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Why do CBO cost estimates change?

Tuesday, March 3, 2015

The Congressional Budget Office (CBO) provides Congress with official cost estimates (aka “scores”) of proposed and enacted legislation. These estimates are important because if the scored costs of a bill are too high or savings too low, the provisions of the bill will have to be changed.

In 2012, the House and Senate Agriculture Committees both developed versions of a new farm bill. CBO estimated that both bills would save money relative to a continuation of current law. CBO scored the Senate farm bill as saving $23.1 billion in federal outlays over the 10 fiscal years 2013-22 relative to its March 2012 baseline, while it scored the House farm bill as saving $35.1 billion.

As background, the CBO baseline is a 10-year projection of future program costs. This projection assumes that most current laws and policies continue indefinitely regardless of when actual operating authorization or funding stops. The exception is when current law explicitly stops the authorization or funding for some programs at a particular year. Using the baseline as the benchmark, a CBO cost estimate (aka the “score”) provides an estimate of whether the proposed legislation would increase, decrease or have no effect over the next 10 years on the federal deficit. A cost estimate shows the change in costs relative to a specific baseline—not the total cost of a provision or program. Therefore, what’s known as “the cost” is actually the “change in cost” relative to a continuation of current law.

Although the Senate passed its farm bill in 2012, the House farm bill reported out by the Agriculture Committee was never brought to the floor for a vote. When the 112th Congress ended, these farm bills, along with other unfinished legislation, died. The Agriculture Committees will need to start the formal process over again in the 113th Congress.

Not only do the bills (or substitutes) need to be reintroduced in the 113th Congress but they also need to be rescored. On March 1, 2013, CBO issued updated estimates of the costs of the Senate and House farm bills from 2012. The updated estimates are relative to CBO’s February 2013 baseline. [http://cbo.gov/publication/43966].

CBO’s updated 10- year estimated total outlay savings for the Senate farm bill relative to CBO’s February. 2013 baseline declined by $10 billion (43%) from last year’s CBO score—from $23.1 billion to $13.1 billion. In contrast, 10-year aggregate savings for provisions of the House farm bill decline by $8.6 billion (26%) —to $26.6 billion from $35.1 billion. 

Why do CBO’s cost estimates change or don’t change?

1.  For programs with funding levels that are fixed amounts of money, a cost estimate will not change from baseline to baseline, other things being equal. Examples include the EQIP conservation program and most energy programs. 

2.  For programs with funding levels that are not fixed but depend on market factors such as prices, yields, and/or participation rates, cost estimates typically change as baseline forecasts change. Affected programs include counter-cyclical commodity programs, the Conservation Reserve Program, SNAP (food stamps), and crop insurance. CBO’s March 2012 baseline did not—could not—include impacts of the unexpected drought that occurred in the summer of 2012 but its February 2013 baseline does.

3.  CBO updates its scoring baseline to incorporate the impacts of newly enacted legislation. If new legislation is enacted between the old cost estimate and the new cost estimate, scores may change. SNAP education and training costs in the old score were eliminated in the new score because of a similar provision in the one-year extension passed by the 112th Congress on Jan. 1.

4. CBO analysts may obtain new information after the initial cost estimate is issued. Four billion  dollars of 10-year SNAP savings included in the old cost estimate were lost in the new cost estimate after analysts obtained new information on state practices for utility allowances and USDA’s interpretation of current law. CBO analysts believe that changes in the bills’ current language could restore the savings.

5.  In scoring against a new baseline, the 10-year scoring window shifts by one year. The new farm bill cost estimates use a 2014-23 scoring period while the old scores used a 2013-22 scoring period. If there is a difference in costs between the year dropped and the year added (especially when costs for a programs increase each year as with, for example, the Conservation Stewardship program), the 10-year score will reflect this.  Note that this may be largely mitigated if the program changes start a year later in the new analysis.

6.  CBO analysts periodically rework and refine their cost estimating models. This may give different estimates from analysis to analysis. A corollary to this is that when analysts change, which at CBO is rare, often approaches, perspectives and models change, too.   Whether changes in estimating models affected the updated cost estimate is not known.

New cost estimates that reduce savings present additional challenges to an already difficult farm bill process. Restoration of the $4 billion in SNAP savings through new language would help reduce the aggregate “savings shortfall” but would not fix problems in other titles—especially for commodity programs including the proposed margin-based dairy program, livestock disaster assistance, and safety net programs for major field crops.  Unless cost-reduction targets (whatever they are) are changed, significant changes in last year’s farm bill provisions are needed.

Jagger _CBO Chart 2

CBO’s February 2013 baseline will not be the final scoring baseline for laws enacted later in 2013.  The CBO March or April 2013 baseline will be the “scoring” baseline for the following 12 months, adjusted for newly enacted legislation or major administrative changes. Delayed release of the President’s Budget, which provides needed information to CBO, is holding up CBO’s March baseline. How CBO incorporates sequestration changes, which are not in its February. 2013 baseline at the program level, is yet to be determined.

The bottom line is that if members of Congress have a bill that CBO estimates will meet budget targets, they need to do everything possible to get it enacted before baselines and cost estimates change. Both House and Senate Ag Committee leadership and members worked very hard in 2012 to do so. Despite their efforts, refusal by House leadership in 2012 to bring the House Farm Bill to the floor prevented getting a 2012 farm bill to a House-Senate conference where differences between the House and Senate bills would have been resolved and, very likely, a 2012 farm bill enacted.


Craig Jagger Craig Jagger (craigjagger1@gmail.com)
President, Legis Consulting

View more posts by Craig Jagger

The views and opinions expressed in AgChllenge2050 blog posts are solely the opinions of the authors, and not those of Farm Foundation, NFP.