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President Trump Bolsters Administrative PAYGO Through Executive Order

Oct 16, 2019 | Other Spending

Last week, President Trump signed an executive order requiring federal agencies to identify and propose offsets whenever they propose an action that increases mandatory spending.

This requirement, known as “administrative Pay-As-You-Go (PAYGO),” is similar to statutory PAYGO that Congress has operated under at various times over the past three decades. Administrative PAYGO was put in place by the Office of Management and Budget (OMB) in 2005. However, in another similarity to Congress’s PAYGO rule, administrative PAYGO has been frequently waived or outright ignored since its enactment. The new executive order seeks to institutionalize and reinvigorate the rule.

Administrative PAYGO applies to any discretionary action taken by a federal agency that increases mandatory spending. In this case, "discretionary" actions are those not required by statute. The rule does not apply to actions that would reduce tax revenue – applying it to both sides of the budget would represent a significant improvement. Under this executive order, before a federal agency can take a discretionary action that would increase mandatory spending, it must first submit a proposal to OMB with an estimate of its budgetary effects and a list of other potential administrative actions that would result in a comparable reduction in mandatory spending. The executive order has less detail about the required estimates than the 2005 memo it is replacing, which required one-year estimates and five- and ten-year estimates where possible.

Unlike statutory PAYGO intended to restrain Congressional actions, administrative PAYGO does not have an enforcement mechanism that would automatically enact spending cuts to offset qualifying increases in mandatory spending or force the savings proposal to be implemented. Statutory PAYGO requirements can also be met with either increased revenue or decreased spending, while this executive order requires agencies to reduce mandatory spending. But like Congress’s PAYGO rule, administrative PAYGO can be waived in certain circumstances, in this case by the OMB Director.

In 2017, President Trump signed a similar executive order requiring federal agencies to identify two rules or regulations to repeal whenever they propose creating a new one. It also required federal agencies to offset any new regulatory costs by eliminating one or more existing rules or regulations that carry comparable costs. However, that executive order only applied to fiscal year (FY) 2017.

The PAYGO principle is a pillar of responsible governance. It was vital to bipartisan efforts to control deficits – and ultimately balancing the budget – in the 1990s. PAYGO ensures the highest priorities supplant lower priorities, rather than testing the limits of the national credit card.

With annual deficits expected to surpass $1 trillion this fiscal year and each year thereafter, lawmakers must explore ways to control costs and prioritize spending in all parts of the federal government.