The Public Budgeting and Finance Primer

Key Concepts in Fiscal Choice

Jay Eungha Ryu

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317455080
• Edition: 1
• Topic: Política y relaciones internacionales
• Subtopic: Política

This primer succinctly summarises key theoretical concepts in fiscal choice for both practitioners and scholars. The author contends that fiscal choice is ultimately a choice of both politics and economics. The book first introduces budget institutions and processes at various levels of government, which restrict budget decision makers' discretion. It also explains budget decision makers' efforts to make rational resource allocations. It then shows how and why such efforts are stymied by the decision makers' capacity and institutional settings. The book's unique benefit is its emphasis on all the essential topics, with short, module-type chapters which can be read in any order.

PART I

BUDGET PROCESS AND INSTITUTIONS

1	Executive Budgeting System

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Under an executive budgeting system, central budget offices on behalf of chief executive officers (e.g., president, governor, or mayor) review budget proposals that executive agencies prepare for upcoming fiscal years. The key point of an executive budgeting system is that central budget offices exert centralized budget coordination over agency budget requests pursuant to the chief executive officers’ policy preferences and available budgets. The central budget offices will prepare final, single budget proposals called executive budgets. Executive agencies have been submitting their budget proposals electronically, and citizens can now access these electronic executive budgets. This chapter introduces the following issues crucial for understanding the executive budgeting system, especially centralized budget coordination.

• Why Is an Executive Budgeting System Needed?

• Historical Context of the Executive Budgeting System

• The National Executive Budgeting System: President’s Budget

• State Executive Budgeting Systems

• Local Executive Budgeting Systems

• Continuing Debates on the Executive Budgeting System

WHY IS AN EXECUTIVE BUDGETING SYSTEM NEEDED?

When agency bureaucrats prepared budgets, they tended to maximize their parochial interests and agency budgets. This was especially true when there was no centralized budget control over agency budget proposals. According to the Budget and Accounting Act (BAA) of 1921, the central budget office, the Bureau of Budget (BOB, now the Office of Management and Budget [OMB]) in the federal government, was expected to do what chief executives were supposed to do over agency budget requests. Armed with their expert budget information and techniques, and executive supervisory authority, central budget office staffs checked agency budget requests for unnecessary padding and orchestrated agency budget proposals in line with available resources and chief executives’ political and policy preferences (Ryu 2011a, 72–73).

HISTORICAL CONTEXT OF THE EXECUTIVE BUDGETING SYSTEM

Around the turn of the twentieth century, there was a movement for governmental budget reforms that could be placed under the rubric of an executive budgeting system. States and localities were the pioneers of executive budgeting. The New York Bureau of Municipal Research, in particular, was in the pioneering group. However, different ideas developed between the principals of executive budgeting: Progressive reformers vs. Taft conservatives.

PROGRESSIVE REFORMERS ON BUDGET REFORMS

Progressive reformers such as Henry Adams and William Allen emphasized efficient democracy with its stress on public education and participation. Up to 1910, the liberal Progressives’ ideas dominated. They contended that efficiency of governmental programs would help fund public programs, but the general public could be a driving force for good government to the extent that they were educated on budgeting and accounting (Rubin 1994).

TAFT CONSERVATIVES ON THE EXECUTIVE BUDGETING SYSTEM

Taft conservatives such as Frank Goodnow and Frederick Cleveland generally supported more centralized budget coordination. Although they still retained their trust in the general public, in the 1912 Taft Commission on Economy and Efficiency they emphasized the importance of detailed budget information, such as balance sheets, operation accounts, and cost accounts. Administrative officers were the only ones who knew such technical details of public programs. They understood the conditions needed for efficiency and economy. However, chief executives as representatives of the whole society were assumed to be responsible for reviewing agency budget requests and proposing budgets to legislatures. Therefore, all budget ideas coming up from the departments were to be judged by chief executives. Agencies were generally spendthrift, and chief executives knew more about agency budget requests than legislatures and could cut back fiscally irresponsible requests. Chief executives represented the entire population and, thus, were expected to better prioritize expenditures. This was in contrast to congressional representation of districts (Lee, Johnson, and Joyce 2013, 188; Meyers and Rubin 2011; Rubin 1994). The suggestions made by Taft conservatives ultimately dominated the budget reform movement, and the national and state governments began adopting the executive budgeting system in the 1910s.

ESTABLISHMENT OF THE EXECUTIVE BUDGETING SYSTEM

Maryland was the first state to adopt an executive budgeting system, in 1916, several years earlier than the 1921 BAA. By the 1950s and the 1960s, most states had adopted some form of executive budgeting system (Abney and Lauth 1998). Throughout the late 1960s and into the 1980s, many state legislatures had been more professionalized in terms of session length, staff, and compensation. Legislatures had been more independent from governors, but until very recently state governors had been the dominating budget actors in state budget processes (Rosenthal 1998, 49–55; 2004, 184–205). At the local level, mayors have been at the center of budget decisions despite more diversified power relationships between mayors and city councils (Rubin 2010,130–41).

Until the enactment of the 1974 Congressional Budget and Impoundment Control Act, the national budget process had been characterized by centralized budget coordination in the executive budgeting system (Schick 2007, 84–117). In the 1921 Budget and Accounting Act that introduced the executive budgeting system in the federal government, the central budget office was the BOB. As the name implies, the BOB primarily dealt with budget issues. However, during the reorganization initiative in the early 1970s, the BOB was renamed the Office of Management and Budget (OMB) and the “M (management)” function was greatly enhanced (Mosher and Stephenson 1982). In addition, policy functions have been gradually incorporated into OMB functions, with a recent example being OMB’s supervisory role over the Program Assessment Rating Tool (PART) implementation since 2004 (Gilmour and Lewis 2006). Despite its increased attention to management and policy functions, OMB still maintains tight control over budget proposals made by executive agencies (LeLoup 1977; Schick 2007, 39–117).

