Notes
This document is one in a series of primers explaining various elements of CBO’s work to support the budget process and to help the Congress make budget and economic policy. This and other primers in the series are available at www.cbo.gov/topics/budget/budget-concepts-and-process.
For an explanation of key terms used throughout this primer, see Congressional Budget Office, Common Budgetary Terms Explained (December 2021), www.cbo.gov/publication/57420; for detailed definitions, see CBO’s Glossary at www.cbo.gov/publication/42904.
The Congressional Budget Office regularly publishes baseline projections of what the federal budget would look like in the current fiscal year and over the following 10 years if laws governing revenue and spending generally remained unchanged. CBO typically releases its initial set of projections in January or February each year and then publishes updated projections in the spring, after the release of the President’s annual budget request. In some years, the agency releases updated baseline projections again later in the summer.
Each time CBO publishes a new baseline, it accounts for the budgetary effects of recently enacted legislation and economic changes (if CBO has also updated its economic forecast). The agency also incorporates other, “technical” changes that reflect new information about program operations and spending—including recent administrative or judicial actions.
In addition to publishing baseline projections, CBO prepares many cost estimates that compare the budgetary effects of proposed legislation with CBO’s baseline projections. (The Congressional Budget Act of 1974, as amended, requires CBO to use estimates prepared by the staff of the Joint Committee on Taxation of the effects on revenue of changes in tax law; CBO incorporates those estimates into its cost estimates.) To ensure consistency, CBO’s cost estimates incorporate the same technical and economic assumptions that underlie the baseline used by lawmakers to enforce budgetary rules and procedures.
When CBO accounts for recent administrative and judicial actions in its baseline projections and cost estimates, it must assess the likelihood, timing, and resulting budgetary effects of those actions—which are often particularly uncertain. CBO has adopted certain procedures to address that uncertainty as consistently as possible. This primer summarizes the practices that CBO follows when incorporating the effects of recent administrative and judicial actions in its baseline projections and cost estimates.
Administrative Actions
Federal agencies take administrative actions to implement laws and programs under their authority. Those actions include rulemaking, guidance, agency letters, directives, notices, and other similar activities. CBO’s estimates of the budgetary effects of administrative actions are based on its assessment of whether an action will occur under current law and whether it represents a routine update or a substantive change in administrative policy. When CBO updates its baseline to include the effects of recently enacted legislation, those updates reflect the effects of subsequent administrative actions needed to implement the legislation.
Routine Administrative Actions in CBO’s Baseline
CBO’s baseline generally reflects an assumption that federal agencies will undertake routine administrative actions as necessary, or as required by current law, to administer programs consistent with existing policy—or as needed to implement newly enacted legislation. Routine actions assumed in each year of CBO’s baseline projections include setting the following:
- Borrowers’ interest rates on federal student loans (those rates are determined on the basis of auctions of Treasury securities that usually occur in May each year);
- The rates Medicare pays to providers (typically announced in August and November each year);
- Annual cost-of-living adjustments (typically announced each October for the upcoming calendar year) for Social Security and certain other federal benefit programs;
- Per-meal reimbursement rates for future school years (usually announced by the Department of Agriculture each July) that affect projections of outlays for child nutrition programs; and
- Annual inflation adjustments for parameters of the tax system that are indexed to inflation (typically announced by the Internal Revenue Service each fall).
Proposed Changes in Administrative Policy in CBO’s Baseline
Many federal agencies have significant discretion in how they administer programs under their jurisdiction. Typically, if an agency has officially announced a change in administrative policy that would have significant budgetary effects relative to the baseline, CBO incorporates at least a portion of those effects in its baseline projections. In doing so, CBO accounts for uncertainty in the likelihood and timing of actions the agency will take to carry out the indicated change in policy, as well as the extent to which CBO expects implementation to occur.
Following a long-standing agreement between CBO and the House and Senate Budget Committees and taking into account the steps an agency has taken toward a change in policy, CBO incorporates into the baseline zero, 50 percent, or 100 percent of the estimated budgetary effects of the policy change:
- If the Administration has not taken a clear, official, and public action that details a proposed change, CBO does not update its baseline projections to include any budgetary effects of the new policy.
