Chapter 3

Budget Structures and Institutions

Functions of a Budget

Financial plan that explicitly illustrates choices over the amount and type of goods and services

Mechanism for accountability regarding those choices

Provides a plan for allocating resources toward reaching policy goals

Federal Budget Process

Combination of legal requirements and traditions

Most important federal statutes: Budget and Accounting Act of 1921 Congressional Budget and Impoundment Control

Act of 1974 Balanced Budget and Emergency Deficit Control

Act of 1985 (“Gramm-Rudman”-Hollings) Budget Enforcement Act of 1990

Budget and Accounting Act of 1921 Created the GAO and OMB Requires a Presidential budget message Does not allow for direct agency submission

Congressional Budget and Impoundment Control Act of 1974

Set the federal fiscal year from Oct. 1 – Sept 30 Est. CBO Set up the system of House and Senate budget

committees Requires tax expenditure analysis Most importantly, reconciliation

Gramm-Rudman Established deficit targets Constrained the number of

Congressional Budget Resolutions Budget Enforcement Act of 1990

Created mandatory and discretionary spending categories

Created new spending control mechanisms

Federal Budget Organizations

Office of Management and Budget (OMB) Executive Office that consolidates requests for

agency appropriations General Accounting Office (GAO)

Congressional “watchdog” agency over federal agency spending

Supervises Executive spending decisions and improves govt. efficiency

Primarily evaluation role Congressional Budget Office (CBO)

Provides Congressional professional staff Budget planning role

Organization of Budget Authority

Executives final decision-making authority & veto

Congressional committees determine both authorization and appropriation

Pork Barrel Politics

Incentive of Congress members is often to bring federal money into the representatives district (“pork”).

Examples include University research projects, new highways, airports, military bases, Govt. buildings (why is one of the major US customs offices in Indy?)

Congressional Committees Single most important position within

Congress is committee membership

Allows congress members power over spending decisions and creates special relationships between representatives and constituents.

What Congressional Committees are there?http://

www.opensecrets.org/cmteprofiles/index.asp

Types of Budget Authority

1. Appropriations

2. Contract

3. Borrowing

4. Loan & loan-guarantee authority

5. Entitlement

Types of Appropriation Authority

Multiple year – provides funding for specific activities.

General revenue sharing- federal assistance to state and local governments.

Advance appropriations provide agencies with funds for future fiscal years.

Permanent appropriations funds specified purposes without required congressional action.

Continuing resolution allows agencies to function when a new fiscal year begins before agency appropriations laws have been formally approved.

Supplemental Appropriation – Executive provides funds to be spent during the current fiscal year.

Executive Line Item Veto Permits an executive additional control

over congressional budgeting decisions Line-Item Veto Act of 1996 granted that

additional executive power Permits:

Canceling any amount of discretionary spending authority

Any item of new direct spending (ex: new entitlements)

Any limited tax benefits, defined as revenue losing provision with 100 or fewer beneficiaries

Could only be used when:

Would reduce the federal deficit Would not impair any essential

governmental function Will not harm national interestsCongress may override any cancellation

within 30 days review periodLast use was in 1998 appropriation bill - Give one reason for or against

allowing Executive line-item veto authority.

Spending

Budgetary Enforcement Act of 1990 defines two types of federal spending:

Mandatory

Discretionary

Methods to control mandatory spending

1. Capping entitlements 2. Constrain benefits 3. Make entitlements means-tested

Controlling spending is not impossible, but politically difficult

Federal Deficits

Deficits every year from 1969 – 1998 Returned to deficit with 2001 tax

reduction and March 2001 recession Borrowing occurred to make up the

difference between revenues raised and spend

Current deficit= $7,375,299,845,541.56

Effects of Federal Deficits

Threatens long-term economic growth. Lowers standard of living Constrains ability of govt. to respond to

new priorities Additional national debt adds a higher interest obligation on future tax payers.

Deficit Control

1. Debt Limits

2. Aggregate budgeting

3. Establishment of targets

4. Spending Controls