Public Budgeting Exam #1

Federal Reserve Board

( a system of banks) controls the monetary policy. They loan money to banks. The policies they use are called monetary policy.

Aaron Wildavsky

- Said particularly this needs to work for budgeting. He is the father of public budgeting. Budgeting in the United States is an incremental process. They look at what was spent last year and tweak it a little bit and then pass it.

Fiscal Policy

- Taxing and spending. Is congresses decision for how much to spend and how much to tax. They can control inflation by lowering or raising taxes, or spending more or less.

Budget and Impoundment Control Act of 1974

1. Created CBO, Budget Committees -Assert congresses perception of how big the budget should be every year. 2. Created budget resolution, reconciliation processes -They wanted to be more equal players so they didn't have to take the president's budget at face value 3. Banned impoundments - Nixon & constitutional crisis

Constraints on Budgeting

1. Inter-fund transfers If one thing has money left over, send it to another part that needs money. However, this isn't supposed to happen. Funds are for specific purposes and can't be sent to other parts. The reason for this is that it opens the door for corruption. *State, local constraints 2.Balanced budget requirements-every state has to have a balanced budget. They cannot anticipate spending more than coming in. 3. Limited revenues - Limited money coming in from sales tax and income tax. 4. Limits on debt issuance - most states have limited on how much debt they can accrue 5. Mandates - you have to use the money for this specific purpose. 6. TABORs - Tax payer bills of rights that limit the ability of the state to raise taxes. 7. Threats of tax revolts, initiatives - People get mad and say they aren't going to pay anymore. when congress can't raise taxes, and there are mandates to spend a certain amount, they're kind of stuck.

Public Budgeting vs. Private Budgeting

1. Multiple decision-makers with different objectives 2.the goal isn't to make money but to take care of the various constituents. 3.Spending OPM 4. Dependent on 1 or 2 year projections; uncertainty 5. Legal & political procedures & limitations (e.g.,TABORs)

Spending Strategies

1. Please the Politician - Agency tries gaining support by supporting the same policy that the politician supports. 2. Build a Geographic Coalition - when asking for program funds, administrators try to demonstrate that it benefits everyone. 3. Build broader coalitions by adding constituencies - add a program that benefits a different set of people. Ag department supports farmers, as well as SNAP programs. 4.Demonstrate effectiveness and efficiency. - Show that you can complete the goals that congress wants to achieve. 5. Link programs to goals of nearly unlimited value - homeland security, police, etc. Firefighters asking for new devices to save people's lives have linked themselves to unlimited value. 6.Make programs look cheap or free. -Changing accounting rules or underestimating the costs over five years.

Executive-Centered Budgeting

1910: Ohio is first state to give governor power to submit budget for legislative review -Prior to this, budgeting was exclusively a legislative thing. Executives had very little role in the process. However, they believed that the executives were voted on by the majority of the people, so they should be the one who comes up with the budget. ● 1912: Taft Commission calls for national executive budget -The president needs to do what the governor of Ohio is doing.

Impoundments

A president refuses to spend money that was appropriated in the budget. Nixon took this power to new heights and did it to entire programs before they were able to take off. He would cancel entire programs before they got started.

GDP

All goods and services that the country produces in monetary dollars.

Expenditures

Are any money that is being spent. What you spend revenues on.

TARP

Bank bailout. -Toxic asset reduction plan. Two biggest banks declared bankruptcy. Mainly because people were underwater on their mortgages from congress encouraging house buying. The government bought 700b of bad assets.

Positive spillovers

Benefits that accrue to others not directly affected by a program.

Open Operations

Buying and selling of government bonds to manipulate the government. Buying bonds from the government takes money out of pockets and reduces inflation. Selling bonds to the government increases spending.

Incrementalism

Classic way of teaching budgeting. Tiny changes instead of big steps.

Earmark transparency

Congress specifies that money must be spent on a specific purpose. "We want to make sure half a million of this total appropriation goes to this library with my name on it" Earmarks were mainly used to fund pork barrel projects in 2000, so they changed this by making earmarks transparent. If you want to add one, it has to be open to who started it. It made very little impact on the deficit.

Budget Enforcement Act of 1991

Created caps for discretionary spending and created "pay-as-you-go" (PAYGO) rules for taxes and certain entitlement programs. This legislation raised taxes and was signed by President George H.W. Bush despite a campaign pledge that he would not raise taxes.

Monetary policy

Decrease in monetary value through inflation. They wanna stop runaway inflation. 1. Discount rate. Fed loans money to other banks and the rate can be lowered or higher. They can raise a rate to decrease inflation or lower the rate to increase spending. 2. Open Market Operations - Buying and selling of government bonds to manipulate the government. Buying bonds from the government takes money out of pockets and reduces inflation. Selling bonds to the government increases spending. 3. Set reserve requirements for banks. The government tells the bank that they have to keep a reserve and cannot loan any over the reserve amount. Raising reserves is deflationary while decreases reserves causes higher spending for the GDP.

