The Budget Debate:
Key Facts for Leaders
Ricardo Aguilera
Director
Chief Financial Officer Academy
National Defense University, iCollege
“The views expressed in this presentation/article are those of the author
and do not reflect the official policy or position of the National Defense
University, the Department of Defense, or the U.S. Government.”
The Fiscal Future:
Issues and Options
•
Issue: Balance Budget
 Debt limit agreements to date do not balance the budget
 Current FY 14 President’s Budget plans for deficits into future
 Option: Start long-term revenue increases and/or spending cuts
•
Issue: Pay Down National Debt
 Requires initial balanced budgets and long-term surpluses
 Option: Control growth in mandatory spending and/or raise revenue
•
Issue: Ensure Long-Term Social Insurance Programs solvency




Social Security will be able to pay out full benefits until 2036
After this point tax revenue will fund pay outs of 75% of full benefits
Medicare will fund full benefits until 2024.
Option: Reduce benefits and/or increase revenue
The Fiscal Future:
Federal Leaders Watch List
• Understand
Politics
Calendar/Process
Baselines
Federal Debt
Held by the Public and Gross
20
16.7
17.9
18.7
18
5.1
Dollars in Trillions
16
14
5.0
4.7
12
Government Account
10
Public
8
6
11.9
12.9
13.6
4
2
0
Deficit:
2013
2014
0.7
0.6
Source: OMB
2015
0.6
Congressional Issues
Issues:
• May 18, 2013
• October 1, 2013
• October 17, 2013
• December 13, 2013
• January 15-18, 2014
• February 7, 2014
• March 4, 2014
• October 1, 2014
• November 4, 2014



Democrats 200
Republicans 232
Vacant 3

Democrats 53
(including 2 independents)
 Republicans 45
5
Debt Reduction Remaining
•
•
•
All budget-related legislation to date brings annual deficits to “historic
norm” of about 4% of GDP
Most economists agree $4T in savings/revenue increases over 10 years
needed to balance the budget and initially pay down the debt
Debt Reduction Required:
___
 Required
 Achieved to date
 Difference
•
($T)
4.0
2.7
1.3
$1.3T additional still needed to a achieve $4T in savings/revenue
Source: Bi-Partisan Policy Center
Sequestration’s Effect on Debt
Federal Budget Trends
In current (as-spent) dollars, both Federal receipts and outlays have grown
rapidly and are expected to continue growth.
Federal Budget Trends: 1948-2016
$5,000
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
19
84
19
90
19
96
20
02
20
0
20 8
14
es
t
19
60
19
66
19
72
19
78
$0
19
48
19
54
Current Dollars in Billions
$4,500
Fiscal Year (w /o TQ)
Receipts
Outlays
Source: Office of Management and Budget
Budget Deficits Around the World
One measure of fiscal stress is the additional borrowing required by a government relative
to the size of its economy. This slide from OECD indicates that, for the FY 2006-9 period,
the US and UK were in the middle of a group – seemingly worse off that Germany, Japan or
France, but less stressed than Ireland, Spain or Greece.
Fiscal Year 2015
The President’s Budget
$3,337B
Receipts
$3,901B
Outlays
FY 2015 Deficit = $564B
Average Annual Deficit FY 16-24 ~ $485B
Source: OMB
10
FY 12/13 DoD Requests vs.
Appropriation
(Budget Authority in $ Billions)
600
495.5
500
11.8
63.3
496.0
12.0
62.8
495.6
7.8
63.5
Revolving Funds
Family Housing
400
91.1
92.4
90.4
Military Construction
300
Research, Development, Test
and Evaluation
194
192.8
198.7
200
Procurement
Operation and Maintenance
142
142
135
Military Personnel
100
135.4
135.9
135.2
FY 2013
FY 2014
FY 2015
0
Does not include $26B from Initiative Fund in FY 15 or $79B OCO
Source: OMB
Fiscal Year 2015 President’s Budget
(Outlays)
TOTAL $3,901B
Immigration Reform**
0%
Mandatory $2,709B
(69% of total)
Net Interest
6%
Defense
16%
Discretionary $1,192B
(31% of total)
Other Mandatory
18%
Other Discretionary
15%
Medicaid
9%
Medicare
13%
* Includes $6B in disaster costs
** About $8B in Implementation costs
Social Security
23%
Baby Boom Births by Year
4.5
4.3
3.9
3.7
3.5
3.3
3.1
2.9
2.7
= Baby Start/End Year
1967
1966
1965
1964
1963
1962
1961
1960
1959
1958
1957
1956
1955
1954
1953
1952
1951
1950
1949
1948
1947
1946
1945
1944
2.5
1943
Millions of Births
4.1
Source: Statistical Abstract of
the United States
Growth in Outlays by Agency
Distribution of Outlays by Agency
100
90
80
70
60
50
40
Howard G. Borgstrom
30
20
10
Treasury (Int)
October 14, 2010
Soc. Secur.
