All About OMB

The Office of Management and Budget (OMB) may not get as much attention as other Cabinet-level agencies like the Departments of Defense and the Treasury, but that doesn’t mean OMB is any less important.  In fact, OMB plays a critical role in managing the operations of the federal government and the budget process.  More so, OMB is responsible for reviewing regulations that shape Americans’ daily lives.  So, how does OMB do this?

The History of OMB

OMB’s origins date back to 1921, when the Budget and Accounting Act of 2021 established the Bureau of the Budget at the Department of the Treasury.  The bureau was eventually moved to the Executive office of the President in 1939, where it was reorganized into the Office of Management and Budget in 1970. 

OMB Today

Comprised of nearly 500 career staff, The mission of OMB is to “assist the President in meeting policy, budget, management, and regulatory objectives and to fulfill the agency’s statutory responsibilities.”  OMB mainly carries out this mission through 5 main functions:

  1. Preparing a budget proposal to Congress;
  2. Supervising executive branch agencies;
  3. Reviewing all rulemaking and regulatory actions;
  4. Reviewing agency testimony, legislative proposals, and other communications with Congress; and
  5. Clearing Presidential Executive Orders.

Current Leadership

The organization is led by three-Senate confirmed positions: Director, the Deputy Director, the Deputy Director for Management.  The current Acting Director of OMB is Shalanda Young, who was confirmed as Deputy Director in March 2021.  The Biden Administration’s latest nominee for OMB Director is Kiran Ahuja, who previously served as Chief of Staff of the Office of Personnel Management and Executive Director of the White House Initiative on Asian Americans and Pacific Islanders during the Obama Administration.   While Ahuja, was favorably reported by the Senate Homeland Security and Governmental Affairs Committee, the Senate has yet to schedule a floor vote to consider her nomination. 

Extension of the President with Congress

OMB play 3 key roles for the President as the Administration interacts with Congress:  the budget, statements on legislation, and the Congressional Review Act. 

Budget.  While the Presidential budget submission to Congress typically happens around February each year, OMB is active long before the annual tome hits the streets.  OMB works on average six months prior by sending budget instructions to agencies and later reviewing and analyzing agencies’ formal budget proposals.  Additionally and throughout the year, OMB provides guidance on a range of budgetary topics, including government shutdowns, continuing resolutions, and agencies use of discretion with mandatory spending. 

SAPs.   OMB prepares Statements of Administration Policy (SAPs) on any pending legislative proposals that are not related to appropriations that communicate the President’s position on the affected legislation.  SAPs typically serve as a strong indicator of whether the President will veto or sign a bill into law.  OMB also reviews and clears congressional testimony, congressional correspondence, and draft bills from the agencies to ensure the documents are aligned with the Administration’s agenda. 

              Congressional Review Act.  The Congressional Review Act (CRA) is an oversight tool Congress can use to overturn a rule by a federal agency or department.  OMB is tasked with determining whether a rule is considered a “major rule” under the CRA.  In the case of major rules, Congress can pass a joint resolution of disapproval, which would veto the rule if signed into law by the President or approved by two-thirds of both chambers of Congress.

Role in Rulemaking

OMB plays a pivotal role in rulemaking, primarily through the Office of Information and Regulatory Affairs (OIRA).  Like its parent agency, OIRA is currently without a permanent leader; former National Labor Relations Board member Sharon Block has been serving as OIRA’s Acting Administrator since April 2021.  Under the current framework, OIRA is charged with reviewing all regulatory actions and determining whether the regulations are “significant” or “economically significant,” meaning they have an annual effect on the economy of $100 million or more.  For rules deemed significant and economically significant, however, agencies must submit several documents, including the draft text of the rule, an explanation of how the rulemaking will address a particular need, the potential costs and benefits of the rule, and in the case of rules considered economically significant, a regulatory impact analysis.

After receiving all necessary documents from agencies on significant rules, OIRA has 90 calendar days to review, with the option of extending the review period for one time by up to 30 days.  OIRA then proceeds to review the agency’s documents and return the rule to the agency in one of three ways:

  1. Consistent without change.  This means OIRA did not alter the proposed rule.
  2. Consistent with change.  This means OIRA generally agrees with the intent of the rule but made some substantive changes. This is the most common type of action OIRA takes.
  3. Returned.  This means OIRA has serious concerns with the agency’s proposed rule and does not approve the publication of a Notice of Proposed Rulemaking (NPRM). Returned rules are always accompanied by a return letter which is posted on OIRA’s online docket.   An example of a returned letter is a 2002 letter to the Office of Personnel Management rejecting proposed changes to the Federal Employee Health Benefits Program due to concerns over cost measurement and accounting principles.

