2 Functions of a BudgetFinancial plan that explicitly illustrates choices over the amount and type of goods and servicesMechanism for accountability regarding those choicesProvides a plan for allocating resources toward reaching policy goals
3 Federal Budget Process Combination of legal requirements and traditionsMost important federal statutes:Budget and Accounting Act of 1921Congressional Budget and Impoundment Control Act of 1974Balanced 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 OMBRequires a Presidential budget messageDoes not allow for direct agency submissionCongressional Budget and Impoundment Control Act of 1974Set the federal fiscal year from Oct. 1 – Sept 30Est. CBOSet up the system of House and Senate budget committeesRequires tax expenditure analysisMost importantly, reconciliation
5 Budget Enforcement Act of 1990 Gramm-RudmanEstablished deficit targetsConstrained the number of Congressional Budget ResolutionsBudget Enforcement Act of 1990Created mandatory and discretionary spending categoriesCreated new spending control mechanisms
6 Federal Budget Organizations Office of Management and Budget (OMB)Executive Office that consolidates requests for agency appropriationsGeneral Accounting Office (GAO)Congressional “watchdog” agency over federal agency spendingSupervises Executive spending decisions and improves govt. efficiencyPrimarily evaluation roleCongressional Budget Office (CBO)Provides Congressional professional staffBudget planning role
7 Organization of Budget Authority Executives final decision-making authority & vetoCongressional committees determine both authorization and appropriation
8 Pork Barrel PoliticsIncentive 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 membershipAllows congress members power over spending decisions and creates special relationships between representatives and constituents.What Congressional Committees are there?
10 Types of Budget Authority AppropriationsContractBorrowingLoan & loan-guarantee authorityEntitlement
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 decisionsLine-Item Veto Act of 1996 granted that additional executive powerPermits:Canceling any amount of discretionary spending authorityAny 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 deficitWould not impair any essential governmental functionWill 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.
14 SpendingBudgetary Enforcement Act of 1990 defines two types of federal spending:MandatoryDiscretionary
15 Methods to control mandatory spending 1. Capping entitlements2. Constrain benefits3. Make entitlements means-testedControlling 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 recessionBorrowing occurred to make up the difference between revenues raised and spendCurrent deficit= $7,375,299,845,541.56
17 Effects of Federal Deficits Threatens long-term economic growth.Lowers standard of livingConstrains ability of govt. to respond to new prioritiesAdditional national debt adds a higherinterest obligation on future tax payers.
18 Deficit Control 1. Debt Limits 2. Aggregate budgeting 3. Establishment of targets4. Spending Controls