Public Administration in America 11e Michael E. Milakovich and George J. Gordon

1
Public Administration in America 11e Michael E.
Milakovich and George J. Gordon

• Chapter Eight
• Government Budgeting

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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

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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

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Purposes of Budgeting

• Multiple functions
• Ledger
• Programmatic intent
• Controlling bureaucracy, shaping agency programs

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Constant Dollar Spending Growth1981-2010
Source Results summarized from
http//www.whitehouse.gov/omb/budget/fy2012/sheets
/hist0123.xls.
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Purposes of Budgeting

• Partisan conflicts dominate federal budgets for
  last 30 years
• Contributes to increased spending
• Entitlements
• Direct spending
• Discretionary spending

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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.
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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

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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

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Fiscal Policy Tools

• Taxation
• 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

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Government Spending as a Share of GDP, 2011
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Fiscal Policy Tools

• National debt
• Limit set by Congress
• Indirect but major impact on private holdings,
  interest rates, income, spending
• Budget deficit
• Tax expenditure financing

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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

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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

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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?

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The Federal Government Dollar-Where It Comes From
and How It Is Used, 2012 (estimated)
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The Process of Budget Making

• Institutional conflicts
• House and Senate legislative processes differ
• House Ways and Means Committee
• Senate Finance Committee
• Institutional political fragmentation

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The Process of Budget Making

• Budget covers fiscal year (not calendar year)
• Two separate budgets
• Budget obligations
• Budget outlays

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The Process of Budget Making

• Five stages of federal budgeting
• Preparation
• Authorization
• Appropriation
• Execution
• Audit

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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

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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

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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)

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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

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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

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Conflicts over Fiscal Control

• Budget Enforcement Act of 1990
• Amended the GRH Act
• Limited some discretionary spending
• Pay-as-you-go procedures (PAYGO)

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Steps 4 and 5 Execution and Audit

• Execution
• Money apportioned from Treasury quarterly
• Spending monitored by OMB, GAO and congressional
  committees with jurisdiction
• Wide administrative discretion in spending

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Steps 4 and 5 Execution and Audit

• Audit
• Informal within agencies
• Formal by auditors, OMB and GAO
• Legislative oversight
• Increasing use of performance audit

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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

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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

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Budget Approaches in the Executive Branch

• Planningprogrammingbudgeting (PPB) emphasis is
  economic (1960s)
• Hopes to instill coherence, consistency and
  rationality
• Less politics, more rationality
• Congressional resistance

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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

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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

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Budget Approaches in the Executive Branch

• G.W. Bush increased discretionary spending
  (military support)
• Obamas Fiscal Responsibility Commission
• Broader the recommendations, the lesser the
  chance for full implementation

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Budgeting and Resource Scarcity

• Advent of absolute scarcity
• Declining growth rates
• Tax base shrinkage
• Rising inflation (plus recession)
• Competition increasing for declining resources

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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

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Budgeting and the Future

• Budget process remains area of major government
  focus and concern
• Fiscal conservatives often advocate strengthening
  presidents authority
• Congressional involvement limits reform
• Summitry (but little recent domestic diplomacy)
• Current budget conflicts reflect current
  political conflicts