The Congressional Budget Act of 1974 requires the Congressional Budget Office to prepare cost estimates for legislation at certain points in the legislative process. This document answers frequently asked questions about those cost estimates.
For more detailed answers to any of the questions in this document, see CBO Explains the Statutory Foundations of Its Budget Baseline, CBO Explains How It Develops the Budget Baseline, CBO Describes Its Cost-Estimating Process, and The Statutory Pay-As-You-Go Act and the Role of the Congress, and CBO Explains How It Incorporates Administrative and Judicial Actions When Updating Its Baseline Projections and Preparing Cost Estimates.
Why does CBO prepare cost estimates?
CBO prepares cost estimates to support the Congressional budget process and help the Congress make effective budget and economic policy. The Congressional Budget Act of 1974 (often called the Budget Act), which established the Congressional Budget Office, directs the agency to estimate the anticipated budgetary effects of certain legislation. Lawmakers can use that information when considering their votes and implementing budgetary rules and procedures. For legislation involving the Internal Revenue Code, the Budget Act requires CBO’s cost estimates to incorporate estimates made by the staff of the Joint Committee on Taxation.
When does CBO prepare cost estimates?
CBO strives to provide a cost estimate for each piece of legislation before it is considered on the floor of either chamber. For authorizing legislation, CBO is required to prepare a cost estimate after a Congressional committee orders the legislation to be reported for consideration by the full House or Senate. The agency may also publish cost estimates and provide technical assistance for authorizing legislation at other stages of the legislative process.
CBO also assists the Congress with annual appropriation acts, which make funding available to federal agencies, usually by specifying an amount of money provided for a given fiscal year. Throughout the appropriation process, the agency provides the Appropriations Committees with data and technical assistance as they develop the legislation. CBO also publishes reports that summarize the budgetary effects of appropriation legislation considered in each chamber. Throughout the budget cycle, CBO supplies the Budget Committees with running tabulations of the effects of new Congressional actions on spending and revenues.
How does CBO prioritize cost estimates?
The Budget Act requires that CBO place the highest priority on preparing estimates for legislation that is most likely to be considered by the Congress. CBO works for all Congressional committees, with its chief responsibility being to help the Budget Committees with the matters under their jurisdiction. One of the key ways that CBO supports the Budget Committees is by preparing cost estimates. The Budget Committees are Congress’s scorekeepers, and they can use CBO’s estimates to enforce budgetary rules or targets.
Priority under the act is also given to the House and Senate Appropriations, House Ways and Means, and Senate Finance Committees. The agency also works closely with the leadership of both chambers.
To the extent that it can, CBO also provides technical assistance to individual Members of the Congress and their staffs. The most common requests are for preliminary estimates of the budgetary effects of bills or proposals under consideration and for assessments of proposed amendments to pending legislation.
How many cost estimates does CBO publish each year?
CBO publishes between 600 and 800 cost estimates for bills ordered reported to the Congress each year. The estimates are posted on CBO’s website, where users can filter by bill number, title, and committee, for example.
About 350 additional estimates are posted annually for the direct spending and revenue effects of bills considered under suspension of the rules in the House of Representatives. Suspension is a procedure that allows the House to set its normal rules aside when considering legislation.
What information is included in a cost estimate?
Cost estimates of authorizing legislation show the anticipated budgetary effects over varying periods. For legislation, CBO estimates effects over a 10-year period for provisions that would affect revenues or direct spending (also called mandatory spending). For provisions that would authorize discretionary activities or programs (which require funding later, in appropriation legislation), CBO’s estimates provide information for a 5-year period, as required by the Budget Act.
As required by law and at the direction of the House and Senate Budget Committees, cost estimates also identify whether enacting a bill would impose mandates on state, local, or tribal governments or private-sector entities and whether enacting that bill would result in long-term budgetary consequences. The Congress can use that information to enforce various budgetary points of order (objections that legislation violates a certain rule).
A cost estimate for authorizing legislation typically includes the following information:
- At a glance, or a summary of a bill’s effects on direct spending, revenues, and spending subject to appropriation as well as mandate determinations and potential long-term budgetary effects;
- Bill summary, or a description of provisions with budgetary effects;
- Estimated federal cost, or the estimated effects and the budget functions (such as national defense, agriculture, or health) that would be affected by the bill;
- Basis of estimate, or the assumptions, reasoning, analytic methods, and sources of data used to develop the estimate; an explanation of the bill’s effects on direct spending, spending subject to appropriation, and revenues; and a description of areas of significant uncertainty;
- Pay-As-You-Go considerations, or the direct spending and revenue effects for budget reporting and enforcement procedures as specified in the Statutory Pay-As-You-Go Act of 2010;
- Assessment of long-term net direct spending and deficits, or a statement of the bill’s direct spending and deficit effects projected for any of the four consecutive 10-year periods beginning with the 11th year after enactment (required by Congressional rules); and
- Mandates, or a statement that describes any federal mandates that would be imposed on state, local, or tribal governments or the private sector (required by the Unfunded Mandates Reform Act of 1995).