- If the Administration has proposed a change in policy through a clear, official, and public action such as a proposed rule, CBO typically updates the baseline to reflect 50 percent of the budgetary effects it estimates would occur if the policy was implemented; that treatment reflects the uncertainty about whether the change will occur and what the outcome might be.
- If the policy change has been implemented or if the Administration has taken an action that makes it clear that the proposed change in policy will be implemented under current law, CBO updates the baseline to reflect 100 percent of the estimated budgetary effects.
The administrative rulemaking process provides an illustration of this approach. Preliminary announcements (such as in speeches, press releases, and social media posts) that an agency may propose a rule are generally not reflected in CBO’s baseline. Advance Notices of Proposed Rulemaking, which are published in the Federal Register, also do not trigger a change in CBO’s understanding of current law. (In certain cases, however, CBO may update its baseline to reflect the effects of anticipated changes in behavior by individuals or businesses that result from such a notice.) The 50 percent treatment is generally applied once an agency publishes a Notice of a Proposed Rulemaking, also referred to as a proposed rule. Once a rule has been finalized, CBO updates the baseline to reflect 100 percent of its estimate of the rule’s budgetary effects.
CBO also incorporates into the baseline estimated budgetary effects of some other types of administrative actions that are outside the federal rulemaking process:
- When the Department of Education releases a “Dear Colleague” letter providing guidance on federal student aid programs, CBO incorporates into the baseline 100 percent of any related budgetary effects.1
- When the Centers for Medicare & Medicaid Services announces policy changes through the use of program instruction authority, CBO updates its baseline to include 100 percent of the associated budgetary effects.
- When the Department of Homeland Security makes changes to immigration processes or to the legal status of non-U.S. nationals, CBO incorporates 100 percent of the related budgetary effects into its baseline.
- When the Administration begins collecting tariffs, as an exercise of its broad authority to impose them without legislative action, CBO incorporates projected collections from those tariffs in its baseline and treats those collections as if they will continue permanently without planned or unplanned changes in the tariff rates.2
Accounting for Administrative Actions in Cost Estimates
For legislative proposals (except appropriation bills) that would directly affect spending or revenues, CBO measures the budgetary effects in relation to its baseline projections. However, because CBO publishes more than one baseline each year, the budget committees specify which baseline is to be used as the basis for CBO’s cost estimates for legislation, often referred to as the scoring baseline.
To ensure that its cost estimates assess the effects of legislation relative to current law, CBO incorporates the budgetary effects of enacted legislation and administrative and judicial actions into the scoring baseline as those activities occur; CBO does not delay incorporating those effects until the next published update of its baseline projections.
As a result, the budgetary effects of proposed legislation are estimated relative to the adjusted projections in the scoring baseline. For example, when the Administration publishes a proposed rule, typically 50 percent of the estimated budgetary effect of that draft rule is immediately incorporated into the scoring baseline. Subsequently, the costs of any proposed legislation that would affect or be affected by policies included in the draft rule are then estimated relative to a baseline that includes 50 percent of the estimated budgetary effects of the proposed rule. (See the last section of this primer for an illustration of how administrative and judicial actions affect CBO’s cost estimates and baseline projections.)
By long-standing convention, CBO’s cost estimates generally reflect the expectation that changes in policy do not change the size of the economy. Hence, when CBO incorporates enacted legislation and administrative and judicial actions into the scoring baseline, the agency does not include the economic effects that may result from that legislation or those actions. CBO incorporates those effects when it next updates its economic forecast and then produces updated baseline budget projections.
Judicial Actions
CBO’s projections reflect, among other things, assessments of the behavior of people and businesses in response to existing laws. When judicial action blocks, delays, or otherwise changes the behavior of federal agencies or other parties, it can also affect both CBO’s baseline projections of what will occur under current law and any related cost estimates. Because of the circuitous path litigation can take, the timing and potential budgetary effects that result from judicial decisions can be highly uncertain.
