Republicans set rules to control spending; the Biden administration has flouted them 

In last year’s budget deal, the Fiscal Responsibility Act, Republican negotiators insisted on the inclusion of an 18-month-long provision called Administrative Pay-As-You-Go (PAYGO), intended to rein in massive spending by the agencies of the Biden administration.

In response to the original rule’s ineffectiveness, House Budget Committee Republicans recently introduced the Strengthening Administrative PAYGO Act of 2024. The bill would correct an easily used loophole, improve the reporting requirements to increase transparency, and make the rule permanent. 

The bill does not, however, fix the many other weaknesses; waivers by the Office of Management and Budget (OMB) would still be allowed, the legal requirement to implement offsets would remain murky, and there would be no enforcement mechanism. 

But those aren’t the only outstanding problems. The original structure of an agency-centric approach is incoherent.  

The federal budget is prepared at and new regulations are overseen by OMB. Fiscal policy is a central responsibility of presidential administrations at the highest levels. Each individual agency — even large ones like Social Security Administration and the Centers for Medicare and Medicaid Services — lacks the visibility into these issues to fulfill the legislative policy intended. The condition for overall budget neutrality of Administrative PAYGO must be placed on the administration and the OMB. 

Furthermore, enforcement should be included in this new legislation by requiring OMB to add any breach of the Administrative PAYGO to the statutory PAYGO scorecard at the end of the year. OMB can then adjust the cutting as needed to eliminate the resulting breach, as the scorecard already has an established cutting mechanism. Some savings from the administrative budget of the offending agency might also be added. These steps would incentivize adherence to the rules and ensure excess spending is sufficiently offset at the level of the overall budget and for each agency. 

Administrative PAYGO in general requires federal agencies to provide offsets for spending increases caused by administrative and regulatory actions if they exceed a certain threshold. Past administrations had some version of this rule, but President Biden revoked it when he entered office. 

Despite the efforts of the Republican negotiators, the provisions in the 2023 legislation were in vain, as Administrative PAYGO has done essentially nothing to offset spending. 

According to a November 2023 report from the General Accountability Office, of the 28 major rules that were finalized by the administration between June 3 and Nov. 3, 2023, the OMB director waived PAYGO for two actions without explanation and determined that it did not apply to the other 26. The report also stated that no proposed rules were likely to be subject to PAYGO requirements. 

According to the Committee for a Responsible Federal Budget, the Biden administration increased 10-year deficits by at least $480 billion from actions finalized after administrative PAYGO had been put in place, with several hundred billion dollars more on the line in proposed rules. 

There are at least three primary reasons the 2023 legislation was so ineffective. 

First, the law was rife with exclusions and exemptions. Although it set a relatively low threshold for inclusion, of $1 billion over 10 years, if an action cost less than $100 million in any year (including the first), it was excluded from the rule. Most spending plans ramp up over time and delays are often built in, meaning PAYGO can be easily evaded using this loophole. 

Second, the legislation granted the director of OMB the authority to waive PAYGO if he or she deems it necessary for “essential services” or “effective program delivery.” As previously mentioned, this power has been exercised to excuse actions from PAYGO requirements.  

Third, and even more consequentially, the Biden administration interpreted the legislation as a requirement for budget proposals and reporting, not as definitively requiring “that the agency move forward with or ultimately implement the proposed offsets.” Additionally, there is no recourse to legal review of agency or OMB actions in this regard. 

Although federal budgeting and agency regulatory and administrative actions are considered obscure, they are increasingly common and large, and therefore important as the federal debt balloons out of control and interest rates remain high. To protect against dire fiscal outcomes, policymakers need to be diligent in their revisions to PAYGO — and the administration must be required to play by the rules. 

Mark J. Warshawsky is a senior fellow at the American Enterprise Institute. He served as assistant secretary of Economic Policy at the Treasury Department from 2004 to 2006.