserve Program. Direct
spending was also added for a wide-range
of other programs that address rural development, research, energy, forestry, and nutrition
programs. Relative to the Administration proposal, the enacted bill lowered outlays by
$2.3 billion in 2002, largely because enactment
was later than the date assumed in the
budget, but increased outlays by $5.4 billion
in 2003 and $17.4 billion over the five
years 2003 through 2007.
The Auction Reform Act partially implemented the budget proposal to shift deadlines
and promote certainty in upcoming auctions
of electromagnetic spectrum. The legislation
did not include provisions to promote clearing
incumbent users from one portion of the
spectrum and did not relax the auction
deadlines for another portion of the spectrum.
On net, the enacted bill will result in $4.0
billion less in receipts from the spectrum
auctions over the period 2003 through 2006
than the Administration proposal. Because
spectrum receipts are recorded in the budget
as negative outlays, this has the effect of
increasing outlays by $4.0 billion over the
period relative to the budget, although there

20
is a decrease in outlays of $2.4 billion
relative to previous law.
Estimating changes
Changes in estimates can arise from nonpolicy related factors including changes in
economic assumptions, discussed earlier in
this Review, and changes in technical factors.
For 2002, estimated outlays are $11.2 billion
lower than in February for non-policy related
reasons. For 2003, estimated outlays are
$3.6 billion higher. The following changes
in outlay projections all are the result of
estimating changes.
Student loans: With student loan interest
rates at historic lows, the volume of loan
consolidations is expected to nearly double
from prior estimates. For each loan consolidation, the government records new subsidy
costs resulting in expected outlay increases
of $1.1 billion in 2003.
Medicaid: As a result of estimating changes,
Medicaid outlays in 2002 and 2003 are projected to increase by $2.0 billion and $1.9
billion, respectively, relative to the February
estimates. These increases are attributed primarily to increased actuarial estimates for
Medical Assistance Payments.
Medicare: Estimating revisions increase current estimates of Medicare outlays by $1.6
billion in 2003 relative to the February
estimate. Higher estimated outlays for skilled
nursing facility (SNF), inpatient hospital, and
physician services explain most of the increase.
These increases result from higher fee-forservice enrollment, regulatory changes, and
higher payment updates.
Unemployment compensation: As a result
of revised estimating assumptions, outlays
for unemployment compensation have decreased by $2.2 billion in 2002 and $0.3
billion in 2003 relative to the February
estimates. The assumed ratio of the insured
unemployment rate to the civilian unemployment rate has declined thereby reducing
the projected number of people eligible for
benefits at each level of civilian unemployment. This is partially offset by an increase
in the projected civilian unemployment rate.

MID–SESSION REVIEW

Child tax credit: Estimates for the refundable child tax credit are $1.0 billion lower
in both 2002 and 2003 as the result of
estimating adjustments to reflect the fact
that actual outlays for this new program
have been less than projected.
Supplemental Security Income (SSI): On
net, spending for the SSI program is estimated
to be $1.8 billion lower in 2003 than projected
in February as the result of revised estimating
assumptions. Higher collections from previous
overpayments reduce outlays by $2.1 billion.
Overpayment recoveries have increased primarily to incorporate the effect of retroactively
shifting certain SSI beneficiaries to Disability
Insurance benefits. Partially offsetting this
reduction, projected SSI benefit payments
are higher reflecting higher caseloads.
Social Security: Estimated outlays for Social
Security are lower than the February estimates by $3.1 billion in 2002 and higher
by $1.4 billion in 2003. The reduction in
2002 is primarily the result of a delay
in special disability payments to certain SSI
recipients eligible for Social Security. Outlays
increase for 2003 and 2004 reflecting both
increases in the volume of special disability
payments and updated demographic data in
the latest Trustees report.
Veterans compensation and pensions: As
a result of revised estimating assumptions,
outlays for veterans disability compensation
and pensions increase by $1.1 billion in
2002 and $2.0 billion in 2003 relative to
the February estimates. Decreasing the
amount of time to process disability compensation claims is a Presidential initiative. VA
is aggressively working towards this goal
and has processed more claims than expected.
Net interest: Estimates of net interest outlays are $6.9 billion lower in 2002 than
in February. Most of the reduction is the
result of Treasury issuing a different mix
of securities than assumed in the budget.
Over the five years 2003 through 2007,
net interest outlays are $45.4 billion higher
than estimated in February, primarily reflecting increased interest costs associated with
lower revenue and higher outlay estimates
resulting from estimating changes.

SPENDING

Table 5.

CHANGE IN OUTLAYS
(In billions of dollars)
2002

February estimate ..............................................
Change due to:
Policy:
Supplemental request .............................
Stimulus bill ............................................
Farm bill ..................................................
Spectrum auction delay ..........................
Other ........................................................
Related debt service 1 ..............................

2003

2004

2005

2006

2007

2003–2007

2,052.3

2,128.2

2,189.1

2,276.9

2,369.1

2,467.7

11,431.0

14.0
–20.3
–2.3
..............
..............
–0.1

6.6
–5.0
5.4
–0.3
0.7
–1.1

3.6
–1.5
5.1
4.7
1.8
–2.2

1.4
–*
3.9
–1.2
1.1
–3.2

1.1
–*
2.7
0.8
0.9
–3.9

0.5
–0.1
0.2
..............
0.6
–3.8

13.2
–6.6
17.4
4.0
5.1
–14.2

Subtotal, policy ............................................
Estimating differences:
Discretionary programs ..........................
Student loans ..........................................
Medicaid ...................................................
Medicare ...................................................
Unemployment .........................................
Child tax credit ........................................
SSI ............................................................
Social Security .........................................
Veterans compensation and pensions ....
Other mandatory programs ....................
Net interest ..............................................

–8.7

6.3

11.5

2.0

1.6

–2.6

18.8

1.5
0.5
2.0
0.1
–2.2
–1.0
–0.2
–3.1
1.1
–3.0
–6.9

0.3
1.1
1.9
1.6
–0.3
–1.0
–1.8
1.4
2.0
–1.9
0.1

0.5
–0.1
3.0
1.8
–0.5
–0.9
–0.7
2.8
2.3
–1.3
9.3

–0.6
–0.1
4.1
3.0
0.7
–0.9
0.4
–0.6
2.2
–0.5
11.4

–0.4
–0.1
5.1
4.4
0.9
–1.2
0.6
–3.2
1.9
–0.7
12.2

–0.1
–0.1
5.3
5.0
0.1
–1.2
0.7
–4.6
1.6
–1.3
12.4

–0.2
0.9
19.3
15.7
0.9
–5.2
–0.8
–4.2
9.9
–5.7
45.4

Subtotal, estimating ....................................

–11.2

3.6

16.3

19.1

19.4

17.7

76.1

Total, changes .................................................

–19.8

9.9

27.8

21.0

15.2

94.9

Current estimates ..............................................

2,032.5

2,138.2

2,216.9

2,297.9

2,390.1

2,482.9

11,525.9

* $50 million or less.
1 Includes debt service on receipt policy changes.

PROGRESS IMPLEMENTING THE
PRESIDENT’S MANAGEMENT AGENDA
We are not here to mark time, but to make progress, to achieve results and to leave a record
of excellence.
George W. Bush
October 15, 2001

Overall Progress
Progress implementing the President’s Management Agenda has been significant in many
agencies but has not been uniform. NASA
is leading the government in its implementation of the five government-wide initiatives;
the Departments of Commerce, Education,
Energy, Labor and the Treasury, as well
as the Office of Personnel Management and
Small Business Administration are also progressing very well.
On the other hand, a small number of
departments and agencies have not yet made
significant progress in one or more initiatives.
For example, the Department of Agriculture
has three red progress scores, the Corps
of Engineers has two red progress scores,
while the Departments of the Interior, Department of Transportation, Agency for International Development, and the Smithsonian
each have one initiative in which they have
not yet made much progress.
With few exceptions, departments and agencies have developed sound plans for longterm success. They have passed to the critical
time when planning gives way to execution.
Thus far, agencies have made a successful
transition to implementation in about half
of the cases. Successful execution will require
a relentless, disciplined effort, and include
adjustments to plans as experience is gained.
Indeed, in order to achieve genuine ‘‘breakthrough’’—not simply marginal—improvement
in performance, agencies will have to set
the bar high, aiming at what is theoretically
possible. That means seeking results that
are not predicated on past performance, but

rather pushing for order of magnitude improvements to levels not previously contemplated. An example is the Department
of the Treasury which has succeeded in
having all of its bureaus ‘‘close their books’’
within three days after the end of the
month (most agencies are not even able
to close on a monthly basis). Another citizencentered example is the Govbenefits website
which enables someone in need to go to
a single point to access the government’s
85 major social service programs without
having to search agency by agency.
Two critical ingredients for success emerge
from early efforts: an integrated strategy,
and clear assignment of responsibility for
its implementation.
• Integrated strategy. To maximize effectiveness, successful implementation requires
each agency to have a sound strategy to
take advantage of the interconnections
and common purpose among the five government-wide initiatives. Success in each
area not only supports, but depends on
the others. Thus for example, it is not by
accident that National Science Foundation
(NSF) has been successful in both financial performance and E-government. NSF
improved its financial management by embracing advanced information technologies
and operating in a paperless environment.
So too at the Department of Education,
which found it needed to redesign its initial human capital and competitive
sourcing plans after recognizing how each
affects the other. Education’s ‘‘One-ED’’
plan defines a process for simultaneously
23

MID–SESSION REVIEW

performing human capital restructuring
with competitive sourcing reviews.
• Clear assignment of responsibility. To
make their strategies work, departments
and agencies must clearly identify the official responsible for integration and implementation of all five elements of the Agenda, and hold that person strictly accountable.
Good progress also is being made with
respect to most of the nine program initiatives.
Privatization of Military Housing, Reform
of Food Aid Programs, and Coordination of
Veterans Affairs and Defense Programs and
Systems, in particular, are doing well.
The President’s Management Agenda
The President’s Management Agenda 1 is
a coordinated strategy to reform federal management and improve program performance.
The Agenda targets the government’s most
apparent deficiencies in core management
capabilities where the opportunity to improve
performance is the greatest. Five mutually
reinforcing government-wide initiatives apply
to every department and agency. These initiatives share a common purpose of government
reform that is citizen-centered and focused
on delivering results that matter to the
American public. Together they form a strategy to achieve breakthrough, not simply marginal, improvement in:
• Strategic Management of Human Capital;
• Competitive Sourcing;
• Improved Financial Performance;
• Expanded Electronic Government; and
• Budget and Performance Integration.
In addition, nine program initiatives apply
to one or more agencies:
• Faith-Based and Community Initiative;
• Privatization of Military Housing;
• Better Research and Development Investment Criteria;
• Elimination of Fraud and Error in Student
Aid Programs and Deficiencies in Financial Management;
1 http://www.whitehouse.gov/omb/budget/fy2002/mgmt.pdf

• Housing and Urban Development Management and Performance;
• Broadened Health Insurance
through State Initiatives;

Coverage

• A ‘‘Right-Sized’’ Overseas Presence;
• Reform of Food Aid Programs; and
• Coordination of Veterans Affairs and Defense Programs and Services.
The management agenda was launched just
before Labor Day 2001. The following is
a mid-year update on how well the departments and agencies are executing the management initiatives since last reported in the
budget earlier in the year.
GOVERNMENT-WIDE MANAGEMENT
INITIATIVES
In developing the initiatives, the Administration established an Executive Branch Management Scorecard to track how well the
departments and major agencies are executing
the five government-wide management initiatives and to strengthen a sense of accountability. This scorecard presents an updated
assessment of ‘‘status’’ and, for the first
time, an assessment of ‘‘progress’’ being made
to address the initiatives.
‘‘Status’’ is assessed against the standards
for success 2 developed for each initiative
and published in the 2003 Budget as follows:
Green: Meets all of the standards for success,
Yellow: Achieved some, but not all, of the
criteria, and
Red: Has any one of a number of serious
flaws.
For example, in financial management, an
agency is ‘‘red’’ if its books are in such
poor shape that auditors cannot express an
opinion on the agency’s financial statements,
if an agency has a history of spending
more money than given to it in law by
the Congress, or the agency head is unable
to provide an unqualified assurance statement
as to the systems of management, accounting
and administrative controls. The scorecard
in the President’s 2003 Budget was an initial
2 http://www.whitehouse.gov/omb/budget/fy2003/pdf/spec.pdf

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

baseline evaluation as of 2001. This scorecard
is an update as of June 30, 2002. An
arrow up or down indicates a change in
‘‘status’’ and from the 2001 baseline.
‘‘Progress’’ is assessed on a case-by-case
basis against the deliverables and time lines
established for the five initiatives that have
been agreed upon with each agency as follows:

The Social Security Administration improved
its status to yellow on the budget and
performance integration initiative. SSA released a request for vendor bids to assist
in developing systems requirements to better
link performance with budgeting and enhanced
the agency’s performance tracking system
by making data available on its Intranet.

