Chapter 3
Budget Structures and Institutions
Functions of a Budget
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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
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Combination of legal requirements and traditions
Most important federal statutes:
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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
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Budget and Accounting Act of 1921
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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
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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
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Gramm-Rudman
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Established deficit targets
Constrained the number of Congressional
Budget Resolutions
Budget Enforcement Act of 1990
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Created mandatory and discretionary
spending categories
Created new spending control mechanisms
Federal Budget Organizations
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Office of Management and Budget (OMB)
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General Accounting Office (GAO)
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Executive Office that consolidates requests for agency
appropriations
Congressional “watchdog” agency over federal agency
spending
Supervises Executive spending decisions and improves
govt. efficiency
Primarily evaluation role
Congressional Budget Office (CBO)
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Provides Congressional professional staff
Budget planning role
Organization of Budget
Authority
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Executives final decision-making
authority & veto
Congressional committees determine
both authorization and appropriation
Pork Barrel Politics
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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
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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
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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
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Permits an executive additional control over
congressional budgeting decisions
Line-Item Veto Act of 1996 granted that
additional executive power
Permits:
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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 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.
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Spending
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Budgetary Enforcement Act of 1990 defines
two types of federal spending:
Mandatory
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Discretionary
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Methods to control
mandatory spending
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1. Capping entitlements
2. Constrain benefits
3. Make entitlements means-tested
Controlling spending is not impossible,
but politically difficult
Federal Deficits
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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
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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
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1. Debt Limits
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2. Aggregate budgeting
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3. Establishment of targets
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4. Spending Controls