HHS
DOD (Military)
at
e
es
tim
at
e
tim
20
15
20
10
es
20
05
20
00
19
95
19
90
19
85
19
80
19
75
0
19
70
Percent of Total
All unlisted
agencies –
NASA,
Education,
Energy,
Interior,
Commerce,
State and
Foreign Aid,
Justice,
Homeland
Security, SBA,
EPA, Judicial
Branch,
Legislative
Branch, etc. –
compete for
less than 10%
of the
spending.
VA/OPM/AG/DOT/DOL
14
Fiscal Year 2015 President’s Budget
(Revenue)
TOTAL $3,337B
Excise, Estate,
Customs
5%
Othe Social Insurance
2%
Immigration Reform
0%
Other Receipts
4%
Medicare
7%
Corp Tax
13%
Indiv Income Tax
46%
*
Social Security
23%
Source: OMB
15
Much of what people see as a growing tax burden is through increased payments into
Social Security and Medicare; the personal income tax per se has been very stable
and corporate income taxes are proportionately decreased since WWII.
Federal Revenue Sources 1948-2016
100
90
70
60
50
40
30
20
10
20 es
16 t
es
t
08
20
12
04
20
20
00
20
96
92
19
19
88
19
84
19
80
76
19
19
72
19
68
19
64
60
19
19
56
19
52
19
48
0
19
Percent of Total
80
Fiscal Year (w/o TQ)
Ind Inc Tax
Corporate Inc Tax
Social Insurance
All other
Source: OMB
Corporate Taxes Paid as a Percent of Taxable Income
35%
Percent of Taxable Income
30%
25%
Asset Value of
Corporation
$1-5M
20%
$5-50M
50-500M
15%
500M+
10%
5%
0%
1994
1997
Source: Internal Revenue Service
2000
2003
2006
2009
In 2008, the US had one of the lowest tax burdens among OECD nations, in terms of tax
revenues as a percent of GDP.
Comparative Tax Burden, 2008
Denmark
Sweden
Belgium
Italy
France
Finland
Austria
Norway
Hungary
Netherlands
Slovenia
Germany
Iceland
Czech Republic
United
Luxembourg
Portugal
OECD - Total
Poland
Israel
New Zealand
Spain
Greece
Canada
Slovak
Switzerland
Ireland
Japan
Australia
Korea
United States
Turkey
Chile
Mexico
0
10
20
30
40
50
60
Taxes as Percent of GDP
Source: OECD
Budget Totals in President’s FY 2015 Budget Request
DoD Topline, FY 2001 – FY 2019
(Current Dollars in Billions)
$750
666
3
$500
316
438
73
345
468
479
91
76
8
3
187
146
287
687
645
479
513
162
159
614*
581
115 578
85
82
528
528
530
166
575
79*
565
30*
574
30 *
581
30*
589
30*
496
535
544
551
559
116
17
6
23
$250
1
7
601
535
691
666
328
365
377
400
411
432
496
496
$0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Base Budget
OCO
Other
* Reflects FY13 Enacted level excluding Sequestration
* Placeholders only
Focus Only On Base Budget For Remainder Of Briefing
No FY 2015 OCO Budget Yet
2
Source: DoD
Since 2001, real growth has occurred in all major
categories, but O&M has grown the most in dollar
terms
FY 2001
Actual
FY 2014
Enacted
Dollar
Growth
Percent
Change
Percent of Total
Growth
Military Personnel
101.1
135.2
34.8
34%
30%
Operation and Maintenance
(ex. DHP)
114.0
160.5
46.5
41%
40%
Defense Health Program (DHP)*
16.0
32.3
16.3
102%
14%
Procurement
Research, Development, Test, and
Evaluation
Military Construction
Family Housing
Other
TOTAL
81.6
92.4
10.9
13%
9%
54.4
62.8
8.4
15%
7%
7.1
8.4
1.3
18%
1%
4.8
1.4
-3.4
-70%
-3%
1.4
2.2
0.8
56%
1%
380.5
496.0
115.6
30%
100%
FY14$ in billions, base budget
*The
DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military Personnel funding.