THE NATIONAL EXECUTIVE BUDGETING SYSTEM: PRESIDENT’S BUDGET

The national executive budgeting system generates the president’s budget. The national executive budget process and the roles of budget actors in the process are somewhat more complicated than those at the state and local levels.

PROCESS OF THE NATIONAL EXECUTIVE BUDGET SYSTEM

Fiscal Year (FY) 2013 for the federal government refers to the period from October in Calendar Year (CY) 2012 to September in CY 2013. Under an executive budgeting system, federal agencies start developing their budget proposals months before the beginning of a certain FY. For instance, during the spring of CY 2011 the OMB issued spring planning guidance to the federal executive agencies on their budget requests for FY 2013. Typically, this guidance is delivered in a letter from the OMB director to heads of the federal agencies. From the spring of CY 2011 to the summer of CY 2011, the OMB and the executive agencies collaborated to discuss and identify major issues for FY 2013 budgets, developed and analyzed options for the upcoming fall budget review, and planned how to deal with future budget issues.

During July in CY 2011, the OMB issued the budget instructions, known as the OMB Circular A-11, to all executive agencies. Typically this circular contains more detailed instructions for budget data and materials. During September, the executive agencies submit their budget requests to the OMB. During October-November, the OMB reviews the agency budget requests. OMB staffs analyze the budget requests in accordance with presidential policy preferences, program performance, and budget-related institutional constraints. The OMB finishes reviewing agency budget proposals and considering overall budget policies during late November. Then, it recommends a complete set of budget requests to the president. From late November of CY 2011 to January of CY 2012, all federal agencies, including legislative and judicial branch agencies, entered computerized budget data and submitted print materials. Once this process is finished, the OMB locks all agencies out of the database. Executive branch agencies may appeal to the OMB and the president during this period. In most cases, the OMB and the agencies collaborate to fix conflicting issues. If they cannot, they work together to get the president’s decision. During January of CY 2012, the OMB reviewed congressional budget justifications, i.e., formal agency budget requests, for FY 2013. All agencies prepare the justifications to explain their budget proposals to the responsible congressional subcommittees (Lee, Johnson, and Joyce 2013, 189–93; Schick 2007, 92–99).

ROLES OF BUDGET ACTORS IN THE NATIONAL EXECUTIVE BUDGETING PROCESS

The president’s role has varied in the executive budget process. Some presidents, such as Clinton, issued policy guidelines in the early stage of the executive budget process, while others, such as George W. Bush, were not involved in the process until all agencies assembled their budget proposals. In addition, the OMB has become more involved in some form of political gamesmanship between the president and Congress. Although the OMB is a major policy and budget assistance tool for the president, OMB examiners have also been very vigilant about policy preferences of congressional committee members and their staffs (Schick 2007, 92–99). At the same time, however, the OMB has provided the federal agencies with substantial levels of assistance in processing complicated policy and budget information. It has also helped coordinate conflicts across various agencies and agency programs (Ryu 2011, 63–101; Schick 2007, 84–117).

STATE EXECUTIVE BUDGETING SYSTEMS

State executive budget processes have followed patterns quite similar to the national executive budget process (Forsythe 1997). Two examples of state executive budgeting systems illustrate the similarity.

IDAHO EXECUTIVE BUDGETING SYSTEM

The Idaho Division of Financial Management (DFM) distributed central budget guidelines to executive agencies at the beginning of the state budget process throughout the 1970s to the 1990s. Agency budget forms typically include agency goals, objectives, line-item information, and even performance indicators. The DFM functioned as the watchdog for gubernatorial policy preferences. Several budget analysts were assigned to four subdivisions—education, general government, human resources, and natural resources. The budget analysts checked the accuracy within each agency that decided upon the “maintenance of current operations” (MCO) level of appropriations. The MCO level coordinated agency budget requests along with several budget targets. The increases in agency budget requests above the MCO level were tightly reviewed in line with gubernatorial policy preferences, available revenue sources, programmatic considerations, and general policy considerations. The DFM made budget recommendations to the governor, who finalized decisions on agency budget requests. A key part of this centralized budget coordination was the revenue estimate that forecast the available resources for the upcoming fiscal years. Once finalized, the executive budget was passed on to the legislature for approval (Duncombe and Kinney 1991, 63–70).

CALIFORNIA EXECUTIVE BUDGETING SYSTEM

California’s budget system is another example of executive dominance over budget preparation. California’s executive budgeting system has been gradually developed since the early 1910s. Very similar to Idaho, the California central budget office, the Department of Finance (DOF), develops the executive budget on behalf of the governor. The executive budget document is presented by program categories organized around a line-item base. The DOF circulates budget instructions that include information on forecast population growth and the inflation forecast. The automated budget system in the DOF instantly provides departments and agencies with information on the current budget base and subsequent legislative changes, as well as potential budget changes due to price and demographic changes.

Departments submit Budget Change Proposals (BCPs) to the DOF. BCPs have included changes in workload, need for new technology, court decisions, federal law changes, and new policy directions. During the 1980s, the DOF directed departments and agencies to receive a variety of technical assistance from the DOF. S...