(The Executive Branch Management Scorecard follows at the end of this chapter.)

On the negative side, two baseline evaluations for financial management were revised
to reflect poor 2001 year-end audits. At
NASA, new auditors expressed a disclaimer
of opinion for 2001 after seven years of
unqualified audit opinions. At the Small Business Administration, the Administrator determined that the agency is not in compliance
with the Federal Financial Management Improvement Act (FFMIA) and auditors were
unable to provide complete, reliable, timely,
and consistent financial management information.

Significant Developments

Strategic Management of Human Capital

Since the 2001 baseline evaluation, the
Department of Energy improved its ‘‘status’’
on strategic management of human capital
from red to yellow by addressing skill gaps
in mission-critical occupations such as contract
and project management, actively implementing its workforce restructuring plan, and
effectively using available personnel tools and
flexibilities (including buyouts and early retirement) to rebuild its workforce.

Departments and agencies are responding
in a variety of positive ways to the Administration’s human capital initiative. The Department of Labor has overhauled its performance
appraisal system and created its own internal
‘‘human capital’’ scorecard that monitors agency implementation of reforms on a quarterly
basis. The Department of Energy has established a new career intern program, revitalized
succession planning with senior executive service (SES) mentoring and candidate development programs, and taken steps to restructure
department components in a coordinated, integrated fashion. SSA re-deployed 200 staff
support positions to frontline, customer service
positions. EPA has implemented an innovative
SES mobility program to rotate managers’
throughout the agency in an effort to expand
program knowledge and transfer skills. The
Department of Education has developed a
process (‘‘One-Ed’’) to review, assess and
optimize the deployment of personnel within
the department. The Department of Defense,
while prosecuting the war on terrorism, is
also aggressively addressing its long-term
human capital problems created by a decade
of workforce downsizing. Each military service
developed plans to restructure its organization
to improve efficiency, to ensure critical skills

Green: Implementation is proceeding according to plans;
Yellow: Some slippage or other issues requiring adjustment by the agency in order
to achieve the initiative objectives on a timely
basis; and
Red: Initiative in serious jeopardy. Unlikely
to realize objectives absent significant management intervention.

The Department of Labor has improved
its status on financial management from
red to yellow. Since the 2001 baseline evaluation, all of Labor’s financial management
systems have met federal financial management systems requirements and applicable
federal accounting and transaction standards.
The department received an unqualified and
timely audit opinion on its 2001 annual
financial statement and has no material internal control weaknesses.
The National Science Foundation now has
two green ‘‘status’’ scores. It met the standards
for success in E-government by meeting all
core criteria and developing a process to
implement corrective action plans for program
level information technology security weaknesses.

26
are maintained, and to better motivate and
reward its employees.
Government-wide, OPM has introduced a
model to streamline the SES hiring process
from six months to six weeks and is linking
SES performance to the management agenda.
OPM is reviewing federal compensation to
determine its relevance to the current labor
market. At the same time, OPM is the
managing partner for five E-government reforms: Recruitment One-Stop, e-Training, eClearance, Enterprise Human Resources Integration, and e-Payroll. These systems will
allow for the integration of data, information
sharing and faster, paperless processing.
Further, OPM is focused on increasing
agency understanding and awareness of all
the flexibilities that can be used under existing
law and regulations. OPM is providing assistance to departments and agencies with ‘‘strike
forces’’ to meet emergency needs and with
a team of ‘‘desk officers’’ who work in collaboration with OMB budget examiners on agency
specific assessments as agencies implement
their human capital transformation.
Competitive Sourcing
We are seeing tangible forward progress
in competitive sourcing. The Department of
Defense has conducted the largest competitive
sourcing program in the federal government,
and the military services are already meeting
their 2002 goals by conducting studies of
30,000 positions performing a diverse set
of commercial activities. Competitions as well
as conversions are focusing the military on
mission and more efficient logistics and military base operations to help improve force
mobility. In addition, the services are improving the living conditions of military families
through privatization of military housing.
The Department of Energy is looking at
information technology functions across bureaus, one of the only times a department
has ever undertaken such a coordinated initiative. The Federal Emergency Management
Agency (FEMA) and the Small Business Administration have developed plans to use
the private sector to create rapid response
temporary workforces to handle emergency
disaster needs. At the Department of Commerce, the Bureau of the Census is conducting

MID–SESSION REVIEW

a major public-private cost comparison and
competition. The study is scheduled for completion by February 15, 2003, and involves
225 full-time-equivalent positions that perform
a variety of clerical and administrative support
functions on a temporary basis.
On a government-wide basis, the 50-year
old process for public-private competition is
undergoing an overhaul. The new process
will be easier, faster to use, and fair to
both public employees and interested private
sector bidders. The proposed changes will
go out for notice and public comment in
the very near future.
Improved Financial Performance
The Administration has set aggressive criteria to measure department and agency
success toward the improved financial performance initiative’s goal of producing accurate
and timely information to support operating,
budget, and policy decisions. This year, all
agencies produced timely interim financial
statements for the period ending March 31,
2002. In order to produce more timely financial
information, departments and agencies will
accelerate the date by which they produce
audited financial statements from February
27th in 2001 to November 15th in 2004.
In addition, they are combining Performance
and Accountability Reports, which will contain
the audited financial statements and performance information, thus providing a more complete picture of an agency’s progress and
results achieved.
For 2001, the Departments of Justice and
Transportation joined 16 other departments
and major agencies receiving ‘‘clean’’ audit
opinions on their financial statements. The
Departments of Agriculture and Education,
along with the Agency for International Development, also showed substantial improvement
over previous years. NASA and FEMA, however, showed slippage from 2000.
The magnitude of the financial management
challenges at the Departments of Defense
and Agriculture are central to the General
Accounting Office’s current inability to render
an opinion on the government-wide financial
statements. The Department of Defense is
aggressively working to reengineer business
processes and consolidate/replace the more

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

than one thousand financial management systems that exist at present throughout the
Department, a project that will take a number
of years.
The Department of Agriculture has similar
challenges. Although four of five of the Department’s stand alone audits received unqualified
opinions, a significant improvement from the
past, auditors were again unable to express
an opinion on the Department’s 2001 financial
statements, citing seven material weaknesses.
In addition, the Secretary was unable to
give assurance that the Department’s systems
and internal controls were compliant with
financial and other management statutes.
The improved financial performance initiative is also aimed at reducing the billions
in erroneous payments made by federal programs each year. Medicare reported a reduction in its erroneous payment rate from
6.8 percent in 2000 to 6.3 percent in 2001.
Likewise, the Food Stamp program reduced
its national error rate from 8.9 percent in
2000 to 8.7 percent in 2001. Reducing these
error rates prevented the waste of almost
$1 billion.
To improve its administration of the Food
Stamp program, the Department of Agriculture will make states like California and
Michigan, which have error rates of 17.4
percent and 13.9 percent, respectively, pay
cash sanctions when their error rates greatly
exceed the national average. Most agencies
have plans in place to meet the budget
requirement to estimate the extent of erroneous payments and set targets for reducing
them.
Expanded E-Government
The expanded E-government initiative is
making government services easier to use
and more responsive. E-government is not
about putting thousands of government forms
or reams of information online. Rather, it
is about government making better use of
technology to better serve citizens and improve
government efficiency, cutting government’s
time to make decisions from weeks or months
to hours or days. The E-government initiative
requires agencies to focus IT spending on
improving mission performance, reducing du-

plication, ensuring information security, and
cooperating across traditional agency silos.
Federal agencies are taking a two-pronged
approach for improving efficiency and quality
of service, with one prong being modernization
of their infrastructure and the other prong
being their active involvement in development
of cross-agency citizen-centered initiatives.
Agencies are making progress both in agency-specific efforts and 24 cross-agency initiatives, celebrating several major successes since
February, 2002. The redesigned Firstgov
website now offers citizens ‘‘three clicks’’
to service. As a result, the number of visitors
has increased 50 percent, making it one
of Yahoo’s 50 ‘‘Most incredibly useful
websites.’’ In addition, the June 2002 United
Nations report Benchmarking E-Government:
A Global Perspective rated the United States
as the world leader in E-government on
the basis of achievements over the last year.
A new multi-agency social services portal,
Govbenefits, was launched to provide citizens
with a tool to quickly locate federal assistance
programs relevant to their needs. After its
launch in April, USA Today added the site
to its list of ‘‘Hot Sites’’, stating that
‘‘Govbenefits gives you an easy way to see
if there are funds, training, or other benefits
available for you.’’ Govbenefits receives 50,000
visitors per week.
Sixteen agencies made significant progress
in accomplishing the goals of expanded Egovernment, leveraging information technology
to become citizen-centered, and results oriented. The Office of Personnel Management
is using E-government to streamline human
resources processes and better serve employees, from recruiting to retirement. The National Science Foundation which currently
receives 99 percent of its annual proposals
on-line is a small agency model for successful
E-government.
Agencies continue to be challenged by Egovernment requirements for joining fragmented service delivery operations. To become
fully successful in this initiative, more agencies must actively partner to simplify government processes and integrate IT investments
around citizen needs.

28
Budget and Performance Integration
The Administration has taken unprecedented steps to reform the budget process
by establishing a systematic, consistent process for developing program performance ratings and then using that information to
make budget decisions. While agencies expend
considerable time and effort developing and
updating their Government Performance and
Results Act (GPRA) plans and reports, this
information typically has been of little relevance to the budget process.
To enhance the practical use of performance
information, OMB, in collaboration with other
federal agencies, has developed draft Program
Assessment Rating Tools (PARTs), comprised
of assessment criteria on program performance
and management. The PART 3 establishes
a high, ‘‘good government’’ standard of performance and will be used to rate programs
in an open, public fashion. Ratings for 20
percent of programs will be published in
the 2004 Budget, and the basis for the
rating will be made available to the public.
Draft tools were developed in April, tested
in May and June, and were revised based
on the test results, feedback, and extensive
consultation with the President’s Management
Council, agencies, and outside groups. OMB
also convened a Performance Management
Advisory Council of outside experts to advise
on the rating process.
As a complementary effort in support of
the budget and performance integration initiative, agencies and OMB are developing common performance measures in seven crosscutting areas. The uniform evaluation metrics
allow comparison of selected programs with
similar goals, such as job training and employment, and flood mitigation. While these comparisons are not determinative, they will
help identify potential efficiencies and program
improvements.
Achieving the standards of success in this
initiative is particularly challenging since it
requires a fundamental change in how budgeting is approached. It asks departments
and agencies to present a ‘‘performance budget’’ requesting resources based on the results
they plan to achieve. Some, including Justice
3 http://www.whitehouse.gov/omb/budintegration/index.html

MID–SESSION REVIEW

and VA, are restructuring their entire budgets
in support of such a presentation; others
are starting with specific bureaus. Transportation, for example, is developing a department-wide performance presentation, in order
to consider what format would best help
them to budget and manage for results.
To assist agencies, the Chief Financial Officers
Council developed ‘‘Getting to Green’’ guidance
identifying concrete steps that agencies can
take to meet the goals of the initiative.
Progress by Department/Agency
Department of Agriculture (USDA)—
USDA has not advanced on the human capital,
competitive sourcing, and budget and performance integration initiatives, but has shown significant progress in financial management and
E-government. USDA is the second largest
component of the government’s balance sheet,
and, therefore, is a significant barrier to the
government receiving a clean audit opinion.
USDA’s recent efforts have resulted in receiving unqualified opinions on four of five standalone audits. Targeting efforts to improve the
Forest Service’s audit results should enable
USDA to obtain a clean opinion on the combined USDA financial statement.
In E-government, USDA has developed 28
successful business cases and is developing
an enterprise architecture. USDA is working
on 18 of the 24 government-wide E-government initiatives, including Recreation OneStop, which will provide a searchable database
of recreation areas nationwide, with online
mapping and integrated transactions like
campground reservations and the purchase
of recreational passes. To improve in the
areas of human capital, competitive sourcing,
and budget and performance integration,
USDA needs to increase its commitment
and show actual progress towards meeting
these goals.
Department of Commerce—Commerce has
made good progress on implementing the
President’s Management Agenda. The department should exceed the preliminary targets for
competitive sourcing in 2003. The Census Bureau is currently studying 225 positions that
perform a variety of clerical and administrative functions on a temporary basis, including
secretarial duties, data entry, photocopying,

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

filing, and preparing mailings. Financial performance is improving with continued implementation of Commerce’s integrated financial
system. With the National Oceanic and Atmospheric Administration implementing the system ahead of schedule this fall, most of the
department will be using the new system. In
the human capital area, the Economic Development Administration has completed a workforce restructuring plan and is seeking buyout
authority from Congress.

work for improving the efficiency of every
major business function by identifying human
capital deficiencies and competitive sourcing
opportunities. In addition, Education has
strengthened its information technology investment review process through significant improvements to its business case analyses. For
example, the business case in support of the
department’s performance-based data management initiative is being used by other agencies
as a ‘‘best practice’’ model.