Source: OMB
PB15 DoD Base-Budget Topline
($B)
600
575
FY 2014 President’s Budget (PB14)
577
559
551
550
541
535
537
PB15
525
500
496
500
Sequester - Level Budgets
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
3
Source: DoD
PB15 DoD Base-Budget Topline
(Effects Of Sequester-Level Budgets)
($B)
600
575
FY 2014 President’s Budget (PB14)
550
PB15
$115B Cut
525
500
Sequester - Level Budgets
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
15
Source: DoD
PB15 DoD Base-Budget Topline
(Opportunity, Growth, and Security Initiative)
($B)
600
575
FY 2014 President’s Budget (PB14)
550
541
PB15
525
$26B
Initiative
500
Sequester - Level Budgets
496
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
13
Source: DoD
FY 2015 Opportunity, Growth, and Security Initiative
• Total $26 billion for DoD
• Readiness enhancements
– Training adds in Army
– Spares and logistics in Navy
– Unit training in USMC
– Training in Air Force
• Investment increases
– Army Helicopters (56)
– Navy P-8 (8), E-2D Aircraft (1)
– USMC Light Armored Vehicle
– Air Force F-35 (2), C-130J (10),
MQ-9 Aircraft (12)
– Science and Technology ($335M)
• Installation support increases
– All Services increase base sustainment
– All Services add MilCon funding
14
Source: DoD
The OMB budget review schedule
July
Aug
Sept
Oct
Nov
Jan
Feb
Mar
Apr
May
• Director’s Review
• Revised Economic
Assumptions
Program/Budget
Review with
Agency HQ
July: OMB
issueds
revised A-1l
guidance
Dec
Passback/
Appeals
Budget Review Board
Meetings
MAX Database: Prior Years
MAX Database: Budget Years
State of the
Union
and
Budget
Submission
Budget Chapter Writing
Review Agency
Budget Justifications
Review Proposed Authorizations with Budget impact
• Review of Congressional Testimony and Actions
• Ongoing Budget Oversight
• Mid-Session Corrections
•Apportionments
June
The Budget Calendar and
the PPBE Process
FY 2014 – 2016 Budget Status
FY 2014
Budget
Planning
Prog/Budget
Today
Planning
FY 2015 Budget
Prog/Budget
Q2
Q3
Q4
FY12
Q2
Q3
Q4 FY13 Q2
Congressional Action???
Planning
FY 2016 Budget
FY11
Execution
Congressional
Congressional Action
Action
Q3
Q4
FY14
Prog/Budget
Q2
Q3
Q4
FY15 Q2
Execution
Congressional Action
Q3
Q4
FY16
Execution
Q2
Q3
DoD Planning, Programming, Budgeting, and
Execution (PPBE) System Overview
Yearly PPBE Process and Milestones
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
PPBE Phases
Planning
(QDR, DPPG, GEF)
Budget
Estimate
Submission
(BES)
Execution
Review
Program
Review
Budget
Review
Components
submit estimates
Program/Budget
Estimates
JCS
Chairman’s Joint
Planning Document
Strategic
Planning
Program
Objective
Memorandum
(POM)
JCS
Chairman’s Program
Assessment
Final JCS risk
assessment
Prog Decision
Memo
Front End Asses
Prog. Review??
Budget
Review
3-Star
Dep. Mgmt Act. Grp
Small
Group/Large
Group
3-Star
Dep. Mgmt Act. Grp
PDMs
Small
Group/Large
Group
Budget
Submission
Budget
Justification
Resource
PBDsMgmt
Decision
Execution
Review
OUSD(C) performs an
Execution review.
Result: Omnibus
Reprogramming
PBD = Program Budget Decision; PDM = Program Decision Memorandum
Congressional Process and Timeline
Mar
Feb
President’s Budget
Hearings, briefings,
questions
Sep-Aug-July
Congress:
Budget Committees
Authorizers
House Committee
Hearings, briefings,
questions
Senate Committee
Appropriators
HAC, Subcommittee
Conference
SAC, Subcommittee
Conference
JR
Bill
CR
President Signs
PL
JR
Bill
Omni
President Signs
•
What does it mean for us?
Building Better Budgets
Future Budget Pressures
 Decisions made within short deadlines at aggregated levels
 Budget leaders are in the room when decisions are made
 Do they have the facts that can sway a decision your way?
•
Get Better Numbers
 Analysts ask: “What is the impact of $1 more/less on this program?”
 Metrics need to link funding to agency outcomes/goals
 Output measures are no good.
 Self audit: Be honest
 Self examine the programs - criteria, condition, cause, and effect
•
Tell Better Stories
 Program officials must explain simply how previous funding brought gains
 Program’s story for future funds needs to be compelling and well-reasoned
 Tell your story consistently and often