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 is a decrease in outlays of $2.4 billion relative to previous law.

Estimating changes

    Changes in estimates can arise from non-policy 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-for-service 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.

    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.