As it does with administrative actions, CBO incorporates the estimated budgetary effects of judicial actions into the scoring baseline as they occur, and each published baseline reflects the stage of litigation at the point in time when those projections were prepared. Unlike the effects of administrative actions, budgetary effects attributable to judicial actions are usually either fully included in or fully excluded from CBO’s baseline projections, depending on the stage of litigation and the scope of courts’ decisions. In general, judicial actions do not affect CBO’s cost estimates for legislation until there is a significant legal decision that affects activities or assumptions that are accounted for in the scoring baseline.
Actions by District Courts
When governmental activity is challenged in a district court and the outcome is a ruling against the government, CBO generally does not make any changes to the baseline despite the adverse district court decision—because of the court’s limited jurisdiction and the expectation that the government will appeal. CBO sometimes updates its baseline, however, to reflect anticipated changes in people’s behavior—taxpayers’ response, for example—after such a decision.
In addition, some district court decisions can cause CBO to update its baseline projections to reflect an agency’s delay in undertaking activities that are the subject of litigation. How long a particular lawsuit or issue will take to litigate is assessed on a case-by-case basis following specific rules. Generally, CBO expects litigation to take a year or more to conclude.
District courts may impose a temporary or permanent injunction that prohibits an agency from executing current law or implementing an existing policy.3 When that occurs, CBO takes the following steps:
- It updates the scoring baseline to reflect the assumption that the challenged activity will not occur while the injunction is in place (consistent with the scope of the injunction and the agency’s response). Generally, that assumed delay covers the remainder of the fiscal year in which the injunction is issued, plus two additional fiscal years for a preliminary injunction in a district court or one additional year for a case on appeal to an appellate court. In CBO’s baseline, implementation of the challenged activity resumes after the period of delay.
- CBO monitors the litigation. If it is still pending toward the end of the initial period of delay, CBO may alter its baseline projections to delay the assumed implementation of the underlying policy for an additional year.
- It updates the baseline as needed in response to subsequent court decisions or changes in the government’s course of implementation.
Actions by Circuit Courts
CBO does update its baseline to reflect the decisions of circuit courts, even if one of the parties has appealed to the Supreme Court. Generally, when CBO incorporates the effects of a circuit court ruling into the baseline, it does so only for the jurisdictions in which the ruling applies—which could be one circuit or several circuits or nationwide, depending on the circumstances. For example, if one circuit court issues a decision that causes the Administration to change how it implements a policy only within that circuit court’s jurisdiction, CBO updates the baseline to reflect that change.
In some cases, however, CBO incorporates the effects of a circuit court’s ruling into the baseline on a nationwide basis rather than for a specific jurisdiction:
- By long-standing agreement between CBO and the budget committees, CBO updates its baseline to reflect a nationwide change in its understanding of the law when at least three circuit courts rule in agreement on an issue—but only if there are no conflicting appellate court decisions. (That is, if there is disagreement among circuit courts, CBO updates the baseline only on a circuit-by-circuit basis.)
- In some circumstances, CBO changes its understanding of current law as a result of a single appellate court’s decision. For example, the U.S. Court of Appeals for the Federal Circuit has nationwide jurisdiction over certain areas of law (including veterans’ benefits and claims arising under patent law). Similarly, the U.S. Court of Appeals for the Fifth Circuit has jurisdiction over cases concerning nearly all oil and natural gas production on the outer continental shelf. If the Supreme Court subsequently overturned such a decision, the baseline would again be updated on a nationwide basis to reflect that outcome.
If the Supreme Court rules on an issue that has been before a circuit court, CBO updates the baseline to reflect the Supreme Court’s ruling, if necessary.
Examples of the Effect of Recent Administrative and Judicial Actions on CBO’s Baseline Projections for Student Loans
Two recent actions by the Administration related to student loans illustrate how CBO incorporates the effects of administrative and judicial actions in its scoring baseline, which is used to estimate the costs of legislation, and in the baseline projections it publishes two or three times each year.