Once OIRA has completed its review process, the proposed rule is published in the Federal Register in the form of a NPRM. The rule is opened to a public comment period generally lasting 60 days.  When the public comment period concludes, the agency makes any changes to the rule and resubmits it to OIRA for another round of review. Again, OIRA has 90 days to conducts its review process. When OIRA completes its final review, the agency may set a date for promulgation of the rule and publish the final rule in the Federal Register.  Members of the public can track rules under the review of OIRA at www.reginfo.gov.

Does OMB Matter?

Absolutely.  Even if OMB may not be mentioned as frequently as other agencies, its power cannot be understated.  OMB oversees a number of multi-trillion-dollar budgets that impact every aspect of American life, and OMB’s role in supervising federal agencies means it’s more or less in charge of 4.3 million federal employees.  Based on the goals of the Administration, OMB is an important partner with Congresson how much will be spent on health, defense, housing, and other key areas. 

Furthermore, OMB’s role in coordinating and reviewing regulatory action makes it a key player in the day-to-day actions in government.  Whether it pertains to Medicare reimbursement, FDA user fees, price transparency, or otherwise, all rulemaking and regulatory action is subject to OMB’s review.  Despite a lack of attention, OMB’s impact is far-reaching.

Did You Know?

Did you know that you can meet with OMB?  OIRA has an open door policy, which means the office takes meetings with outside stakeholders on regulations under review.  Meeting participants and materials are publicly disclosed and provide an interesting window into additional input the agency receives beyond formal written comments on the rule.  This month’s hot topic appears to be the physician fee schedule, among other health care related ruled. 

PAYGO Cuts Face Uncertainty in Congress

While members of both parties agree the pending Medicare sequester needs to be extended, Republicans don’t seem favorable to waiving PAYGO budget rules to allow additional cuts to be averted.  The result is continued uncertainty for health care providers and a likely sign of spending fights to come in Congress.

Medicare is currently facing two automatic budget cuts.  Under the first cut, Congress was initially set to reduce 2% of the Medicare budget, or $18 billion, in Fiscal Year 2020 due to a process known as sequestration that provides an automatic spending reduction to enforce certain budgetary goals.  However, Congress opted to delay the 2% cut to April 1, 2021 due to the pandemic’s financial impact on health care providers.  The American Rescue Plan Act of 2021 (H.R. 1318) is scheduled to trigger a second cut to Medicare to the tune of 4%, or $36 billion.  This second cut is a requirement of the Pay-As-You-Go (PAYGO) budget rule, which says legislation that fails to offset spending increases must be offset by cuts to mandatory programs such as Medicare.  Unlike the sequester, PAYGO cuts would not go into effect until the beginning of 2022. 

Health care stakeholders are adamantly opposed to the cuts.  In letters sent to congressional leadership on March 11 and March 17 respectively, the American Hospital Association and American Medical Association (AMA) requested lawmakers find a bipartisan solution to avoid the both the sequester and PAYGO-triggered spending reductions.   In particular, AMA urged Congress to avoid legislation that would again induce PAYGO cuts to avoid creating further uncertainty in the health care system.

The House is set to take up a bill on March 19 that would waive PAYGO for the American Rescue Plan and delay Medicare sequestration through the end of the 2021(H.R. 1868). While both Democrats and Republicans agree the sequester needs to be delayed again, Republicans do not seem favorable to waiving PAYGO.  In a March 16 hearing on H.R. 1868 by the House Rules Committee, Ranking Member Tom Cole (R-OK) implied the American Rescue Plan was too large due to lack of bipartisan cooperation, and that a smaller COVID-19 relief bill could have passed Congress without triggering PAYGO cuts.  Additionally, many Republicans may be unwilling to waive a budgetary rule that was directly triggered by a massive bill that passed without a single GOP vote.

Likewise, it is unclear what the Senate will do with the measure once it is sent over from the House.  Introduced by Jeanne Shaheen (D-NH) and Susan Collins (R-ME), S. 748 would extend the sequester moratorium through the end of the COVID-19 health emergency but did not address the broader PAYGO issue.  The bill pays for the limited extension by extending the time period for sequestration by one year, through Fiscal Year 2031.

Given the political dynamics of the overall PAYGO issue and with Democrats controlling the Senate by just one vote, it is unclear at this time whether the Senate would take up the House measure or the Shaheen/Collins bill.  Adding to the uncertainty is the upcoming congressional recess period where both chambers will be out of session starting March 29 until April 13.  At this point, there hasn’t been any signal yet that the Senate will take action next week to avoid the current March 31 sequestration relief expiration from taking effect.  However, we would anticipate action at some point, even if it would have to be made retroactive, given the overall bipartisanship that remains generally for giving providers relief from the projected cuts.