Department of Defense (DoD)—While
prosecuting the war on terrorism has been
DoD’s principal focus since September 11th,
the Department has made a major effort to
address the President’s Management Agenda.
DoD took a significant step in addressing its
longstanding financial management problem
by recently hiring IBM to develop a Defensewide financial management enterprise architecture and to standardize data and processes.
Implementation of this architecture will ensure
that DoD’s financial statements are more accurate and satisfy a critical need to help the
department make more effective decisions.

The Department’s management team tracks
progress on approximately 200 action items
tied to meeting the management agenda
standards for success. The Deputy Secretary,
who chairs the President’s Management Council committee on budget and performance
integration, heads this team and conducts
weekly meetings to ensure that key personnel
are carrying out the management agenda.

In addition, DoD has conducted the largest
competitive sourcing program in the federal
government, and is planning to compete 15
percent of those positions not deemed inherently governmental by 2003. Competitions
are spread out over a wide array of military
base functions, including communications,
computing, and maintenance and repair.
With respect to human capital management,
the department has produced strategic plans
for both civilian and military human resources.
The civilian plan is an important first step
in addressing workforce imbalances created
by downsizing over the last decade.

Department of Energy—DOE made significant progress in addressing the President’s
management agenda. Status on the human
capital initiative improved due to DOE’s aggressive development and implementation of
its workforce restructuring plan. DOE has crucial top level support for this initiative. The
department has restructured large programs
such as the Office of Environmental Management to de-layer and improve accountability.
DOE’s continuing progress hinges in part on
its ability to maintain strong central oversight
and coordination of the major management, information, and budgetary operations of its diverse programs.

Within the information technology area,
DoD is actively engaged in four E-government
efforts, taking steps to improve its IT security,
and increasing visibility into its IT investment
process. Finally, DoD is in the early stages
of developing metrics to correlate program
performance with budgeting decisions for the
2004 budget.

One of the Department’s more significant
accomplishments is that it identified more
than 1,000 positions for competitive sourcing
studies. Instead of selecting positions for
competitive analysis on a bureau by bureau
basis, DOE is selecting functional areas for
review across the department, such as financial services, human resources training, and
information technology (IT). It plans to conduct
a full-scale study of all IT activities, which
include a variety of functions at multiple
sites including both contracted and federal
positions.

Department of Education—Education has
made significant progress implementing the
management agenda. Through the ‘‘One-ED’’
plan, the department has developed a frame-

Environmental
Protection
Agency
(EPA)—EPA continues to improve its workforce restructuring plan and has implemented
an innovative senior executive service mobility

MID–SESSION REVIEW

program, which rotates managers’ assignments
in order to expand program knowledge and
transfer executive skill sets. EPA accelerated
its competitive sourcing program and will identify positions to be competed to meet both 2002
and 2003 goals by the end of the year. As
part of the agency’s E-government efforts, EPA
is working with States and tribes on such
projects as the National Environmental Information Exchange Network and the related
Central Data Exchange to reduce reporting
burdens to make data collection and access
more efficient.

income to correctly determine the amount of
subsidies due—legislation that could reduce
the over $1 billion each year in overpaid rent
subsidies. HUD improved its capital planning
and project management for major information
technology investments. For instance, it integrated FHA’s many separate financial systems
into one system. An enhanced intern program
is bringing new talent into the Department
as a critical element of a new strategy to address human capital weaknesses, including the
potential retirement of up to 49 percent of its
workforce within the next three years.

Health and Human Services (HHS)—Although HHS struggles with a historically decentralized organizational structure, the department is working to strengthen internal coordination of management agenda efforts.
HHS has provided strong E-government leadership on e-Grants, contributing both staff and
first-year funding for the project. This important initiative will simplify and unify government grant systems, particularly through the
establishment of a single grantee identifier. In
addition, the department’s new CIO will focus
the department on establishing an enterprise
architecture and strengthening information
technology security, as described in the information technology five-year plan.

Department of the Interior—Interior is
making progress in addressing the President’s
Management Agenda, but is struggling to approach the agenda from a department-wide
perspective. Some of the struggle is due to Interior’s complex, multi-mission organization
and structure, with everything from vast lands
and national parks to island trust territories
within its areas of responsibility. Interior recognizes the challenges it faces and is putting
substantial time and resources into improving
performance. Specifically, Interior has established a Center for Competitive Sourcing Excellence to begin implementing its plans to
study direct conversion and public-private competitions of 3,345 positions, including maintenance workers, gardeners, and engineers. Interior has also applied an internal management
scorecard to focus senior managers on the
President’s Management Agenda. Interior
needs to continue to aggressively pursue its
management agenda for human capital, E-government, and budget and performance integration. However, the Department’s failure to
make progress on the financial performance
agenda item is of the most concern.

In the area of human capital, HHS has
finalized a recruitment and retention strategy
and instituted performance-based employment
contracts for top managers. To strengthen
financial performance, the department has
a comprehensive corrective action plan to
resolve material weaknesses, and has begun
assessment of payment risks in key programs
and implementation of a Unified Financial
Management System. Finally, in budget and
performance integration, a departmental performance plan linking budget and performance
information will be developed and various
program-specific efforts are underway.
Housing
and
Urban
Development
(HUD)—HUD is working to correct longstanding material weaknesses that have reduced its effectiveness and wasted resources.
Positive steps include HUD’s reassigning more
than 300 employees to higher priority work
after implementing a new resource allocation
system. HUD also developed proposed legislation to help it identify all sources of tenant

Department of Justice—The Department’s
leadership is now giving attention to the management agenda after some initial delay following the events of September 11th. Justice
has revised its strategic plan to align it with
its strengthened counterterrorism mission, and
is developing a proposed budget structure consistent with the strategic plan and linked to
performance. The development of a human
capital strategy is proceeding on schedule,
with emphasis on overcoming cultural barriers
to improvement and refocusing department resources on the enhanced counterterrorism mission. In addition, Justice has achieved passing

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

grades for business cases supporting all major
information technology investments and—with
Treasury and FEMA—is taking the lead for
the wireless E-government initiative (Project
SAFECOM) which will ensure that public safety personnel at all levels of government can
communicate and share information as they
respond to emergency incidents.
Department of Labor—Labor has demonstrated a sustained commitment to implementation of the management agenda and is
making good progress. A key component of the
department’s success is its Management Review Board, which monitors progress by regularly reviewing department-wide reform implementation. With the correction of deficiencies
in its financial systems, Labor’s financial management ‘‘status’’ has been upgraded to ‘‘yellow.’’ The department is developing a new performance measure to reduce Unemployment
Insurance erroneous payments, which could
save hundreds of millions annually. In the
human capital area, the department overhauled its performance appraisal system. To
align resources and performance, Labor is completely redesigning its 2004 Budget. Labor was
the leader in the government-wide development of Govbenefits, an online tool to help
citizens determine their eligibility for federal
assistance programs. The Deputy Secretary of
Labor is chairing the President’s Management
Council committee on E-government.
Department of State—After a slow start,
the outlook for State has improved. The department submitted a final competitive
sourcing management and competition plan to
target for competition 234 warehousing, payroll, architectural/engineering and related
services, printing and reproduction, and medical positions. The department is on schedule
for a full conversion to the new Regional Financial Management System that will comply
with federal requirements for financial performance by the end of 2003. Thus far, State
has brought 16 posts on-line. State has improved its E-government planning efforts by
integrating information technology and budget
decision-making, but needs to complete an enterprise architecture and an adequate security
corrective action plan. In addition, while State
has improved its planning effort to strategically manage its workforce, the department
must still finalize an implementation plan.

Department of Transportation (DOT)—
DOT is thus far meeting with mixed results
in implementing the President’s Management
Agenda. Monthly, the Secretary reviews operating administrations’ progress. However, DOT
has made slow progress in developing a human
capital strategy. It expects to complete a department-wide plan this year. DOT will not
meet the 2002 competitive sourcing goal on
a department-wide basis, although outsourcing
is being used extensively by the Transportation Security Administration and additional
competitive sourcing opportunities are being
explored in the Federal Aviation Administration (FAA). DOT is deploying a new accounting
system, has finalized its capital planning and
investment control policy guidance, and plans
to institute an enterprise architecture early
next year. DOT is aggressively leading the online rulemaking E-government project. DOT
proposed a performance-based research and
capital program for the FAA for 2003 and will
aggressively expand performance-based budgeting department-wide in its 2004 budget submission.
Department of the Treasury—Treasury is
making significant progress in implementing
the management agenda. The department has
led the government in financial management
improvements. Treasury no longer prepares
monthly financial statements weeks after the
close of business. Instead, Treasury has succeeded in having all its bureaus ‘‘close their
books’’ within three days of the end of the
month—a practice more in line with that of
private industry. In 2002 and following years,
Treasury also plans to complete its financial
audit by November 15, meeting the newly announced November 15 audit deadline two
years prior to the mandatory 2004 government-wide effective date. Treasury also has an
ambitious program to improve citizen services
through expanded E-government. It recently
introduced a secure, easy to use internet option for taxpayers to confirm that IRS received
their tax return and to determine when to expect a refund if one is due.
Department of Veterans Affairs (VA)—
VA has moved aggressively to restructure its
budget accounts to align with its business
lines, addressing complex issues with all budget process stakeholders: VA staff, Treasury,
OMB, and Congressional committees. VA’s in-

32
formation technology (IT) management has
made strides as the department presented an
enterprise architecture implementation plan, a
revised FY2004 business case development
process, and an excellent corrective action plan
for meeting government computer security requirements. One setback has been the delay
in improving financial systems. VA began testing a new financial and logistical system at
several sites and identified additional requirements: more legacy systems in need of replacement, further changes needed to business processes, and gaps in the IT infrastructure.
U.S. Agency for International Development (USAID)—Historically, USAID has had
significant difficulties managing its thousands
of projects in over eighty countries because of
obsolete and ineffective management systems.
As a result, the agency faces serious challenges
in improving management given the low starting point for each agenda item and the wide
range and complexity of programs it operates.
For example, USAID has financial management systems that are unable to produce
auditable financial statements. Its management information systems cannot produce
basic information, such as real-time obligations
data, in a timely manner. The agency does
not have a comprehensive workforce planning
model for its multiple personnel systems. Nor
does it yet have competitive sourcing plans.
Since September 2001, USAID has primarily
focused on developing plans to achieve full
compliance with the Agenda, and it has
taken some concrete steps to improve its
performance. The agency is completely reevaluating business processes to achieve successful deployment of the financial management system to the field as efficiently as
possible. It has adopted some automated
tools to improve performance in human resources and procurement functions. USAID
is also taking steps to link its resource
allocation decisions more closely to performance, but has not yet developed a plan
to implement competitive sourcing.
Corps of Engineers—The Corps has made
only modest progress on the management
agenda initiatives overall. It has been most
successful in the E-government arena, which
is being coordinated effectively by the Corps’
Chief Information Officer. The Corps is work-