For appropriation bills, CBO provides data and information that the Appropriations Committees can use when crafting the legislation and throughout the legislative process. CBO also distributes reports to interested parties in the Congress that show account-level details of the budgetary effects of proposed appropriation legislation.
What budgetary effects are identified in a cost estimate?
CBO’s cost estimates for authorizing legislation show how that legislation would affect three major components of the federal budget:
- Direct (mandatory) spending, which is the budget authority provided by laws other than appropriation acts and the outlays that result from that budget authority. Direct spending funds entitlement programs and certain other payments to people, businesses, and other entities. Rather than being set in appropriation acts, direct spending is generally governed by criteria set by legislation that originates with authorizing committees. Direct spending programs include the nation’s three largest entitlement programs (Social Security, Medicare, and Medicaid) and many smaller programs (among them unemployment compensation, federal employees’ retirement, student loans, and deposit insurance).
- Revenues, which are the funds collected from the public from the government’s exercise of its sovereign powers. Effects on revenues are measured relative to baseline projections. For legislation involving the Internal Revenue Code, CBO’s cost estimates incorporate estimates made by the staff of the Joint Committee on Taxation, as is required by the Budget Act. CBO estimates the revenue effects from other sources of governmental receipts, such as collections of customs duties, fees, and fines.
- Spending subject to appropriation (discretionary authorizations), which refers to the amount of funds either explicitly authorized to be appropriated or that CBO estimates would be required to perform an activity, implement a program, or substitute one activity for another, as well as the outlays that would result if those appropriations were provided by subsequent legislation. Discretionary spending stems from appropriations provided in legislation that originates in the House or Senate Committee on Appropriations. Most defense, education, and international affairs programs, for example, are funded by appropriation, as are many other federal programs and activities.
Does authorizing legislation affect discretionary spending?
Not directly. Such legislation typically calls for—or “authorizes”—discretionary spending by extending an agency’s authority to operate an existing program or to undertake a new program or activity, or by changing the way an existing program operates. But even when such legislation is enacted, funding for those envisioned changes still depends on future appropriation acts. When authorizing legislation affects discretionary appropriations that already have been provided, the effects are treated as direct spending.
Why do CBO’s cost estimates distinguish direct spending from spending subject to appropriation?
CBO’s estimates highlight the key information that the House and Senate Budget Committees can use for enforcing budgetary rules. Legislation originated by authorizing committees that affects direct spending is subject to Congressional pay-as-you-go (PAYGO) rules that are enforced through points of order (objections that legislation violates a certain rule). Such legislation also is subject to procedures specified in the Statutory Pay-As-You-Go Act of 2010. In contrast, any effects on spending subject to appropriation are considered separately because they would require subsequent appropriations.
How do CBO’s cost estimates distinguish direct spending from spending subject to appropriation?
CBO uses different terms to describe the estimated budgetary effects of legislation: Funding provided by legislation is called budget authority because it allows an agency to make financial commitments that result in outlays—that is, the liquidation of those commitments. In contrast, funding that is subject to appropriation is labeled as an authorization, rather than budget authority, because the authority to incur financial commitments is contingent on the subsequent appropriation of budget authority (usually in annual appropriation acts originated by the House or Senate Committee on Appropriations). In either case, cost estimates also show, separately, CBO’s estimate of the outlays that would result from mandatory budget authority or from future appropriations that are consistent with either of those authorizations.
What benchmark does CBO use to estimate a bill’s effects on direct spending and spending subject to appropriation?
A key element in every CBO cost estimate is the benchmark—the amount of spending that CBO estimates will occur under current law—against which the estimated changes in spending are measured.
In the case of direct spending, the benchmark is spending under current law as reflected in CBO’s baseline—the projections of government spending for the current year and the ensuing decade. In CBO’s projections, most mandatory programs are assumed to continue automatically throughout the 10‑year baseline period. As required by law, CBO’s estimates are made under an assumption that certain expiring programs with annual outlays greater than $50 million will continue to operate. As also required by law, CBO’s projections incorporate the assumption that entitlement authority will be fully funded even if the source of that funding is inadequate. (Entitlement authority is a legal obligation to make payments to eligible people, governments, or other entities in advance of funds provided through an appropriation act.) Thus, CBO’s baseline incorporates the assumption that scheduled payments (for Social Security benefits, for example) will continue to be made in full after the balance in the funding source—namely, a program’s trust fund—has been exhausted.