A New Income-Driven Repayment Plan
In an income-driven repayment (IDR) plan, a borrower’s monthly student loan payments are based on income and family size.
Administrative Actions. On January 11, 2023, the Department of Education published its proposed rule for a new IDR plan in the Federal Register.4 Compared with existing IDR plans, the proposed IDR plan would generally reduce the percentage of income a borrower was required to pay each month and, on average, the total amount paid by the borrower over the life of the loan.
Because the Administration had published a proposed rule in the Federal Register, CBO immediately began accounting for that action when producing cost estimates for legislative changes to student loans. That is, CBO incorporated 50 percent of its estimated costs of the new IDR plan in its scoring baseline and then assessed the costs of future legislation relative to that adjusted baseline.
The rule was not yet finalized when CBO next published a new baseline, in May 2023. As a result, the agency’s published projections included 50 percent of the costs of the proposed IDR plan.
On July 10, 2023, the Department of Education published the final rule for the IDR plan in the Federal Register, making what had been a proposed rule a new regulation.5 As a result, CBO immediately incorporated the full estimated cost of the IDR plan in its scoring baseline, and all of CBO’s estimates for legislation after that date were relative to that baseline. When CBO published its next set of baseline projections, in February 2024, those projections also reflected the full cost of the IDR plan.
Judicial Decisions. On August 9, 2024, the U.S. Court of Appeals for the Eighth Circuit issued a nationwide injunction, pending appeal, that halted further implementation of the final IDR rule; the injunction remains in effect until further order from that court or the Supreme Court. As a result, CBO updated its scoring baseline to reflect a one-year delay in the date on which the Department of Education will allow additional borrowers to enroll in the new repayment plan. (Parts of the final rule already implemented are not directly affected by the temporary injunction.)6 CBO’s estimates also now incorporate the department’s announcement that payments by borrowers who have selected the new IDR plan will be paused, with no accrual of interest, until the legal situation changes. The rule has not been invalidated, and the cost of the IDR plan remains in CBO’s baseline. As of the date of this primer, the new IDR plan is still in litigation.
Examples of Estimates. In March 2023, CBO estimated that if the final rule for the IDR plan remained unchanged from the proposed rule, the total cost of implementing it would be $230 billion.7 Because the Department of Education had issued only a proposed rule at that time, $115 billion (50 percent of the estimated cost of $230 billion) was incorporated in CBO’s scoring baseline. Thus, before the publication of the final rule, CBO would have estimated, for example, that any legislation repealing the IDR plan would reduce the deficit by $115 billion.
CBO also noted that if the Supreme Court invalidated the Administration’s loan cancellation (discussed below), the full estimated cost of the IDR plan would increase from $230 billion to $276 billion because of interactions between the two policies. (The costs of student loan cancellation had already been incorporated into CBO’s scoring baseline at 100 percent when the IDR estimate was published.)
Cancellation of Student Loans
If outstanding balances on federal student loans are canceled, those balances are not repaid by borrowers.
Administrative Actions. On August 24, 2022, the Administration announced that it would cancel up to $10,000 in outstanding student loan balances for borrowers who met certain eligibility criteria and an additional $10,000 if the borrower had received a Pell grant.8 The Department of Education announced the policy as final, without additional rulemaking, and stated that an application to determine eligibility for those cancellations would be available by the end of the year.
Because the Administration had announced a change in policy that would be implemented without further rulemaking or legislative action, CBO incorporated 100 percent of the estimated cost of cancellation in its scoring baseline. As a result, any cost estimates CBO produced after that announcement would reflect the full estimated impact of cancellation on the budgetary effects of any legislation.
Judicial Decisions. On November 14, 2022, the U.S. Court of Appeals for the Eighth Circuit issued an order that temporarily prevented the Department of Education from implementing the planned cancellation of student loan debt while it considered the appeal.9 After the court’s ruling, CBO kept the costs of the department’s planned cancellation in the scoring baseline but assumed that its implementation would be delayed by one year.
