1. Chapter 11

2. Chapter 11: Budgeting

3. Defining Budgeting Budget decisions shape government programs.
Three big questions:
What should government do?
Who in government should decide?
How should the decisions be made?
Process
Analysis
Normative values

4. Economic Role of the Budget
Federal budget and national economy have a reciprocal role
Fiscal policy: government taxation and spending
Since the 1930s, economists and government recognize that fiscal policy affects the economy

5. Economic Role of the Budget (continued)
Compensatory economics: preached by Franklin D. Roosevelt’s New Deal; the government can and therefore should use the budget to steer the economy; British economist John Maynard Keynes (intellectual father of the movement)

6. Economic Terms Fiscal year: any given budget year
Surplus: more revenues than expenditures in any given budget year; slows economic growth by draining money from the economy
Deficit: expenditures exceeding revenues within a fiscal year; pumps money into the economy and promotes economic growth

7. Economic Terms (continued)
Debt: deficit accumulated over time constitutes national debt
Monetary policy: the Federal Reserve’s management of the money supply
Stagflation: stagnant growth and inflation

8. Economy Shapes the Budget
National economy shapes the federal budget.
Budget making depends critically on estimating the likely levels of economic growth, unemployment, inflation, and interest rates.
Preparing the budget depends first on forecasting economic performance.

9. Political Role of the Budget
Budget embodies fundamental political choices:
Values: which programs get funded and which do not
Institutions: relative sway of the executive and legislative branches
Congress responsible for the budget until the end of World War I
Budget and Accounting Act of 1921: revolutionized federal budgeting; for the first time the president was to submit an annual budget to Congress

10. Top-Down Budget Making
Preparation of the budget is the first step in the budgetary process.
Top-down budget approach: each government’s executive sets broad targets for overall spending and revenues.
Spending targets fix a ceiling under which the agencies are expected to stay in preparing their individual budget requests.

11. Bottom-Up Budget Making
Central theory of bottom-up budget making is incrementalism.
Incrementalism (Aaron Wildavsky): officials do, and should, ask for a fair-share increment over the agency’s base; these increments reflect the agency’s share of changes in the budgetary pie.

12. Bottom-Up Budget Making (continued)
Incrementalism assumes:
No one really considers the whole budget
Political battles focus on the size of the agency’s increment
Political battles focus on the increment’s size compared with those received by other agencies

13. Attempts to Reform Incrementalism
Management by objectives (MBO): Nixon administration; Office of Management and Budget implemented this strategy to strengthen the ability of managers to manage; emphasized efficiency.
Zero-base budgeting (ZBB): Carter administration; budgeters began from a certain level of spending, assembled decision packages, and ranked them.

14. Attempts to Reform Incrementalism (continued)
George H. W. Bush administration implemented a flexible freeze, in which increases in some programs would be balanced by decreases in others.
Performance Assessment Rating Tool (PART): George W. Bush administration; sought to integrate measures of agency performance with budgetary decisions.

15. Uncontrollable Expenditures
Uncontrollable expenditures: portion of the budget that has become uncontrollable
Share of the federal budget that can be changed in any given year fell from 66 percent in 1965 to 35 percent in 2009

16. Budget Appropriations
Budget submitted by the president is a set of recommendations.
Congress authorizes expenditures and determines how revenues shall be obtained.

17. Budget Appropriations
Rule of anticipated reactions: president and agencies adapt their estimates and recommendations to fit their perceptions of how Congress will react to them.
Washington Monument ploy: agencies offer to cut their most popular programs in the full knowledge that legislators would never allow such cuts to take effect.
e.g., The National Park Service would never close the Washington Monument.

18. Budget Appropriations
Congress responsible for this appropriations process:
Authorizations: create programs and put limits on how much money they can spend
Appropriations: commit money for spending

19. Congressional Budget Act
Congressional Budget Act of 1974:
Gave Congress more time to work on the budget by pushing the start of the fiscal year forward from July 1 to October 1
Created new committees in each house and created a new process

20. Budget Process Congress sets budget totals.
Legislative budget: for the first time, Congress would prepare an estimate of total expenditures, revenues, and the deficit.
Congress authorizes the programs and appropriates the money.
Budget authority: appropriations committees in each house decide how much money should be spent.
Outlays: money expected to be actually spent.

21. More Budget Terms
Black budget: Defense Department’s secret projects; only a handful of members of projects know about their size and scale
Earmarks: pork-barrel spending projects
Continuing resolutions: combines all the government’s spending decisions into one huge package; when Congress cannot complete work on time

22. Budget Process Reforms
Many potential reforms have been suggested:
Create a biennial budget.
Create a capital budget: for capital investments, such as highways and bridges, whose benefits stem far into the future.
Give the president a line-item veto: new veto power over individual line items in the budget.
Enact a balanced-budget constitutional amendment.

23. Budget Execution Executive is overseer of the execution phase.
Congress tries to restrain executive discretion through legislative controls.
Congress limited executive impoundment through Impoundment Control Act of 1971.
Impound: refusal by the president to spend money appropriated by Congress; practiced excessively by Nixon.

24. Budget Execution (continued)
Impoundment Control Act distinguishes between:
Rescissions: permanent suspension of outlays
Deferrals: temporary suspension of outlays

25. Management Control Follow the flow of money.
Money trail demonstrates who is doing what.
By controlling the flow of money, the executive can control the direction and pace of government activity.
The flow of money is important for reporting and evaluating an agency’s performance.

26. Budgeting for State & Local Government
Vast array of strategies but several common features:
State and local governments must balance their budgets (cannot print money or engage in long-term borrowing like the federal government can)
Have two distinct budgets: an operating budget and a capital budget
Operations shut down if a new budget is not passed by the start of the new fiscal year

27. Conclusion
Budgeting is the arena that most fundamentally shapes policy decisions
Decisions that are formalized at one stage of the process might be reformulated at later stages due to budgetary concerns