Public Budgeting

Policy, Process and Politics

Irene S. Rubin

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317461838
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Some of the best writings on public budgeting and finance can be found in the journals that ASPA publishes or sponsors. For this volume editor Irene Rubin has brought together the best of these articles - emerging classics that address the most important theoretical and practical problems underlying public budgeting.The anthology is organized topically rather than historically, with an effort to delineate the issues needed to understand some of the more recent controversies in the field. Rubin's introductory essay and section openers frame the key issues and provide historical context for each article. The collection begins with descriptions of what public budgeting is, where it comes from, and what it is for. It moves on to the relationship between budget processes and outcomes, constraints on budgeting, the legal context in which it operates, and adaptations to those constraints such as contracting out.The book concludes with a discussion of the ethics and norms that underlie budgeting in a democracy. Throughout the anthology, the emphasis is on areas of disagreement and debate, so students can get involved and explore different viewpoints.

Part 1 What is a Public Budget? Origins and Purposes

The first essay describes what public budgeting is and how it differs from individual and family budgeting; the second describes the origins of public budgeting in the United States. The next two pieces deal with what budgeting is designed to do, and how it accomplishes those goals. Together, the pieces in this part introduce several themes that are echoed throughout the book. The first is that government budgeting is necessarily and appropriately different from private sector budgeting; the second is that waves of budget reform are aimed at adapting public budgeting to the problems of the day, such as departmental overspending, mobilizing resources to solve societal problems such as health care, or cutting back spending to reduce taxes and the scope of government. Budgeting changes because the problems budgets confront change.

Most people approach public budgeting from the nearest thing that they know, either business budgeting or family budgeting. Joseph White’s essay contends that both comparisons are flawed. White argues that economic theories based on modeling individuals’ behavior miss their mark because they pay inadequate attention to the actual structure of budgeting, which provides any number of constraints. Far from being the expansionary enterprise envisioned by those describing “the budget maximizing bureaucrat,” in the United States, budgeting is a process marked by competition among committees and branches of government and limited by revenue ceilings and spending caps. Budgeting implies both the articulation of demands and needs and prioritizing those demands and needs to keep totals in some kind of discipline.

The second selection, “Who Invented Public Budgeting in the United States?,” tracks the origin of modern governmental budgeting to the early 1900s. This essay argues that business did not develop budgeting but rather that government, borrowing from the social services, came up with a model that was later imposed on businesses. This history was obscured by reformers who were funded by the business community and sought its approval by touting the excellence of business. The essay reinforces the idea that business and government are different, and that the level of accountability required from government is much higher. Using the budget and accounting data to achieve public accountability was a major concern of early budget reformers.

The third essay introduces the idea that budgeting and its key functions change over time, depending on which problems are dominant at the moment. Allen Schick argues that budgets differentially emphasize spending controls, management improvements, or planning, while still performing all three functions. He describes a succession of reforms, from line-item budgets geared to spending controls, to program budgeting that facilitates productivity and management improvement, to complex integrated planning and management documents advocated by PPBS, planning program budgeting systems. Each reform addressed the dominant problems of the era.

Chapter 1 Making “Common Sense” of Federal Budgeting

Joseph White

DOI: 10.4324/9781315701431-2

Budgeting is a ubiquitous, frequently controversial, and almost always dissatisfying aspect of government. Because it influences so many decisions and provokes so much debate, budgeting attracts study from a wide variety of perspectives, ranging from welfare economics to public choice, public administration, political science, and political anthropology.

Federal budgeting has been especially controversial over the past two decades of partisan war over the unbalanced budget. These battles have provoked a great deal of explanation (Drew, 1996; Gilmour, 1990; Haas, 1990; Hager and Pianin, 1997; Makin and Ornstein, 1994; Maraniss and Weisskopf, 1996; Penner and Abramson, 1988; Schick, 1990; Steuerle, 1991; White and Wildavsky, 1991; Woodward 1994). As a participant in the explanatory effort, I have been struck by the extent to which public debate and attitudes seem to proceed not from the insights of academic fields but from a different set of perspectives.