On June 30, 2023, the Supreme Court held that the Department of Education’s planned cancellation of student loan balances exceeded its statutory authority, thereby preventing the department from canceling student loan balances as it had announced. As a result, CBO immediately updated its scoring baseline by removing $315 billion in estimated costs of cancellation. Estimates of the budgetary effects of legislation that CBO produced after the court’s decision incorporated the assumption that the cancellation would not happen.
Examples of Estimates. In September 2022, CBO estimated that loan cancellation, as originally announced by the department, would increase the deficit by $400 billion.10 In its estimate of the budgetary effects of H.R. 2811, the Limit, Save, Grow Act, issued in April 2023, CBO estimated that repealing cancellation would reduce the deficit by $315 billion, rather than the $400 billion the agency initially estimated.11 (That revised estimate was applied to the Supreme Court’s June 2023 action.) The main reason for the difference in those estimates was the Administration’s new IDR proposal, which at that time was incorporated in CBO’s scoring baseline at 100 percent. The new IDR plan reduced the amounts that CBO projected borrowers would pay on their outstanding balances, which in turn reduced the estimated cost of canceling those balances.
1. Department of Education, “Dear Colleague Letters” (accessed October 15, 2024), https://tinyurl.com/35fdz636.
2. For example, the Administration’s tariff actions beginning in 2018 were taken under authority granted in section 232 of the Trade Expansion Act of 1962, section 201 of the Trade Act of 1974, and section 301 of the Trade Act of 1974.
3. A preliminary (or temporary) injunction is a short-term court order commanding or preventing an action to avoid irreparable injury before the court is able to decide a case. By contrast, a permanent injunction is issued only after a substantive court decision, and its mandate applies until overruled.
4. Office of Postsecondary Education, Department of Education, “Improving Income-Driven Repayment for the William D. Ford Federal Direct Loan Program,” 88 Fed. Reg. 1894 (proposed January 11, 2023), https://tinyurl.com/ypswdutn.
5. Office of Postsecondary Education, Department of Education, “Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program,” 88 Fed. Reg. 43820 (July 10, 2023), https://tinyurl.com/5n7z3pbw.
6. The district court had issued a preliminary injunction that the circuit court’s order superseded.
7. Congressional Budget Office, letter to the Honorable Virginia Foxx and the Honorable William Cassidy regarding the costs of the proposed income-driven repayment plan for student loans (March 13, 2023), www.cbo.gov/publication/58983.
8. White House, “Fact Sheet: President Biden Announces Student Loan Relief for Borrowers Who Need It Most” (August 24, 2022), https://tinyurl.com/4ykbbcp8.
9. The district court had denied the request for an injunction and dismissed the case.
10. Congressional Budget Office, letter to the Honorable Richard Burr and the Honorable Virginia Foxx regarding the costs of suspending student loan payments and canceling debt (September 26, 2022), www.cbo.gov/publication/58494.
11. Congressional Budget Office, letter to the Honorable Jodey Arrington regarding CBO’s estimate of the budgetary effects of H.R. 2811, the Limit, Save, Grow Act of 2023 (April 25, 2023), www.cbo.gov/publication/59102.
Amber Marcellino and Justin Humphrey prepared this primer with assistance from Kevin Laden and guidance from Barry Blom. Christina Hawley Anthony, Megan Carroll, Kathleen FitzGerald, Ann E. Futrell, Paul B. A. Holland, Leah Koestner, Russell Krupen (formerly of CBO), John McClelland, Sam Papenfuss, Asha Saavoss, Joshua Shakin, Emily Stern, and Robert Sunshine provided comments. Youstiena Shafeek fact-checked the primer.
Jeffrey Kling reviewed the primer. Rebecca Lanning edited it, and R. L. Rebach prepared the text for publication. The primer is available at www.cbo.gov/publication/60846.
CBO seeks feedback to make its work as useful as possible. Please send comments to communications@cbo.gov.