Budget Structures & Institutions: Federal and State-Local

1. Budget Structures & Institutions: Federal and State-Local Troy University PA6650- Governmental Budgeting Chapter 3

2. 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

3. 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

4. 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

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

6. 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

7. 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

8. 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

9. 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

10. 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?

11. 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

12. Audit Phase • GAO looks at both financial execution and performance

13. 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)

14. 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

15. 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)

16. 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

17. 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)

18. Federal Fiscal Policy • ECONOMIC STABILIZATION • 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?

19. 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

20. 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

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