MID–SESSION REVIEW

ing to improve its capital planning process for
information technology investments and to develop a robust plan for an enterprise architecture. Less progress has been made on other
agenda items. In particular, the Corps is a
year behind schedule in meeting governmentwide competitive sourcing targets, and it is not
clear whether the human capital plan that it
is developing will meet acceptable criteria. The
Corps is making some progress resolving financial management issues regarding computer security and property and construction
records, and has begun to engage on crafting
suitable program performance criteria and revising its strategic plan.
Federal Emergency Management Agency
(FEMA)—FEMA is working to address workforce skill and competency gaps. The agency
is also exploring whether its National Processing Servicing Center activities and other
commercial activities could be performed by
commercial entities with greater efficiency.
With respect to financial management, FEMA
has launched a balanced program to address
deficiencies that resulted in a qualified opinion
on its 2001 financial statements. FEMA is also
working to make federal disaster programs
more citizens centered and will develop a single internet-based portal that will save time
and money during the application and disbursement process. FEMA is also promoting
interoperability through shared wireless communications networks designed to ensure that
public safety personnel, throughout all levels
of government, can communicate and share information as they respond to emergencies.
General
Services
Administration
(GSA)—GSA is replacing its core accounting
system to improve funds management capabilities and controls. Although GSA experienced
difficulties moving the project forward, deliberate planning and leadership helped get the
project back on track for implementation by
the end of the fiscal year. Furthermore,
through a collaborative, interagency approach,
GSA is leading the e-Travel initiative, which
will provide agencies with a common customercentric, web-based travel management service.
GSA has completed a comprehensive review
of its senior executive allocation criteria to ensure that the right leadership is in the appropriate places. Finally, GSA revised its strategic

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

plan and is developing an automated measurement system to monitor its performance.
National Aeronautics and Space Administration (NASA)—NASA has made notable
progress in each area of the management
agenda. For example, NASA has developed its
first strategic human capital plan; completed
a pilot of its first agency-wide human resources tracking system; increased the number
of positions that could be open to competition
by 70 percent over its 2000 FAIR Act inventory; and developed an interim plan for competing up to 40 percent of the commercial positions on its 2000 inventory. While NASA’s financial performance ‘‘status’’ deteriorated because of a disclaimer of opinion on its 2001
audit after a change of auditors, since then
NASA has worked with its new auditor to develop an action plan and expects resolution
of all outstanding issues by the end of July.
In terms of E-government, NASA has strengthened the role of its Chief Information Officer
and is improving its capital planning and investment control process and IT security tracking. Finally, NASA has aligned its budget
structure with program outputs and prepared
for full cost and performance budgeting in
2004.
National Science Foundation—NSF has
achieved a green ‘‘status’’ rating in E-government that joins its green ‘‘status’’ for financial
performance. NSF did so by making significant
progress in fixing identified information security problems. NSF is taking a systemic view
of the management agenda, understanding
that the five initiatives are intrinsically linked.
It developed an Administration and Management Strategic Plan that addresses all five initiatives. This plan includes a comprehensive,
multi-year business analysis, which will inform
progress in each of the initiatives and will ultimately result in an organization that does
business in more efficient ways. Since the initial results of its business analysis will not
be available until 2003 at the earliest, NSF
is developing near-term plans for addressing
the management initiatives. As such, limited
progress has been made on the competitive
sourcing and budget and performance integration initiatives.
Office of Management and Budget
(OMB)—OMB is undertaking an analysis of

its human capital requirements and is developing a human capital plan. It has already
changed its performance evaluation system
and plans to enhance orientation for new employees this summer. In the area of E-government, OMB has redesigned its website to make
it more attractive and easier to use. It is leading the way toward on-line rulemaking, thereby improving citizen access to the regulatory
process.
Office
of
Personnel
Management
(OPM)—OPM has demonstrated measurable
progress toward achieving the management
agenda’s standards for success. Using input
from its workforce and employee unions, external customers (like federal agencies and retirees) and the public at large, OPM is restructuring itself to better deliver needed services.
OPM is using market-based competition to improve performance and reduce costs by competitively sourcing facilities maintenance, financial system programming and computer operations activities.
OPM is the lead agency on a number
of E-government initiatives that will make
finding, selecting and keeping good people
faster, easier and cheaper. The e-Clearance
project lets agencies save time and money
by electronically sharing background investigation data. The e-Payroll project will standardize payroll processing across government
and eliminate redundant investments. The
Retirement System Modernization project is
using technology to improve customer service
delivery and payment accuracy, while eliminating 120,000 square feet of storage space
for paper records and associated storage costs.
The OPM Director chairs the President’s
Management Council’s committee on human
resources.
Small Business Administration (SBA)—
SBA has made significant progress towards
achieving the President’s Management Agenda. Leading SBA’s list of accomplishments is
the completion of a plan which rationalizes its
field structure by consolidating redundant
functions and service centers. SBA is also exploring options to convert clerical work performed by temporary federal workers to commercial entities, which is cost-effective and will
provide the agency with additional flexibility.
In addition, SBA is implementing a loan-moni-

MID–SESSION REVIEW

toring system to improve lender oversight and
is participating in ten government-wide information technology initiatives, including eLoans, e-Grants, Disaster Management and
Crisis Response, and the Business Compliance
One-Stop, which includes eight federal partners and three states and will help make SBA
programs more citizen-centered.

agement Agenda includes nine agency-specific
reforms. These initiatives provide an opportunity to make a dramatic and material
difference in federal management program
performance in one or more agencies.

Smithsonian Institution—The Smithsonian has significant work to complete before
it can improve its baseline ratings. An overarching issue is that internal cultural barriers
and agency history have hindered an institution-wide approach to management improvements. For example, the Smithsonian has
hired a contractor to perform a workforce analysis and have canvassed employees at twentyfive percent of the agency’s units. The agency
is also implementing a replacement of its financial management system to replace its current inadequate system. The new system is
on schedule for initial deployment in October
2002. The Smithsonian is aggressively addressing its significant information technology
shortcomings. A recent Inspector General report identified several concerns with information security activities, which the Smithsonian
does not contest and currently is developing
a corrective action plan.

Faith-Based and Community Initiative

Social Security Administration—SSA has
made progress towards achieving the President’s Management Agenda. In the area of
budget and performance integration, SSA is
developing a new budget formulation system
that will interface with its financial management systems and have modeling capabilities
to formulate and execute budgets in order to
better link performance and budgeting. In addition, SSA has moved 200 staff support positions to front-line customer service positions
and has developed a new five-level performance appraisal system for senior executive
service candidates. SSA continues to make
progress in integrating its financial and performance management systems and addressing
payment accuracy issues. Furthermore, SSA
has committed to building an electronic disability process by the end of 2004.
SPECIFIC PROGRAM INITIATIVES
In addition to the five government-wide
management initiatives, the President’s Man-

(The Executive Branch Program Initiatives
Scorecard follows at the end of this chapter.)

Existing regulatory and administrative barriers to the full participation of grassroots
faith-based and community organizations
(FBO/CBOs) in the delivery of social services
have not yet been eliminated. However, the
five agencies that are the focus of the Presidential Executive Order on the Faith-Based
and Community Initiative—Education, Health
and Human Services, Housing and Urban
Development, Justice and Labor—have made
significant progress in eliminating some unwarranted regulatory barriers and in providing
affirmative statements of FBO/CBO eligibility
for federal programs. Additional efforts are
needed to eliminate the remaining administrative barriers. These agencies are working
to provide technical assistance to FBOs and
CBOs, but further work is needed to ensure
that these initiatives are coordinated and
address the needs of small and novice grant
applicants.
Privatization of Military Housing
The Department of Defense is tackling
the problem of inadequate housing by demolishing dilapidated units, renovating existing
houses, and building new homes. Increasingly,
DoD relies on the private sector, which
has the expertise to manage real property
and can increase the quality of DoD-owned
housing at less cost and faster than the
government. By the end of 2002, DoD is
expected to privatize 28,053 units, of which
18,188 are inadequate and will be improved.
So far in 2002, DoD has privatized four
projects, two of which are at large military
locations in Ft. Lewis, Washington, and Ft.
Meade, Maryland. In 2003, DoD plans to
privatize approximately another 35,600 units.
The Army and the Navy plan to meet
DoD’s goal of eliminating inadequate housing
units by 2007. The Air Force plans, however,
are still focused on 2010.

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

Better Research and Development
Investment Criteria
Across government, agencies use inconsistent and incomplete data and methods
to assess and justify R&D programs. The
goal of this initiative is to develop objective
investment criteria for federal research and
development (R&D) programs and use the
criteria in formulating the 2004 Budget for
applicable programs across the government.
Improving the process for budgeting, selecting,
and managing R&D programs will increase
the productivity of the federal R&D portfolio,
the return on taxpayer investment, and better
ensure the investments are in areas of national significance. Based on a pilot implementation at the Department of Energy as part
of the 2003 Budget, OMB revised the criteria
for broader applicability and sent them to
agency heads as part of joint OMB-Office
of Science and Technology Policy guidance
on R&D. OMB has been working with the
agencies to implement the criteria, identifying
appropriate reporting levels and systems to
address the criteria. For example, DOE is
developing a database to collect and present
data on its R&D projects, and NASA is
recasting its strategic plan, budget justification, and other documents to directly tie
to the criteria.
Elimination of Fraud and Error in
Student Aid Programsand Deficiencies in
Financial Management
The Secretary of Education has launched
a major effort to resolve issues preventing
the department from achieving an unqualified
audit opinion on its financial statements
and to have student financial assistance programs removed from GAO’s high risk list
by successfully addressing management deficiencies. The Department of Education’s
progress on this initiative has been positive.
Working with the Department of the Treasury,
Education drafted and submitted to Congress
a legislative proposal that would amend the
Internal Revenue Code to allow Education
to match student applicant data with IRS
data for the purpose of verifying applicant
eligibility for student financial assistance.
The proposed match, if enacted and fully
implemented, would eliminate hundreds of
millions in erroneous payments in student

aid programs. Moreover, Education has improved financial management through deployment of a new general ledger system and
significant reductions in unreconciled cash
items. While Education has worked to improve
default management and prevention strategies,
more work needs to be accomplished in
assuring compliance with laws and regulations. Business process and system enhancements have yielded improvements in technical
assistance to schools, but program monitoring
needs more management attention.
Housing and Urban Development
Management and Performance
As part of the President’s Management
Agenda, HUD has committed to tackling
long-standing management problems that
leave some subsidized families trapped in
substandard housing, expose home buyers
to fraudulent practices, and result in HUD’s
paying excessive rent subsidies that otherwise
could be used to help additional families.
HUD has made progress over the past year,
but much remains to be done. The physical
condition of subsidized properties has improved. The Administration is asking Congress
to help by authorizing a major reform that
would use private mortgage financing to recapitalize viable public housing and let tenants
move from a troubled project without giving
up their subsidy. HUD is making substantial
progress toward reducing the multiple types
of errors that contribute to over $3 billion
in gross annual erroneous rent subsidy payments. It is testing an expert computer
system to reduce the 60 percent error rate
in calculating subsidies, and it has developed
proposed legislation for limited income data
matching authority to enable a more efficient
and effective means of verifying tenants’
income upon which subsidies are based. HUD’s
Federal Housing Administration has taken
steps to protect home buyers from a fraudulent
practice known as property flipping, and
made a successful start to reduce risk in
its financial systems. Finally, HUD is working
closely with the states and communities receiving block grants to reduce meaningless compliance burdens and develop a better reporting
tool.

