Budget Structures & Institutions:
Federal and State-Local
Javed Anwar
Budget Structures & Institutions:
Federal and State-Local
Chapter 3
The Federal Budget
• A government budget, however, reflects
choices well beyond those of finance.
• Not only is the budget a financial
accounting of the receipts and expenditures
of the federal government; it also sets forth
a plan for allocating resources— between
the public and private sectors and within
the public sector—to meet national
objectives.
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
– 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