The distinction is most evident in attitudes towards budget balance. Although there are mac-roeconomic arguments for balancing the federal budget, the discipline of economics provides no basis for saying that the different between balance and, say, a deficit of one half of one percent of the gross domestic product is very significant. Yet “balance” per se has great political meaning. James D. Savage (1988) has described the roots of the balanced budget ideal in American politics. His argument about the political values and interests the ideal has served can explain who chooses to manipulate the appeal, but it cannot fully explain the attraction of the balanced budget ideal for apolitical, inattentive citizens.

Instead, budget balance and other values tend to be based on simple principles, such as, “I have to balance my budget so the government should, too.” This is a commonsense understanding: it operates by considering government budgeting as if it were something closer to everyday experience for most people (thus, common and sensible).

Unfortunately, application of what passes for commonsense about federal budgeting almost inevitably leads to disappointment. Governments do not budget the way citizens think individuals or families or business firms do or should.

Ironically, only part of the misunderstanding is because government is different; the rest is because the standards applied to government budgeting are not followed in everyday life, either.

This essay will highlight some points about budgeting, especially federal budgeting, that are revealed by making the comparison with financial planning for individuals or households carefully, rather than casually. Both causal explanations and normative conclusions follow from the analysis. My goals are to show that federal budgeting is less alien than it may often seem, to offer a new perspective on some common arguments in academic as well as citizen discourse, and to provide an example that may be used for further discussion of both budgeting and other subjects in public administration.

The first section compares budgeting for an individual (or any unit with only one relevant decision maker) and a representative government.¹ One theme involves how individuals’ interests aggregate into collective decisions. The common argument that intense minorities force excessive spending by demanding it at the expense of inattentive majorities is basically wrong. But a less common argument about the natural inconsistency of collective as opposed to individual choice provides a basic explanation of the difficulty of deficit reduction. A second theme involves whether standards based on the experience of individuals either make sense for government or can convince individuals to support government action. I will show why the common argument that people must sacrifice for deficit reduction for “our grandchildren” should not be expected to convince rational individuals to pay. And, what should be obvious but is usually ignored, deficit reduction is almost inevitably unequal, rather than the “equal sacrifice” demanded by political rhetoric.

The second section then emphasizes the human relations aspects of budgeting, comparing budgeting for households (especially families) and for governments. This comparison shows how common critiques of budgeting depend on particular assumptions about the nature of the community, rather than on obvious standards of rationality and fairness. For instance, the virtue of budget balance itself, as a form of responsibility, must be balanced against the virtue of keeping promises within a community.

Government Versus Individual Budgeting

“Other Peoples' Money”

Begin with the commonly made contrast between government and individual decision making. In private life individuals who consider spending also bear the costs. In government, those who campaign for spending of some sort bear very little of the cost. Thus government supposedly spends too much because of demands to spend “other peoples’ money.” In the words of a former economics professor at Texas A&M:

the average spending bill we voted on in the last Congress cost about $50 million. The average beneficiary got between $500 and $700. There are 100 million taxpayers, so the average taxpayer paid 50 cents. You don’t need a lot of economics to understand that somebody getting $700 is willing to do a lot more than somebody who is paying 50 cents. So every time you vote on every issue, all the people who want the program are looking over your right shoulder and nobody’s looking over your left shoulder (Gramm, 1982, 37).

Nothing could be more commonsensical. This critique recurs in other forms with other protagonists. Thus William Niskanen (1971) emphasizes the incentives of “budget-maximizing bureaucrats” who get benefits (agency budgets) without having to worry about costs at all. Rational choice political theorists, such as Ken Shepsle and Barry Weingast (1984), or Emerson Niou and Peter Ordeshook (1985), emphasize the legislative side of the story.

The analogy is correct as far as it goes: the participants identified do have different incentives in competing for government budgets than the incentives individuals have in spending their own money. The analogy does not explain growing federal spending because it ignores the actual decision-making processes and the presence of other constraints.