36
Broadened Health Insurance Coverage
through State Initiatives
HHS released the Health Insurance Flexibility and Accountability (HIFA) Demonstration Initiative on August 4, 2001. This guidance outlined the Administration’s goal of
increasing health insurance coverage by coordinating currently available Medicaid and
State Children’s Health Insurance Program
(SCHIP) funding with private insurance. HHS
has conducted extensive briefings on the
project and HIFA is frequently included in
policy discourse on how to improve health
insurance coverage among lower income Americans. To date, the Administration has approved HIFA demonstrations in Arizona and
California. Both of these demonstrations will
extend health insurance coverage to lower
income parents of children enrolled in Medicaid or SCHIP. Arizona’s demonstration will
also cover low income uninsured childless
adults. Six State HIFA proposals are currently
under review at HHS. The low number
of approvals is primarily due to the time
required for States to develop programmatic
ideas and submit applications. Some review
time is also required to work with States
to resolve programmatic and budget concerns.
A ‘‘Right-Sized’’ Overseas Presence
The goal of this initiative is to analyze
and review U.S. presence overseas and develop
a credible and comprehensive overseas staffing
allocation process. This will provide the Administration with a means to link overseas
assignment with overall U.S. government policy, funding, and agency construction planning.
The Administration’s interagency rightsizing
initiative is moving from recommendations
to concrete steps that will have an impact
on how resources of all federal agencies
are deployed overseas.
On a practical level, OMB, State, and
other federal agencies have been working
to ensure that a proposed new interagency
regional center in Frankfurt, Germany is
developed from the outset to serve countryspecific and regional needs. State and OMB
are analyzing the current staff federal agencies
have in Frankfurt as well as some functions
federal agencies perform across Europe, to
determine which functions could be regional-

MID–SESSION REVIEW

ized in Frankfurt or performed from the
United States. A more extensive pilot project
on interagency rightsizing is underway to
examine all posts within the European and
Eurasia Bureau. This pilot effort will involve
OMB and interagency cooperation and build
upon the rightsizing work of GAO to consider
how to conduct rightsizing on a larger scale.
Finally, State and OMB are working to
develop a cost sharing mechanism that would
apply to all federal agencies to finance the
construction of new embassies. If properly
designed, a cost sharing mechanism for capital
costs could be a powerful on-going incentive
to right-size future presence at new posts.
Reform of Food Aid Programs
The Administration announced the results
of its interagency process to reform federal
food aid programs in conjunction with release
of the 2003 Budget. The reforms were designed
to address the ad hoc process of funding
international food aid, target funding to feeding hungry people, and ensure consistency
in USDA and USAID management of food
aid programs. The main objectives of the
reforms are being accomplished on schedule.
By terminating a USDA program that funded
food aid through unpredictable surplus commodities and requesting an additional $335
million for a USAID program funded through
annual appropriations, the initiative is providing a more reliable method of funding
for food aid, while still feeding approximately
the same number of hungry people once
the reforms are fully implemented. The House
Appropriations Agriculture Subcommittee has
provided funding consistent with this approach. The Administration is working to
conform this initiative with recent changes
to farm legislation.
Coordination of Veterans Affairs and
Defense Programs and Systems
This initiative is designed to enhance coordination and delivery of veterans benefits and
services by VA and DoD. At the release
of the President’s Budget, VA/DoD sharing
of services was given a red score because
of lack of a national focus on coordination.
Since then, VA and DoD have created an
Executive Council that is actively pursuing
a national coordination strategy. One area

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

of great progress is the development of a
joint plan for an interoperable patient record
for use in the VA and DoD health care
systems, and VA’s assessment of how it
will use DoD’s enrollment system. These
will allow for greater coordination of care
potentially increasing the safety, satisfaction,
and quality of care for VA and DoD patients
and the seamless transition of enrollment
status as active duty members become veterans.

In addition, VA and DoD have agreed
to establish a single regionally adjusted discounted rate structure for DoD/VA medical
sharing agreements. Using a single regionally
adjusted rate simplifies negotiations among
facilities, clarifies reimbursement issues, accounts for local cost differences, and will
increase opportunities for resource sharing.
DoD and VA are also discussing potential
savings associated with the joint use of
aeromedical evacuation resources and joint
training for health care providers.

PROGRESS IMPLEMENTING THE PRESIDENT’S MANAGEMENT AGENDA

Executive Branch Management Scorecard
Current Status as of June 30, 2002

Human
Capilal

AGRICULTURE
COMMERCE
DEFENSE
EDUCATION
ENERGY
EPA
HHS
HUD
INTERIOR
JUSTICE
LABOR
STATE
DOT
TREASURY
VA
AID
Corps

FEMA
GSA
NASA
NSF
OMB
OPM
SBA
SMITHSONIAN
SSA

Competitive
Sourcing

Financial
Mgmt

E-Gov

Budget/
Perf.

Progress in Implementing
President's Management Agenda

Human
Capital

Competitive
Sourcing

Financial
Mgmt

E-Gov

Budget/
Perf.

MID–SESSION REVIEW

Executive Branch Program Initiatives Scorecard
Current Status
as of
June 30, 2002

Faith-Based and Community Initiative
Privatization of Military Housing
Better R&D Investment Criteria
Elimination of Fraud and Error in Student
Aid Programs and Deficiencies in Financial
Management
Housing and Urban Development
Management and Performance
Broadened Health Insurance Coverage
Through State Initiatives
A "Right-Sized" Overseas Presence
Reform of Food Aid Programs
Coordination of VA and DoD Programs
and Systems

Progress in
Implementation

SUMMARY TABLES

Table 6.

BUDGET TOTALS
2002

2003

2004

2005

2006

2007

In billions of dollars:
Outlays .................................................
Receipts ................................................

2,032
1,867

2,138
2,029

2,217
2,169

2,298
2,351

2,390
2,451

2,483
2,567

Deficit/surplus ......................................
Debt held by the public .......................

–165
3,529

–109
3,655

–48
3,713

53
3,669

60
3,622

84
3,546

As a percent of GDP:
Outlays .................................................
Receipts ................................................

19.4
17.8

19.3
18.4

19.0
18.6

18.7
19.1

18.5
18.9

18.2
18.8

Deficit/surplus ......................................
Debt held by the public .......................

–1.6
33.7

–1.0
33.1

–0.4
31.8

0.4
29.8

0.5
28.0

0.6
26.0

MID–SESSION REVIEW

Table 7.

BUDGET SUMMARY BY CATEGORY
(In billions of dollars)
2002

Outlays:
Discretionary:
Defense
Nondefense ......................................

2003

2004

2005

2006

2007

2003–2007

332
379

371
399

388
413

408
418

423
424

437
432

2,028
2,086

Subtotal, discretionary .......................
Emergency response fund ..................
Mandatory:
Social Security .................................
Medicare ..........................................
Medicaid ..........................................
Other mandatory ............................

711
36

771
17

801
8

826
3

847
2

870
1

4,114
30

453
223
147
291

473
232
161
305

494
242
173
302

515
260
188
307

538
282
205
319

566
307
223
323

2,587
1,324
950
1,556

Subtotal, mandatory ...........................
Net interest .........................................

1,114
171

1,171
180

1,212
196

1,270
198

1,345
197

1,419
194

6,417
965

Total Outlays ..........................................
Receipts ...................................................

2,032
1,867

2,138
2,029

2,217
2,169

2,298
2,351

2,390
2,451

2,483
2,567

11,526
11,567

Surplus ....................................................
On-budget surplus ..............................
Off-budget surplus ..............................

–165
–322
157

–109
–282
173

–48
–236
189

53
–165
219

60
–176
237

84
–171
255

41
–1,031
1,072

SUMMARY TABLES

Table 8.

IMPACT OF BUDGET POLICY ON THE SURPLUS
(In billions of dollars)
2003

Current baseline surplus/deficit ...........
Budget proposals:
Defense and homeland security ........
Strengthening Medicare .....................
Provide incentives for charitable giving ....................................................
Health tax credits ...............................
Reform unemployment .......................
Extend expiring tax provisions ..........
Other proposals ..................................
Related debt service ...........................
Subtotal, budget proposals ....................
Budget surplus/deficit ............................

2004

2005

2006

2007

2003–2007

-62

137

174

219

485

-37
-2

-42
-3

-46
-5

-52
-17

-58
-22

-235
-50

-3
-1
-1
-1
-1
-1

-2
-8
-2
-2
-2
-4

-3
-9
-4
-4
-6
-8

-4
-9
-6
-7
-6
-12

-4
-9
-8
-8
-7
-18

-16
-37
-20
-22
-22
-43

-47
-109

-65
-48

-84
53

-113
60

-135
84

-445
41

MID–SESSION REVIEW

Table 9.

DISCRETIONARY TOTALS

(Budget authority, dollar amounts in billions)

2001

2002

2003

Difference
2002–2003
Dollars

Percent

Discretionary Budget Authority:
Homeland Security .................................................................................
Department of Defense 1 ........................................................................
Other Operations of Government ..........................................................

10
303
330

12
328
348

25
376
356

13
48
7

111
15
2

Total, Discretionary Budget Authority 2 ..........................................

643

688

757

Emergency Response Fund:
War on Terrorism ...................................................................................
Homeland Security .................................................................................
Other September 11th Response ...........................................................

13
3
5

19
13
15

Total, Emergency Response Fund ......................................................

Note: Adjustments for the full cost of accounting for retirement benefits would add $8 billion in FY 2001 and $9 billion
in both FY 2002 and FY 2003.
1 A 2003 budget amendment increasing the Department of Defense by $10 billion for expenses related to the war on terrorism was transmitted to the Congress on July 3, 2002. Consequently, the total percent increase for discretionary budget
authority now stands at 10 percent, up from 8.5 percent in the February Budget.
2 Excludes budget authority associated with the mass transit budget category.

SUMMARY TABLES

Table 10.

MANDATORY PROPOSALS
(In millions of dollars)
2003

2004

2005

2006

2007

2003–07 2003–12

Strengthening Medicare ............................................................

1,680

3,375

5,068 17,485

22,497

50,105 190,159

Medicaid/SCHIP:
Medicaid/SCHIP Reform ........................................................
Rationalizing Prescription Drug Payments .........................

348
–290

125
309
144
–650 –1,090 –1,620

161
–1,800

1,087
1,781
–5,450 –17,640

Welfare Reform:
TANF Reauthorization .........................................................
–14
288
Child Support Enforcement:.
Federal Collections and Payments to States ....................
–66
–53
Food Stamps Savings ......................................................... ............ ............
Medicaid Savings ................................................................ ............ ............

266

340

387

1,267

2,976

60
–37
–5

116
–47
–15

119
–49
–20

176
–133
–40

798
–402
–210

Subtotal, Child Support Enforcement ...........................
Supplemental Security Income ............................................
Medicaid savings .................................................................

–66
–2
–3

–53
–6
–10

18
–15
–26

54
–25
–49

50
–32
–75

3
–80
–163

186
–419
–1,036

Subtotal, Supplemental Security Income ......................

–5

–16

–41

–74

–107

–243

–1,455

Total, Welfare Reform .................................................

–85

219

243

320

330

1,027

1,707

............
............
............

–5
–5
–3

–10
–5
–10

–14
–10
–14

–15
–10
–15

–44
–30
–42

–139
–80
–117

............
13
............ ............

25
–10

38
1

40
1

116
–8

336
–3

112

211

149
149
150
150
150
............
113
498
89 ..............
............ –1,200 ............ ............ ..............

748
700
–1,200

1,498
700
–1,200

Other Proposals:
Agriculture:
Increase Timber Competition (use of sealed bids) ...........
Non-Timber Interests Bidding ...........................................
Collect Fair Market Value from Ski Resorts ....................
Accelerate repayment to reforestation trust fund and
payments from special use permits to enhance environmental protection for lands used by ski resorts ......
Provide permanent recreation fee authority ....................
Education:
Teacher loan forgiveness ....................................................
Energy:
Power Marketing Associations to directly fund Corps of
Engineers’ operations and maintenance expenses .......
Increase BPA’s borrowing authority .................................
ANWR, lease bonuses .........................................................
Health and Human Services:
Abstinence education ..........................................................
Interior:
ANWR, lease bonuses:
State of Alaska’s share:.
Receipts ........................................................................
Expenditure ..................................................................
Federal share ...................................................................
Provide permanent recreation fee authority ....................
Correct trust accounting deficiencies in individual Indian money investments .................................................
Labor:
Reform Unemployment Insurance .....................................
Refinance Black Lung Disability Trust Fund debt:
Black Lung Disability Trust Fund .................................
Treasury’s interest receipts ............................................
Propose Reforms of FECA for Future Beneficiaries ........
Redirect H–1B training ......................................................
Treasury:
Tax credits ...........................................................................
Veterans Affairs:
IRS income verification on means tested veterans and
survivors benefits ............................................................
Army Corps of Engineers:
Recreation user fee increase ..............................................
FCC:
Impose annual analog fees after 2006 ..............................
FEMA:
Reform National Flood Insurance .....................................

