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Chapter 3 Budget Structures and Institutions

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1 Chapter 3 Budget Structures and Institutions

2 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

3 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

4 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

5 Budget Enforcement Act of 1990
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

6 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

7 Organization of Budget Authority
Executives final decision-making authority & veto Congressional committees determine both authorization and appropriation

8 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?)

9 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?

10 Types of Budget Authority
Appropriations Contract Borrowing Loan & loan-guarantee authority Entitlement

11 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.

12 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

13 Could only be used when:
Would reduce the federal deficit Would not impair any essential governmental function Will not harm national interests Congress may override any cancellation within 30 days review period Last use was in 1998 appropriation bill - Give one reason for or against allowing Executive line-item veto authority.

14 Spending Budgetary Enforcement Act of 1990 defines two types of federal spending: Mandatory Discretionary

15 Methods to control mandatory spending
1. Capping entitlements 2. Constrain benefits 3. Make entitlements means-tested Controlling spending is not impossible, but politically difficult

16 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

17 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.

18 Deficit Control 1. Debt Limits 2. Aggregate budgeting
3. Establishment of targets 4. Spending Controls

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