1. Chapter Eight: Government Budgeting
Public Administration in America 11e Michael E. Milakovich and George J. Gordon
Chapter Eight:
Government Budgeting

2. Foundations of Modern Government Budgeting
Pre-Civil War, budgeting informal
Federal budget under $1 billion
Budgetary process fragmented
After 1870s, national economy emerges
Government regulatory power expands
War power, diplomatic involvement expands
Growth in presidential influence
Taxes expand

3. Foundations of Modern Government Budgeting
National Banking Act (1864)
In 20th century, changes continue
Increased regulation of private sector
Expanded government role in public sector
Activist presidents
Executive budget

4. Purposes of Budgeting Multiple functions Ledger Programmatic intent
Controlling bureaucracy, shaping agency programs

5. Constant Dollar Spending Growth: 1981-2010
Source: Results summarized from:

6. Purposes of Budgeting
Partisan conflicts dominate federal budgets for last 30 years
Contributes to increased spending
Entitlements
Direct spending
Discretionary spending

7. Projected Spending and Receipts Summary 2011-2015 (in billions of dollars)
Source: U.S. Office of Management and Budget, Budget for Fiscal Year 2012, Historical Tables.

8. Purposes of Budgeting Role of Congress increases
Congressional Budget Office
Increased conflicts between president and Congress
Partisan conflicts over deficits
Dissensus over debts, deficits, Medicare, taxation, Social Security and military spending

9. Government Budgets and Fiscal Policy
Budgets are fiscal policy instruments
Fiscal policy: government action aimed at development & stabilization of private economy
Taxes and tax policy
Direct budget expenditures
Management of national debt
Indirect tax expenditures

10. Fiscal Policy Tools Taxation Government expenditures
Recent uncertain national/global economies raise new questions use as policy tool
Government expenditures
Government spending about 34% of GDP
Major economic implications for many industries and local communities

11. Government Spending as a Share of GDP, 2011

12. Fiscal Policy Tools National debt Budget deficit
Limit set by Congress
Indirect but major impact on private holdings, interest rates, income, spending
Budget deficit
Tax expenditure financing

13. Monetary and Credit Controls
Federal Reserve System: money supply regulation
Central economic coordination
Council of Economic Advisers
Government spending as stimulus
But increase in unemployment brings increase in government spending as revenues decrease

14. Links to Government Budgeting
Government budgeting directly impacted by tax policy, expenditures, interest group actions, economic coordination
Tax policy decision making (not conducted by budget makers)
House Ways and Means Committee
Senate Finance Committee

15. Links to Government Budgeting
Expenditure policy directly affects national, state and local communities
Economic coordination: budget is one tool affecting economic policy
Major policy battleground
Political conflicts
What is spending priority?

16. The Federal Government Dollar-Where It Comes From and How It Is Used, 2012 (estimated)

17. The Process of Budget Making
Institutional conflicts
House and Senate legislative processes differ
House Ways and Means Committee
Senate Finance Committee
Institutional & political fragmentation

18. The Process of Budget Making
Budget covers fiscal year (not calendar year)
Two separate budgets:
Budget obligations
Budget outlays

19. The Process of Budget Making
Five stages of federal budgeting
Preparation
Authorization
Appropriation
Execution
Audit

20. Step 1: Budget Preparation
OMB sends out call for estimates
Budget examiners hold hearings
OMB then issues circulars (directives)
Examiners make recommendations to OMB
Single budget document submitted to Congress

21. Step 2: Authorization Sets budget caps for programs
Responsibility of standing committees in both House and Senate
Makes recommendations to full chamber
Conference committees work out details
Authorization bill forwarded to chief exec
Some programs receive standing authorizations

22. Step 3: Appropriations Most crucial stage
Grants actual program funding (by appropriations committee in House and Senate)
Backdoor financing can occur
Entitlement program funding set by law (often tied to inflation)

23. Conflicts over Fiscal Control
Fragmented authority in budgeting means fragmented control over national government spending
Role of iron triangle
Congressional Budget and Impoundment Control Act of 1974 restored some control to Congress

24. Conflicts over Fiscal Control
Balanced Budget and Emergency Deficit Control Act of 1985 (GRH Act)
Mandated budget reductions, but made allowance for exemptions
Sequestration
Reconciliation

25. Conflicts over Fiscal Control
Budget Enforcement Act of 1990
Amended the GRH Act
Limited some discretionary spending
Pay-as-you-go procedures (PAYGO)

26. Steps 4 and 5: Execution and Audit
Money apportioned from Treasury quarterly
Spending monitored by OMB, GAO and congressional committees with jurisdiction
Wide administrative discretion in spending

27. Steps 4 and 5: Execution and Audit
Informal within agencies
Formal by auditors, OMB and GAO
Legislative oversight
Increasing use of performance audit

28. Budget Approaches in the Executive Branch
Commission on Economy and Efficiency (1909) recommends budget process under presidential direction
Harding administration institutes formal executive-budget system
Line-item budgeting
Executive office control

29. Budget Approaches in the Executive Branch
Performance budgeting (New Deal)
Centralized coordination and control
Executive Office of the President (1939)
First Hoover Commission
Supports performance budgeting
Recommends Bureau of Budget expansion
Budget and Accounting Procedures Act (1950) focuses on efficiency

30. Budget Approaches in the Executive Branch
Planning–programming–budgeting (PPB) emphasis is economic (1960s)
Hopes to instill coherence, consistency and rationality
Less politics, more “rationality”
Congressional resistance

31. Budget Approaches in the Executive Branch
Zero-base budgeting (1970s)
Identify decision units
Analyze decision units, formulate decision packages by knowledgeable manager
Rank decision packages by priority for funding

32. Budget Approaches in the Executive Branch
“Reaganomics” (1980s)
Tax cuts benefit affluent
Composition of budget altered (increase in defense spending, decrease in domestic)
Clinton administration emphasized budget priorities in education, job training, technology and public works

33. Budget Approaches in the Executive Branch
G.W. Bush increased discretionary spending (military support)
Obama’s Fiscal Responsibility Commission
Broader the recommendations, the lesser the chance for full implementation

34. Budgeting and Resource Scarcity
Advent of absolute scarcity
Declining growth rates
Tax base shrinkage
Rising inflation (plus recession)
Competition increasing for declining resources

35. Budgeting and the Future
In constant dollars, how high is government spending?
Other industrialized nations collect and spent larger percentage of their GDP
Private economic performance critical to national budget
No entitlement is guaranteed and no expenditure is uncontrollable

36. Budgeting and the Future
Budget process remains area of major government focus and concern
Fiscal conservatives often advocate strengthening president’s authority
Congressional involvement limits reform
Summitry (but little recent domestic diplomacy)
Current budget conflicts reflect current political conflicts