190

440

............ –1,201
............ 1,201
............
–1
............ ............

–1
1
–1
–17

–101
101
–101
7

–1
1
–1
48

–1,304
1,304
–104
38

–1,587
1,587
–387
490

7 ............ ............ ............ ..............

4,643

19,141

–28

–32

446

1,606
–1,606
–12
80

–446
446
–24
–15

–435
435
–27
–48

–430
–427
–132 –2,184
430
427
132
2,184
–29
–32
–124
–310
–17 .............. .............. ..............

987

6,147

6,930

7,463

7,592

29,119

75,261

............

–6

–24

–54

–6

–1

–5

............ ............ ............ ............

–500

–2,680

–227

–625

–2,080

–43

–75

–115

1,515

–165

2,742

MID–SESSION REVIEW

Table 10.

MANDATORY PROPOSALS—Continued
(In millions of dollars)
2003

OPM:
Simplify computation of annuities under the CSRS for
individuals with part-time service .................................
3
Multi-Agency:
Authorize spending of reimbursements for spectrum relocating costs ...................................................................
100
Indirect impact of other proposals (Third scorecard):
Enact FECA surcharge ....................................................... ............
Total, mandatory proposals .................................................

2,949

2004

2005

2006

2007

2003–07 2003–12

313

100

165

100

515

715

–1

–5

–7

–20

–50

8,232 12,497 25,478

31,147

80,303 268,034

SUMMARY TABLES

Table 11.

EFFECT OF PROPOSALS ON RECEIPTS
(In millions of dollars)
2002

Tax Incentives:
Provide incentives for charitable
giving:
Provide charitable contribution deduction for nonitemizers .........................
Permit tax-free withdrawals from
IRAs for charitable contributions .....
Raise the cap on corporate charitable
contributions ......................................
Expand and increase the enhanced
charitable deduction for contributions of food inventory .......................
Reform excise tax based on investment income of private foundations
Modify tax on unrelated business taxable income of charitable remainder
trusts ..................................................
Modify basis adjustment to stock of S
corporations contributing appreciated property ...................................
Allow expedited consideration of applications for exempt status 1 ................
Strengthen and reform education:.
Provide refundable tax credit for certain costs of attending a different
school for pupils assigned to failing
public schools 2 ...................................
Allow teachers to deduct out-of–pocket
classroom expenses ............................
Invest in health care:.
Provide refundable tax credit for the
purchase of health insurance 3 .........
Provide an above-the-line deduction
for long-term care insurance premiums .................................................
Allow up to $500 in unused benefits in
a health flexible spending arrangement to be carried forward to the
next year ............................................
Provide additional choice with regard
to unused benefits in a health flexible spending arrangement ................
Permanently extend and reform Archer MSAs ..........................................
Provide an additional personal exemption to home caretakers of family
members .............................................
Assist Americans with disabilities:.
Exclude from income the value of employer-provided computers, software
and peripherals ..................................
Help farmers and fishermen manage
economic downturns:.
Establish FFARRM savings accounts ..
Increase housing opportunities:.
Provide tax credit for developers of affordable single-family housing ..........
Encourage saving:.
Establish Individual Development Accounts (IDAs) .....................................
Protect the environment:.
Permanently extend expensing of
brownfields remediation costs ..........

2003

2004

2005

2006

2007

2003–2007 2003–2012

–334

–1,924

–1,446

–2,311

–3,613

–3,640

–12,934

–33,640

–37

–247

–204

–218

–228

–236

–1,133

–2,651

–8

–137

–103

–127

–145

–157

–669

–1,667

–3

–56

–54

–59

–66

–72

–307

–796

–17

–280

–187

–189

–193

–205

–1,054

–2,279

..............

–4

–3

–4

–19

–49

–1

–7

–11

–14

–17

–21

–70

–227

.............. .............. .............. .............. .............. ................ ................... ...................

..............

–9

–23

–35

–50

–61

–178

–210

.............. ..............

–21

–214

–217

–220

–672

–1,813

–300

–1,997

–2,803

–2,761

–2,932

–10,793

–29,225

.............. ..............

–261

–506

–1,020

–1,843

–3,630

–18,371

.............. ..............

–441

–723

–782

–830

–2,776

–7,819

.............. ..............

–23

–39

–45

–52

–159

–566

–27

–294

–461

–524

–601

–1,907

–5,939

.............. ..............

–318

–362

–345

–348

–1,373

–3,578

.............. ..............

–2

–6

–20

–52

.............. ..............

–133

–350

–244

–171

–898

–1,233

..............

–7

–76

–302

–715

–1,252

–2,352

–15,257

..............

–124

–267

–319

–300

–255

–1,265

–1,722

.............. ..............

–192

–304

–298

–287

–1,081

–2,378

MID–SESSION REVIEW

Table 11.

EFFECT OF PROPOSALS ON RECEIPTS—Continued
(In millions of dollars)
2002

Exclude 50 percent of gains from the
sale of property for conservation
purposes .............................................
Increase energy production and
promote energy conservation:.
Extend and modify tax credit for producing electricity from certain
sources ................................................
Provide tax credit for residential solar
energy systems ...................................
Modify treatment of nuclear decommissioning funds ................................
Provide tax credit for purchase of certain hybrid and fuel cell vehicles .....
Provide tax credit for energy produced
from landfill gas .................................
Provide tax credit for combined heat
and power property ...........................
Provide excise tax exemption (credit)
for ethanol 1 ........................................
Promote trade:.
Extend and expand Andean trade
preferences 4 .......................................
Initiate a new trade preference program for Southeast Europe 4 ............
Implement free trade agreements with
Chile and Singapore 4 ........................
Improve tax administration:.
Implement IRS administrative reforms ...................................................
Combat abusive tax avoidance transactions .................................................
Limit related party interest deductions ....................................................
Reform unemployment insurance:.
Reform unemployment insurance administrative financing 4 .....................
Simplify the tax laws:.
Establish uniform definition of a child
Provide incentives for small business:.
Increase Section 179 expensing ...........
Expiring Provisions:
Extend provisions that expired in
2001 for two years:
Generalized System of Preferences
(GSP) 4 ................................................
Permanently extend expiring provisions:
Provisions expiring in 2010:
Marginal individual income tax rate
reductions .......................................
Child tax credit 5 ................................
Marriage penalty relief 6 ...................
Education incentives .........................
Repeal of estate and generationskipping transfer taxes, and modification of gift taxes .......................
Modifications of IRAs and pension
plans ................................................
Other incentives for families and
children ...........................................
Research & Experimentation (R&E)
tax credit ............................................

2003

2004

2005

2006

2007

2003–2007 2003–2012

..............

–2

–44

–90

–94

–98

–328

–918

..............

–243

–215

–116

–45

–664

–900

..............

–9

–7

–8

–17

–24

–65

–75

–12

–228

–168

–178

–188

–198

–960

–2,111

..............

–107

–173

–337

–521

–763

–1,901

–3,035

..............

–46

–59

–86

–121

–140

–452

–1,145

..............

–290

–247

–237

–294

–138

–1,206

–1,180

.............. .............. .............. .............. .............. ................ ................... ...................
..............

–322

–213

–226

–58 ................

–819

..............

–21

–25

–26

–28

–31

–131

.............. ..............

–61

–85

–105

–130

–381

–1,351

..............

265

559

..............

101

102

395

958

..............

1,282

772

761

775

4,351

9,231

..............

–1,043

–1,892

–3,100

–4,298

–5,404

–15,737

–13,222

..............

–25

–24

–25

–29

–128

–10

..............

–647

–840

–948

–908

–775

–4,118

–7,474

..............

–785 .............. .............. .............. ................

–785

.............. .............. .............. .............. .............. ................ ...................
.............. .............. .............. .............. .............. ................ ...................
.............. .............. .............. .............. .............. ................ ...................
–1
–5
–10
–15
–20
–26
–76

–185,420
–32,324
–12,420
–2,809

–169

–281

–6,783

–96,897

.............. .............. .............. .............. .............. ................ ...................

–6,490

.............. .............. .............. .............. .............. ................ ...................

–1,278

.............. ..............

–814

–906

–1,367

–2,949

–2,009

–4,654

–2,312

–5,623

–14,132

–51,051

SUMMARY TABLES

Table 11.

EFFECT OF PROPOSALS ON RECEIPTS—Continued
(In millions of dollars)
2002

Total budget proposals ........................
1 Policy

–582

2003

2004

2005

2006

–5,797 –10,869 –18,237 –24,044

2007
–27,998

2003–2007 2003–2012
–86,945

–540,569

proposal with a receipt effect of zero.
both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $156 million for 2003, $420
million for 2004, $656 million for 2005, $930 million for 2006, $1,184 million for 2007, $3,346 million for 2003–2007, and
$3,991 million for 2003–2012.
3 Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $831 million for 2003,
$5,727 million for 2004, $6,274 million for 2005, $6,533 million for 2006, $6,408 million for 2007, $25,773 million for
2003–2007, and $60,272 million for 2003–2012.
4 Net of income offsets.
5 Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $9,499 million for
2003–2012.
6 Affects both receipts and outlays. Only the receipt effect is shown here. The outlay effect is $1,499 million for
2003–2012.
2 Affects

MID–SESSION REVIEW

Table 12.

RECEIPTS BY SOURCE
(In billions of dollars)
2001
Actual

February estimates
Individual income taxes ................................................
Corporation income taxes .............................................
Social insurance and retirement receipts ....................
Excise taxes ...................................................................
Estate and gift taxes .....................................................
Customs duties ..............................................................
Miscellaneous receipts ..................................................
Bipartisan economic security plan ...............................
Total ............................................................................
Mid-Session estimates
Individual income taxes ................................................
Corporation income taxes .............................................
Social insurance and retirement receipts ....................
Excise taxes ...................................................................
Estate and gift taxes .....................................................
Customs duties ..............................................................
Miscellaneous receipts ..................................................
Bipartisan economic security plan ...............................
Total ............................................................................

Estimates
2002

2003

2004

2005

2006

2007

994.3
151.1
694.0
66.1
28.4
19.4
37.8
..............

949.2
201.4
708.0
66.9
27.5
18.7
36.4
–62.0

1,006.4
205.5
749.2
69.0
23.0
19.8
40.2
–65.0

1,058.6
212.0
789.8
71.2
26.6
21.9
42.8
–47.5

1,112.0
237.1
835.2
73.6
23.4
23.0
43.2
–9.5

1,157.3
241.4
868.7
75.3
26.4
24.7
44.4
17.0

1,221.7
250.6
908.3
77.5
23.2
26.2
46.2
18.0

1,991.0

1,946.1

2,048.0

2,175.3

2,338.0

2,455.3

2,571.7

994.3
873.2
963.6 1,030.3 1,096.2 1,154.2 1,220.9
151.1
144.8
176.8
194.7
256.1
251.2
256.2
694.0
702.9
738.1
780.0
832.4
872.3
913.9
66.1
67.2
69.9
72.8
74.8
76.1
78.3
28.4
27.5
22.2
25.0
22.7
25.0
22.5
19.4
18.2
18.7
22.1
23.7
25.3
26.9
37.8
33.6
39.7
44.3
45.4
46.4
47.8
.............. .............. .............. .............. .............. .............. ..............
1,991.0

1,867.4

2,029.0

2,169.3

2,351.2

2,450.5

2,566.5

..............
..............
..............
..............
..............
..............
..............
..............

–76.0
–56.6
–5.1
0.3
*
–0.5
–2.8
62.0

–42.7
–28.7
–11.2
0.9
–0.8
–1.1
–0.5
65.0

–28.2
–17.2
–9.8
1.6
–1.6
0.2
1.5
47.5

–15.8
19.0
–2.8
1.1
–0.8
0.6
2.2
9.5

–3.1
9.8
3.5
0.9
–1.3
0.6
1.9
–17.0

–0.7
5.6
5.7
0.8
–0.7
0.8
1.5
–18.0

Total ............................................................................ ..............

