Budget Structures & Institutions: Federal and State-Local

Page 81- Federal Outlays by Function The Federal Budget Spending by the Federal Government Page 81- Federal Outlays by Function 20% for national defense 64% for human resources 5% for physical resources 8% interest payments 3% other

The Federal Budget Process Process dictated by constitution, statute, tradition, politics Important historical events Budget & Accounting Act of 1921 Budget & Impoundment Control Act of 1974 Balanced Budget & Emergency Control Act of 1985 Budget Enforcement Act of 1990

Federal Budget Organizations OFFICE OF MANAGEMENT AND BUDGET (OMB) Created as the Bureau of the Budget in 1921 Executive Branch Ownership Develops and controls the budget The “M” is no longer silent GOVERNMENT ACCOUNTABILITY OFFICE (GAO) Congressional agency established in 1921 Primary “watchdog” agency for Congress & American people External audit agency for the federal government Headed by Comptroller General (15 year term) CONGRESSIONAL BUDGET OFFICE (CBO) Permanent, nonpartisan professional staff Forecasts, analysis, scorekeeping, policy research

Phases in the Federal Budget Cycle Executive Preparation and Submission phase Legislative Review and Appropriation phase Execution phase Audit and Evaluation phase

Executive Preparation and Submission Phase OMB orchestrates and collects requests OMB ensures requests aligned with president CEA and Federal Reserve provide forecasts INFLATION RATE INTEREST RATE UNEMPLOYMENT RATE GDP GROWTH RATE Final review and submission PRESIDENT’S BUDGET submitted first Monday in February

Legislative Review & Appropriation Phase Committee pathways Each house has an authorization committee, an appropriations committee, a budget committee, and a finance committee 12 appropriations committees in Senate, 10 in the House Authorization committees set policy, create programs, & set ceilings Appropriations committees provide the funds

Legislative Review & Appropriation Phase Budget committees develop the congressional budget Finance committees (Senate Finance Committee and House Ways and Means Committee) deal with tax/revenue, SSI, Medicare, Medicaid, unemployment, and debt

Legislative Review & Appropriation Phase Annual Concurrent Budget Resolution looks at the macro-level budget as a whole in the spring Annual reconcilliation bill Matches spending to revenue Important as a deficit-reduction tool Prohibits filibusters Requires amendments to be germane Requires House & Senate agreement

Legislative Review & Appropriation Phase Appropriations Bills signed by the president Veto is available. Line item veto is not. (Line Item Veto Act of 1996). Why not?

Execution Phase Money spent, services provided Apportionment applies a schedule to spending President can IMPOUND funds (not spend the money) RECISSION (permanent cancellation) DEFERRAL (temporary delay) Recissions must be approved by Congress, deferrals must be executed within the fiscal year

Audit Phase GAO looks at both financial execution and performance

Budget Authority A budget is a commitment Types of authority include: Appropriations authority (permits obligations and payment by the Treasury) Contract authority (agencies may enter into binding contracts prior to the appropriation) Borrowing authority (agency may incur debt) Loan & loan-guarantee authority (permission to loan money and guarantee loans) Entitlement authority (allowed to pay entitlements)

Appropriations 3 types of appropriations measures Regular appropriations bills Annual (one year only, no carry-over) No-year (no restriction on year used) Multiple-year (runs over several years) Advance (funding for future years) Permanent (no repeated action Continuing resolutions continue operating at the beginning of a new fiscal year when a budget has not yet been passed Supplemental appropriations New programs, bad forecasts, surprise events in execution year

Mandatory v Discretionary Spending Discretionary – 40% of budget Mandatory – 60% of budget WHY? Interest on the national debt Social Security Medicare/Medicaid Food & Nutrition Entitlements Means-tested (determined by the economic status of the recipient) Non-means-tested (transfer based on other characteristics)

Federal Deficits Found on page 110/111 Surplus in 2000! To close the deficit, you need either more revenue or less spending We sometimes borrow from off-budget funds Pros and cons to deficit argument

Federal Deficits Attempts to control DEBT LIMITS (currently 9 trillion) AGGREGATE BUDGETING (Congress “approves” a deficit amount) TARGETS & ENFORCEMENT (sequestration) SPENDING CONTROLS (caps on discretionary spending), PAYGO (must offset an increase in spending from another program), and ADJUSTABLE DEFICIT TARGETS (due to economic and technical conditions)

Federal Fiscal Policy ECONOMIC STABILIZATION FISCAL POLICY Promoting maximum employment, production, purchasing power National policy of full employment, increased real income, balanced growth, balanced budget, productivity growth, price stability FISCAL POLICY The use of government decisions on spending and taxing to influence the overall economy. Does it work? MONETARY POLICY The use of the money supply to regulate the economy. Does it work?

State and Local Budgets Local government dominated by elementary and secondary education State government spends on public welfare, higher education, highways, medicine, corrections Lots of diversity nationwide in structure/process

State-Local Compared to Federal Christmas-list budgeting at local level Some chief executives elected, some not Varying budget cycles (biennial/triennial) and fiscal years Less formality than federal procedures All states have line-item veto Public vote may be necessary to increase spending Usually require balanced budgets Limit on the ability to produce revenue / carry debt

Conclusion Federal budget cycle and process clearly defined Process is in disarray, outcome is awful All levels are fiscally constrained, some worse than others