Thus Senator Gramm is describing authorizations bills, which do not in fact spend the money. Programs compete with each other in appropriations bills that average $40 billion apiece, not $50 million. The appropriations committees are working to fit their bills into totals defined (formally or informally) outside the committees. Once the total came from the president’s budget, after 1974 it came from the Congressional Budget Resolution, and since 1990 it has come from multi-year caps, or annual totals, negotiated in various budget summit agreements. But the process since the 1920s has been organized to keep spending within some total (White, 1995).

More powerful legislators may gain electoral advantage from using their power to direct disproportionate shares of federal projects back home. But such power shapes shares, not totals. The programs being described by Senator Gramm, by Shepsle and Weingast, and by other analysts as subject to the intense interest/small costs phenomenon would be distributive, discretionary spending programs. As Charles L. Schultze (1984), John Ellwood (1984), and many others have shown, such programs have long been a shrinking share of the economy, dwarfed as sources of budget growth by the major entitlement programs, such as Social Security and Medicare, which have strong support from majorities of voters.

Niskanen’s description of bureaucratic influence exaggerates or misstates both bureaucrats’ interests and their power. His hypothesis was carefully assessed in a volume edited by Andre Blais and Stephane Dion (1991), which shows that many of Niskanen’s underlying assumptions are highly questionable. Niskanen never specified which officials should be the agents of the theory. A theory that relies on bureaucrats’ information advantages should emphasize top civil servants. Yet many of them do not display the hypothesized values, in part because their economic interest in larger budgets is ambiguous in a civil service system that does not automatically turn larger budgets into higher salaries. Public-sector unionism may provide a force for higher spending, but that has little to do with higher civil servants and “bureaucratic” power per se, and should be important only where the members are a big enough interest group to have serious power (e.g. teachers and police in cities, not the employees of the Food and Drug Administration in federal budgeting). The direct power of bureaucrats of other sorts relative to other contestants in the battle to shape federal budget totals does not seem great. All other things being equal, people in agencies surely want higher budgets and ask for them. But all sorts of people in politics want things they don’t get. Niskanen’s errors in stating his protagonists’ interests and power leave only a cliché behind.

In common applications, the “other peoples’ money” argument seeks explanation from analogy alone without sufficient attention to how government itself works. Many other factors, such as alternative sources of constraint, counter the logic that Senator Gramm and so many others emphasize.

That the most common comparison between individual and government decision making does not explain spending totals or imbalance, however, only shows that the comparison is poorly made, not that it could not be useful. Consider an alternative version.

Aggregating Individual Preferences into Collective Preference

Both the public as revealed by polls and elites as revealed by the tone and content of news reports have long supported a balanced budget—in principle. Majority coalitions endorsing any particular method to balance the budget have been much rarer. After 17 years of budget balance wars, Congress and the president enacted legislation in 1997 that promises a balanced federal budget by 2002, 33 years since the last one in 1969. That was possible mainly because good economic news allowed a much smaller package of deficit reductions than had been achieved in previous efforts (especially efforts in 1990 and 1993).

Plain old ignorance is one reason that support for budget balance is not accompanied by support for the practical means to achieve it. Many voters believe the federal government spends much more of its budget on unpopular programs like welfare and foreign aid than it does. Individuals should know more (on average) about their own budgets. But what about the elites that supposedly know better? Are they simply constrained by the public’s ignorance?

As Kenneth Arrow (1951) argued long ago, consistent personal preferences can aggregate into inconsistent social preferences. In the budgeting case, if each citizen can think of the spending that he or she would cut to balance the budget, and the distribution of preferences about cuts is wide enough, it is possible for individuals to know they would balance the budget, and for the large majorities to oppose any particular measure.

Imagine that ten people contribute $9,000 each to a community with $100,000 in expenses, leaving a deficit of $10,000. The expenses are divided into ten activities, costing $10,000 each. Each person supports nine of the activities, and each opposes a different one. Each contributor has a consistent position about how to balance the budget (cut the program he or she dislikes) but 90 percent of the group would oppose cutting any specific program. Nobody would see a need to raise taxes, since each individual’s spending preferences would fit available revenue. Everybody would oppose an across-the-board cut of $1,000 from each program because ea...