–78.7

–19.1

–6.0

13.1

–4.7

–5.1

Difference
Individual income taxes ................................................
Corporation income taxes .............................................
Social insurance and retirement receipts ....................
Excise taxes ...................................................................
Estate and gift taxes .....................................................
Customs duties ..............................................................
Miscellaneous receipts ..................................................
Bipartisan economic security plan ...............................

* $50 million or less.

DISCRETIONARY BUDGET AUTHORITY BY AGENCY
(In billions of dollars)

2001
Actual
Legislative Branch ..............................
2.8
Judicial Branch ...................................
4.0
19.4
Agriculture 1 ........................................
Commerce ............................................
5.1
Defense—Military ...............................
302.6
Education .............................................
40.1
Energy ..................................................
20.1
Health and Human Services ..............
54.1
Housing and Urban Development .....
28.4
Interior .................................................
10.3
Justice ..................................................
21.2
Labor ....................................................
11.9
State .....................................................
7.7
Transportation ....................................
17.2
Treasury ..............................................
14.5
Veterans Affairs ..................................
22.4
Corps of Engineers-Civil Works .........
4.7
Other Defense Civil Programs ...........
0.1
Environmental Protection Agency .....
7.8
Executive Office of the President ......
0.3
Federal Emergency Management
Agency ...............................................
2.4
General Services Administration .......
0.5
International Assistance Programs ...
12.6
National Aeronautics and Space Administration ......................................
14.3
National Science Foundation .............
4.4
Office of Personnel Management .......
0.2
Small Business Administration .........
0.9
Social Security Administration ..........
6.0
Other Independent Agencies ..............
6.7
Allowances ........................................... ................

February estimates
2002

2003

2005

2006

2007

2002

2003

2004

2005

2006

2007

3.0
4.3
19.4
5.2
327.7
49.8
20.9
59.4
29.4
10.2
21.5
12.2
8.8
15.8
15.2
23.8
4.5
0.2
7.9
0.3

3.4
4.9
19.3
5.2
366.0
50.3
21.8
64.9
31.4
10.2
21.3
11.3
9.1
19.0
15.9
25.6
4.0
0.1
7.6
0.3

3.4
5.0
20.6
5.7
383.4
51.4
22.3
66.4
33.8
10.5
24.3
11.6
9.3
19.1
16.5
25.9
4.1
0.2
7.8
0.3

3.5
5.1
20.7
5.7
404.1
52.5
22.8
68.1
34.8
10.7
23.6
11.5
9.5
19.6
16.9
26.4
4.2
0.2
8.0
0.3

3.6
5.2
21.2
5.8
424.7
53.7
23.3
69.9
35.6
10.9
24.1
10.3
9.8
20.0
17.3
27.0
4.3
0.2
6.8
0.4

3.6
5.4
21.7
6.0
446.2
55.0
23.8
71.5
36.5
11.2
24.7
9.5
10.0
20.5
17.7
27.6
4.4
0.2
7.0
0.4

3.0
4.3
19.5
5.2
327.7
49.8
20.9
59.4
29.4
10.2
21.5
12.1
8.8
15.8
15.2
24.0
4.5
0.2
7.9
0.3

3.5
4.9
19.6
5.2
376.0
50.3
21.8
64.9
31.4
10.2
21.3
11.3
9.1
19.0
15.9
25.6
4.0
0.1
7.6
0.3

3.5
5.0
20.3
5.7
383.4
51.4
22.3
66.4
33.8
10.4
24.3
11.6
9.3
19.1
16.5
25.9
4.1
0.2
7.7
0.3

3.5
5.1
20.7
5.7
404.1
52.5
22.8
68.1
34.7
10.7
23.6
10.3
9.5
19.6
16.9
26.4
4.2
0.2
7.9
0.3

3.6
5.2
21.2
5.8
424.7
53.8
23.3
69.9
35.6
10.9
24.1
9.2
9.8
20.0
17.3
27.0
4.3
0.2
6.8
0.4

3.7
5.4
21.7
6.0
446.2
55.0
23.8
71.5
36.4
11.2
24.7
8.7
10.0
20.5
17.7
27.6
4.4
0.2
7.0
0.4

3.1
0.6
13.1

6.6
0.5
13.9

6.7
0.6
14.3

6.8
0.6
14.7

7.0
0.6
15.0

7.2
0.6
15.4

3.1
0.6
13.0

6.6
0.5
13.9

6.7
0.6
14.3

6.8
0.6
14.7

7.0
0.6
15.0

7.2
0.6
15.4

14.8
4.8
0.2
0.8
6.4
6.2
–1.3

15.0
5.0
0.3
0.8
6.7
6.2
–0.4

15.6
5.1
0.3
0.8
7.0
6.1
–0.4

15.9
5.2
0.3
0.8
7.2
5.9
–0.4

16.3
5.4
0.3
0.8
7.3
5.8
–0.4

16.7
5.5
0.3
0.9
7.5
7.0
–0.4

14.8
4.8
0.2
0.8
6.4
6.2
–1.3

15.0
5.0
0.3
0.8
6.7
6.2
–0.4

15.6
5.1
0.3
0.8
6.9
6.1
–0.4

15.9
5.2
0.3
0.8
7.0
5.9
–0.4

16.3
5.4
0.3
0.8
7.2
5.8
–0.4

16.7
5.5
0.3
0.9
7.3
7.0
–0.4

746.5

777.5

805.1

832.1

863.3

687.9

756.8

777.1

803.8

831.0

862.5

Total .................................................

642.6

687.9

Memorandum:
Emergency Response Fund ..............

2004

Mid-Session estimates

10 ................ ................ ................ ................

SUMMARY TABLES

Table 13.

47.1 ................ ................ ................ ................ ................

Adjusted for enactment of P.L. 107-171.

Table 14.

DISCRETIONARY PROPOSALS BY APPROPRIATIONS SUBCOMMITTEE
(Budget authority, dollar amounts in billions)

2003
Proposed

Dollar
Change:
2002 to
2003

Dollar
Change:
2000 to
2003

Percent
Average
Annual
Increase
2000 to
2003

Appropriations Subcommittee

2000
Actual

2001
Enacted

2002
Estimate

Agriculture and Rural Development 1 .......................................................................
Commerce, Justice, State, and the Judiciary ...........................................................
Defense .........................................................................................................................
District of Columbia ....................................................................................................
Energy and Water Development ................................................................................
Foreign Operations ......................................................................................................
Interior and Related Agencies ....................................................................................
Labor, Health and Human Services, and Education ................................................
Legislative ....................................................................................................................
Military Construction ..................................................................................................
Transportation and Related Agencies 2 .....................................................................
Treasury and General Government ...........................................................................
Veterans Affairs, Housing and Urban Development ................................................
Allowances ...................................................................................................................

15.0
38.8
278.8
0.5
21.6
16.2
15.4
87.1
2.5
8.7
13.2
13.7
71.8
..................

16.3
38.9
293.6
0.5
24.2
14.6
19.1
109.8
2.7
9.1
17.1
16.0
80.6
..................

16.6
39.7
317.4
0.4
24.6
15.3
19.1
123.8
3.0
10.5
15.6
17.2
84.8
..................

17.2
40.3
367.2
0.4
25.1
16.1
19.0
130.5
3.4
8.9
18.8
18.0
92.3
–0.4

0.6
0.6
49.8
*
0.5
0.8
–0.1
6.7
0.4
–1.6
3.2
0.8
7.5
–0.4

2.2
1.5
88.3
–0.1
3.6
–0.1
3.6
43.4
0.9
0.3
5.6
4.3
20.6
–0.4

4.7
1.3
9.6
–5.8
5.2
–0.3
7.3
14.4
11.3
1.1
12.5
9.5
8.8
NA

Total 3 ........................................................................................................................
Emergency Response Fund .........................................................................................

583.2
..................

642.6
20.0

687.9
47.1

756.9
..................

69.1
NA

173.7
NA

9.1
NA

* $50 million or less.
NA = Not applicable.
1 Adjusted for enactment of P.L. 107–171.
2 All years exclude mass transit budget authority.
3 All years exclude the full cost of accounting for retirement benefits.

MID–SESSION REVIEW

OUTLAYS BY AGENCY
(In billions of dollars)

2001
Actual
Legislative Branch ..............................
3.0
Judicial Branch ...................................
4.4
Agriculture ..........................................
68.1
Commerce ............................................
5.0
Defense—Military ...............................
291.0
Education .............................................
35.7
Energy ..................................................
16.4
Health and Human Services ..............
426.4
Housing and Urban Development .....
33.9
Interior .................................................
8.0
Justice ..................................................
20.8
Labor ....................................................
39.3
State .....................................................
7.4
Transportation ....................................
54.1
Treasury ..............................................
389.9
Veterans Affairs ..................................
45.0
Corps of Engineers-Civil Works .........
4.7
Other Defense Civil Programs ...........
34.2
Environmental Protection Agency .....
7.4
Executive Office of the President ......
0.2
Federal Emergency Management
Agency ...............................................
4.4
General Services Administration .......
–*
International Assistance Programs ...
11.8
National Aeronautics and Space Administration ......................................
14.1
National Science Foundation .............
3.7
Office of Personnel Management .......
50.9
Small Business Administration .........
–0.6
Social Security Administration ..........
461.8
Other Independent Agencies ..............
13.8
Allowances ........................................... ................
Undistributed Offsetting Receipts .....
–191.1
Total .................................................

1,863.9

February estimates
2002

2003

2004

2005

Mid-Session estimates
2006

2007

2002

2003

2004

2005

2006

2007

3.5
4.9
76.1
5.4
327.4
47.6
19.0
459.0
30.9
10.0
22.6
58.5
11.0
60.0
382.0
50.6
4.9
35.5
7.7
0.5

3.9
5.4
74.0
5.5
357.7
53.8
19.7
488.4
34.5
10.5
28.8
56.5
9.8
58.0
396.2
55.6
4.2
40.9
8.0
0.3

4.0
5.5
74.4
5.6
371.1
55.5
20.2
514.2
36.0
11.7
29.7
51.0
9.9
56.1
424.3
57.7
4.1
40.9
8.0
0.3

3.8
5.7
74.2
5.6
390.5
57.0
21.0
547.4
34.8
10.5
25.4
49.5
10.1
55.8
440.9
62.2
4.2
40.8
8.0
0.3

3.8
5.8
74.7
5.7
405.3
58.4
20.8
585.5
34.1
11.0
25.2
50.4
10.3
56.7
458.5
62.0
4.3
40.7
8.0
0.3

3.9
5.9
76.5
5.8
418.7
59.8
21.1
629.3
33.2
11.0
25.6
52.9
10.6
58.4
473.8
61.3
4.4
40.6
8.0
0.4

3.5
4.9
72.8
5.4
335.8
48.2
19.0
461.4
31.0
10.0
23.0
62.9
11.2
64.1
374.1
51.8
4.9
35.5
7.7
0.5

3.9
5.4
78.8
5.5
360.6
55.9
19.7
492.0
35.6
10.5
27.7
59.7
9.9
59.1
394.6
57.6
4.2
40.9
8.0
0.3

4.1
5.5
79.1
5.6
372.3
56.3
20.2
519.4
36.3
11.7
29.9
51.1
10.0
57.1
430.5
59.8
4.1
40.9
8.0
0.3

3.9
5.7
78.2
5.6
390.9
57.5
21.0
555.2
35.2
10.5
25.4
49.6
10.2
56.8
447.6
64.4
4.2
40.8
8.0
0.3

3.9
5.8
77.5
5.7
405.4
58.7
20.8
595.4
34.7
11.0
25.2
50.8
10.4
57.7
465.2
63.7
4.3
40.7
8.0
0.3

4.0
5.9
76.6
5.8
418.8
59.9
21.1
640.0
33.8
11.0
25.6
52.8
10.6
59.4
480.9
62.8
4.4
40.6
7.9
0.4

5.8
0.6
13.3

7.5
–0.1
13.0

7.5
0.3
13.3

8.1
0.5
13.5

6.8
0.5
13.9

6.4
0.4
14.3

5.6
0.6
14.3

8.9
–*
13.2

8.5
0.3
13.3

8.4
0.5
13.5

7.1
0.5
13.9

6.6
0.4
14.3

14.4
4.6
54.3
1.1
492.4
19.8
27.0
–197.6

14.8
4.9
57.5
0.6
509.4
16.9
6.4
–214.4

15.2
5.0
61.1
0.7
530.3
18.1
0.8
–243.3

15.7
5.2
64.9
0.8
558.3
17.0
–0.5
–254.2

16.1
5.2
68.5
0.8
583.7
16.5
–0.3
–264.0

16.5
14.4
5.4
4.6
71.8
54.3
0.8
1.1
611.4
489.1
17.4
19.2
–0.4 ................
–277.6
–198.4

14.8
4.9
57.5
0.6
509.0
16.2
–1.6
–215.3

15.2
5.0
61.1
0.7
532.3
17.8
–0.7
–239.1

15.7
5.2
64.9
0.8
557.9
16.8
–0.5
–256.0

16.1
5.2
68.5
0.8
580.9
16.6
–0.3
–264.5

16.5
5.4
71.8
0.8
607.3
17.4
–0.4
–279.4

2,052.3

2,128.2

2,189.1

2,276.9

2,369.1

2,138.2

2,216.9

2,297.9

2,390.1

2,482.9

2,467.7

2,032.5

SUMMARY TABLES

Table 15.