For spending subject to appropriation, the benchmark also is spending under current law—in this case consisting of enacted appropriations for the current year and any amounts appropriated or authorized to be appropriated in the future. Many programs funded through the appropriation process have no authorization after the current year, and lawmakers ordinarily do not provide discretionary appropriations beyond the current year. Thus, a bill that would extend the authorization for an existing program for another year would be shown as increasing spending subject to appropriation in that future year, even if the authorized funding is the same as the current year’s appropriation.
How does CBO estimate spending subject to appropriation?
CBO’s estimates identify the amount of appropriated funds that would be needed to perform an activity or implement a program and the outlays that would result if those appropriations were provided.
With varying degrees of specificity, authorizing bills can indicate the possible budgetary effects for a proposed activity or program, if appropriations were provided. Some bills extend the authority to operate an existing program or authorize a new one. In such cases, CBO may estimate spending subject to appropriation using historical data from the program or similar activities. Bills also can list specific amounts to be appropriated for the program’s activities. Typically, for those bills CBO estimates spending subject to appropriation based on those specified amounts. Other bills authorize the appropriation of “such sums as may be necessary” to carry out a program’s activities. Still others direct an agency to undertake new activities but do not explicitly authorize appropriations to pay for them. For the last two types of bills mentioned, CBO identifies various factors (such as the type of activity, its scope, and its duration) and seeks information from relevant sources to estimate the costs to implement the bill.
Does CBO provide estimates for administrative and judicial actions?
Occasionally, yes. CBO’s cost estimates account for administrative actions (such as the issuance of rules or regulations) and judicial actions that would be expected if a bill was enacted into law. The agency does not routinely provide cost estimates for administrative actions that take place after a law is enacted. CBO may provide an estimate of the budgetary effects of a bill that would overturn or change a specific regulation.
CBO incorporates the budgetary effects of administrative and judicial actions into its baseline. For example, when an agency publishes a proposed rule in the Federal Register that would change the administration of a law in a way that differs from the assumptions that govern CBO’s baseline projections for that agency, a partial budgetary effect generally is incorporated into the baseline. To reflect the uncertainty about whether or how a rule is ultimately made final, CBO generally assumes a probability (50 percent) that the rule will be implemented. When a rule becomes final, its full effects are incorporated into the baseline. CBO addresses significant changes from administrative and judicial actions in The Budget and Economic Outlook (a report published annually) and has provided specific estimates by request.
What if a bill would direct a federal agency to carry out an activity that CBO expects the agency will perform anyway?
CBO does not estimate additional costs for a proposed activity if it determines that the activity is already performed or will be performed under current law.
Does a program’s most recent appropriation matter?
Because appropriations are mostly provided for one year at a time, the starting point under current law for assessing changes in spending subject to appropriation is usually zero for future years. Thus, any new authorization of funding appears in a CBO cost estimate as a potential increase in spending, relative to current law, regardless of how the proposed authorizations compare with recently enacted appropriations. However, CBO provides context for such estimates by noting how proposed authorizations compare with actual appropriations for the most recent year, if that information is available. Moreover, if a bill would reauthorize an existing program with funding of “such sums as may be necessary,” CBO generally uses the most recent appropriation as the starting point for estimating future spending under that proposed authorization.
Why does CBO estimate that enacting a bill would have a cost if it simply requires a federal agency to carry out a new activity but does not increase the agency’s authorization of appropriations or change the amount of budget authority available to that agency?
When a law imposes a new requirement that will entail the use of resources, such as directing an agency to prepare a plan or to report to the Congress, CBO estimates the cost of carrying out that requirement. In general, such requirements would apply to future fiscal years for which appropriations have not yet been determined—so the requirements could influence the amount of budget authority that would be made available to the agency in the future.
Even if future funding was not affected, the agency would have to spend appropriated funds on that new activity instead of spending them to carry out other responsibilities. The money used to carry out the new activity would be a measure of the “opportunity cost” of not carrying out other responsibilities.
How can I request technical assistance on a bill?
Congressional staff may request technical assistance by emailing draft language or referencing a bill number in the subject line to costestimates@cbo.gov. Requests are directed to the proper analysts. As time permits, CBO provides information on potential direct spending effects. If it is not possible to work on an estimate quickly, CBO will reply with an answer giving an update on when an estimate can be prepared. The staff of the Joint Committee on Taxation is responsible for all requests concerning legislation that would amend the Internal Revenue Code.