* $50 million or less.

Table 16.

OUTLAYS BY FUNCTION
(In billions of dollars)

2001
Actual
National defense .................................
305.5
International affairs ...........................
16.5
General science, space, and technology ................................................
19.8
Energy ..................................................
*
Natural resources and environment ..
25.6
Agriculture ..........................................
26.4
Commerce and housing credit ...........
5.9
Transportation ....................................
54.4
Community and regional development ...................................................
11.9
Education, training, employment,
and social services ............................
57.1
Health ..................................................
172.3
Medicare ..............................................
217.4
Income security ...................................
269.6
Social Security .....................................
433.0
Veterans benefits and services ..........
45.0
Administration of justice ....................
29.7
General government ...........................
14.6
Net interest .........................................
206.2
Allowances ........................................... ................
Undistributed offsetting receipts .......
–47.0
Total .................................................

1,863.9

February estimates
2002

2003

2004

2005

Mid-Session estimates
2006

2007

2002

2003

2004

2005

2006

2007

344.8
23.4

375.5
22.3

389.1
22.7

408.7
23.2

423.5
23.8

437.2
24.5

353.4
24.8

378.6
22.5

390.4
22.8

409.0
23.2

423.6
23.8

437.2
24.5

21.6
0.5
29.5
28.7
3.6
61.3

22.0
0.5
29.8
24.1
3.5
59.5

22.7
0.3
30.4
22.7
4.9
56.4

23.4
0.8
30.9
21.1
3.0
56.1

23.9
0.6
31.7
20.2
1.0
57.1

24.5
0.6
32.1
20.1
1.6
58.8

21.6
0.4
29.4
25.9
1.7
65.4

22.1
0.5
29.9
28.7
3.0
60.6

22.7
0.3
30.6
26.8
4.6
57.4

23.4
0.8
31.4
24.0
2.8
57.2

23.9
0.6
32.5
21.5
1.2
58.1

24.5
0.6
33.1
18.6
1.6
59.8

15.3

17.3

17.9

17.3

15.5

15.3

19.4

18.9

17.8

16.0

15.6

71.5
194.8
226.3
310.6
459.5
50.7
33.6
17.7
178.4
27.0
–46.5

78.9
220.6
234.3
318.4
475.8
55.7
39.7
17.0
180.7
6.4
–53.7

80.9
241.1
244.2
323.6
495.5
57.7
42.6
19.0
188.8
0.8
–72.1

82.5
258.9
261.2
332.9
519.5
62.3
38.6
17.9
190.2
–0.5
–71.1

84.1
277.0
281.7
343.7
546.0
62.0
38.8
18.3
188.3
–0.3
–67.8

85.9
72.5
296.9
197.1
305.7
226.4
351.1
313.7
575.1
456.4
61.4
51.9
39.6
33.8
18.5
18.2
185.3
171.4
–0.4 ................
–66.1
–46.7

81.3
222.8
235.9
318.7
477.2
57.6
39.0
17.3
179.7
–1.6
–54.9

81.9
245.1
246.0
322.3
498.2
59.9
43.2
18.9
195.9
–0.7
–68.4

82.8
263.8
264.2
333.2
518.8
64.4
38.9
17.8
198.4
–0.5
–73.4

83.9
282.7
286.1
344.5
542.6
63.8
39.0
18.2
196.6
–0.3
–68.2

85.8
302.8
310.7
350.9
570.4
62.9
39.7
18.4
193.9
–0.4
–67.5

2,052.3

2,128.2

2,189.1

2,276.9

2,369.1

2,138.2

2,216.9

2,297.9

2,390.1

2,482.9

2,467.7

2,032.5

* $50 million or less.

MID–SESSION REVIEW

SUMMARY TABLES

Table 17. ESTIMATED SPENDING FROM 2003 BALANCES
OF BUDGET AUTHORITY: DISCRETIONARY PROGRAMS 1
(In billions of dollars)

Total

Total balances, end of 2003 ....................................................
Spending from 2003 balances:
2004 ...................................................................................
2005 ...................................................................................
2006 ...................................................................................
2007 ...................................................................................
Expiring balances, 2004 through 2007 ..................................
Unexpended balances at the end of 2007 ..............................
1 Required

859.1
328.4
179.4
111.5
76.4
............
163.4

by section 221(b) of the Legislative Reorganization Act of 1970.

MID–SESSION REVIEW

Table 18.

BASELINE CATEGORY TOTALS
(In billions of dollars)
2002

Outlays:
Discretionary:
Defense ............................................
Nondefense ......................................

2003

2004

2005

2006

2007

2003–2007

332
379

344
396

354
409

366
416

372
424

378
434

1,814
2,079

711
22

740
10

763
5

782
2

796
*

812
*

3,893
17

453
223
147
291

473
231
161
304

494
239
174
296

515
255
190
298

538
265
207
310

566
284
224
313

2,587
1,274
955
1,520

Subtotal, mandatory ...........................
Net interest .........................................

1,114
171

1,168
178

1,203
192

1,258
191

1,320
185

1,388
176

6,336
922

Total Outlays ..........................................
Receipts ...................................................

2,018
1,868

2,097
2,035

2,163
2,180

2,232
2,369

2,301
2,475

2,376
2,595

11,168
11,653

Surplus ....................................................
On-budget surplus ..............................
Off-budget surplus ..............................

–150
–308
157

–62
–235
173

17
–171
189

137
–82
219

174
–63
237

219
–36
255

485
–587
1,072

* $500 million or less.

SUMMARY TABLES

Table 19.

OUTLAYS FOR MANDATORY PROGRAMS UNDER CURRENT LAW 1
(In billions of dollars)
2001
Actual

Human resources programs:
Education, training, employment and social services .......
Health ....................................................................................
Medicare ................................................................................
Income security ....................................................................
Social security .......................................................................
Veterans’ benefits and services ...........................................
Subtotal, human resources programs .................................

2.9
139.1
214.1
225.6
429.4
22.6

Estimate
2002

8.1
157.2
222.8
265.6
452.7
28.0

2003

9.8
177.5
230.5
270.0
473.2
32.2

2004

8.4
192.2
239.0
272.2
494.3
34.0

2005

8.2
208.5
255.4
283.0
514.7
38.0

2006

8.1
226.4
264.7
292.6
538.5
36.9

2007

8.0
245.5
284.3
298.6
566.2
35.4

1,033.7 1,134.3 1,193.1 1,240.1 1,307.8 1,367.3 1,437.9

Other mandatory programs:
International affairs .............................................................
Energy ...................................................................................
Natural Resources and Environment .................................
Agriculture ............................................................................
Commerce and housing credit .............................................
Transportation ......................................................................
Justice ...................................................................................
General Government ............................................................
Undistributed offsetting receipts ........................................
Other functions .....................................................................

–6.0
–2.9
–0.3
21.3
4.4
4.3
0.3
1.6
–47.0
–1.0

–3.4
–2.9
0.6
19.9
1.4
6.5
1.0
2.3
–46.7
0.6

–3.1
–3.0
1.2
23.2
3.3
3.2
4.5
1.6
–54.9
–0.8

–3.1
–3.4
2.0
21.2
4.9
2.0
4.7
1.7
–66.0
–0.6

–3.1
–3.4
2.5
18.4
3.4
1.9
2.7
1.6
–73.4
–0.7

–3.1
–3.2
3.1
15.9
2.2
1.9
2.6
1.6
–68.0
–0.7

–3.0
–3.2
3.3
12.8
1.6
1.9
2.6
1.6
–67.0
–0.8

Subtotal, other mandatory programs .................................

–25.3

–20.7

–24.9

–36.7

–50.1

–47.8

–50.2

Total, outlays for mandatory programs under current
law ..................................................................................
1 This

1,008.4 1,113.6 1,168.2 1,203.4 1,257.7 1,319.5 1,387.7

table meets the requirements of Section 221(b) of the Legislative Reorganization Act of 1970.

MID–SESSION REVIEW

Table 20.

FEDERAL GOVERNMENT FINANCING AND DEBT
(In billions of dollars)
2001
Actual

Financing:
Unified budget surplus (+)/ deficit (–) ..........................................
Financing other than the change in debt held by the public:.
Premiums paid (–) on buybacks of Treasury securities 1 ........
Net purchases (–) of non-Federal securities by the National
Railroad Retirement Investment Trust ................................
Changes in: 2
Treasury operating cash balance ..........................................
Checks outstanding, deposit funds, etc. 3 .............................
Seigniorage on coins ...................................................................
Less: Net financing disbursements:
Direct loan financing accounts ..............................................
Guaranteed loan financing accounts .....................................

Estimate
2002

2003

2004

2005

2006

2007

127

–165

–109

–48

–11

–4

..........

...........

–6

–11

–*

8
–13
1

–6
–12
1

–5
10
1

..........
..........
1

–5
..........
1

..........
..........
1

–19
–4

–15
–2

–15
3

–15
4

–15
5

–37

–44

–17

–11

–9

–14

–8

90
–90

–209
209

–126
126

–58
58

44
–44

47
–47

76
–76

5,743

6,155

6,535

6,897

7,195

7,506

7,805

–15
5

Total, debt subject to statutory limitation 6 .............................
Debt Outstanding, End of Year:
Gross Federal debt: 7.
Debt issued by Treasury ............................................................
Debt issued by other agencies ...................................................

5,733

6,145

6,524

6,887

7,184

7,496

7,795

5,743
27

6,155
27

6,535
26

6,897
26

7,195
24

7,506
24

7,805
23

Total, gross Federal debt .......................................................
Held by:.
Debt securities held by Government accounts .........................
Debt securities held by the public 8 ..........................................

5,770

6,182

6,561

6,923

7,219

7,530

7,828

2,450
3,320

2,654
3,529

2,906
3,655

3,210
3,713

3,550
3,669

3,908
3,622

4,282
3,546

Total, financing other than the change in debt held by
the public .........................................................................
Total, amount available to repay debt held by the
public ............................................................................
Change in debt held by the public ...............................................
Debt Subject to Statutory Limitation, End of Year:
Debt issued by Treasury ...............................................................
Adjustment for Treasury debt not subject to limitation and
agency debt subject to limitation 4 ............................................
Adjustment for discount and premium 5 ......................................

* $500 million or less
1 Includes only premiums paid on buybacks through April 2002. Estimates are not made for subsequent buybacks.
2 A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing a deficit and
therefore has a positive sign. An increase in checks outstanding or deposit fund balances (which are liabilities) would also
be a means of financing a deficit and therefore would also have a positive sign.
3 Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold.
4 Consists primarily of Federal Financing Bank debt.
5 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon
bonds) and unrealized discount on Government account series securities.
6 The statutory debt limit is $6,400 billion.
7 Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost all measured at
sales price plus amortized discount or less amortized premium. Agency debt securities are almost all measured at face
value. Treasury securities in the Government account series are measured at face value less unrealized discount (if any).
8 At the end of 2001, the Federal Reserve Banks held $534.1 billion of Federal securities and the rest of the public held
$2,785.9 billion. Debt held by the Federal Reserve Banks is not estimated for future years.

Full text of Mid-Session Review of the Budget : Fiscal Year 2003

FRASER