State balanced budget requirements

Every state is required to balance this.

Top-Down

Executive & budget office dictate dept. budgets - won't be much fun, because people often don't get a say in what they want, but it works best for the country in the long run for saving money.

Interest rates

Fed loans money to other banks and the rate can be lowered or higher. They can raise a rate to decrease inflation or lower the rate to increase spending.

Keynesian Theory

Government can and should use taxing and spending to manipulate the economy. If the economy goes south, then the legislature can spend more to get more money in their hands so they can spend it to help the economy. The government should create jobs for people to spend. If the economy is bad, cut taxes so there's more money in circulation.

Revenues

Is any income that the government receives. The government revenue is gained through taxes.

CBO

Most direct impact on the budget. Congress felt that they didn't have an independent voice like the president's OMB had. Because they felt they needed a valid counterweight to do their own estimates, they created the CBO. Congress created its own budget office.

Gram-Rudman-Hollings

Named after three senators. Came up with a plan to force deficit reduction every year. Automatic mandatory across the board spending cuts in all discretionary accounts if we don't meet our goals. However, too many exceptions to the bill ruined the project. The goal was to get the budget to $0. It was the first effort to reduce the deficit.

Clearance

OMB establishes a database and reviews & clears budgets that are consistent with the president's wishes

OMB

Office of Management and Budget, is not a subunit of the treasury. it's in the executive office. The Director is the presidents right hand. Makes sure everything is spent the way its supposed to.

performance budgeting

Orientation: Focus of these budgets are Accountability (Did we get the product from them that we were expecting when we gave them the money in the first place?), efficiency (inputs/outputs) - Look at what you get out of the system for the money spent. Look at what you got, instead of what you spent. It's primarily concerned with outputs. (For how much was spent on teacher's salaries, how many kids learned to read and get a decent education?) (Look at each unit, see the various functions and how well they provided) Outputs - Performance budgets look at these.

program budgeting

Orientation: Planning; Setting priorities, according to activities - What fundamentally does the government do, and then what's most important to achieve? Outcomes - these budgets are about how the world's different because of the outcomes. I.e. five miles of new highway that routes traffic away from a congested part of town. Fewer hours every week of people stuck in traffic, decrease in traffic fatalities, less pollution and cleaner environment. (Help vocational training -> Local facilities/State Facilities -> Literacy training -> vocal training) Look to see who it benefits, and if it's worth it.

"PAYGO"

Put in another rule change in how we do budgeting. We're going to set goals or a budget resolution at the beginning of the process, and if any new spending is proposed it has to be revenue neutral which means there has to be a way to cover the cost. Such as raising taxes, or a spending cut. However, it expired in 2001 and 9/11 occurred.

Federal Budget Cycle Steps

Spring/Summer 2009: OMB sends A-11 - Federal FY starts October 1st, 2010, however the OMB sent out the A-11 in spring/summer 09 which is a memo giving instructions as to how they are to compile their budget requests to send to the OMB. ● Fall 2009: OMB Review & Clearance; "passback" -OMB establishes a database and reviews & clears budgets that are consistent with the president's wishes and then they do what's called "passback," where they pass back the A-11 to the agencies for them to revise their budget with instructions from the OMB. ● January 2010: OMB prepares justifications -OMB prepares to make the sales pitch to congress. They start to justify what they put into the budget and come up with a story as to why they want a certain amount for their budget. ● February 2010 - (1st Monday): President transmits 2011 Budget Message to Congress which means he sends a message explaining his budget, and his budget. - CBO performs own calculations to start picking apart the OMB's estimates against it's own estimates. There are legitimate reasons the calculations could be wrong. It's not just politics. Trying to find out revenue for 300 million people is difficult. ● Spring 2010: Budget Resolution (???) - Lets set a general target of how much we want to reduce the deficit by. After this, it was their guide to looking at all of the bills. Budget is divided into separate spending bills, such as defense, ag, etc. And send it to different committees to work on them. The ultimate goal is to get all of those spending bills passed by October 1st. If you don't you have to shut down the government, or you have to pass a continuing resolution that is the level approved of last year's budget tip a certain date. - After February, the ball is in congresses court. The theory of the budget resolution is that both houses will prepare a budget set targets of what kind of budget we want to end up with, and the kind of deficit we want to end up with that way it leads to less fighting. The Budget Resolution was a target or goal that congress set that they wanted to meet for the budget. The goal was to have the budget passed by October.

TABORs

The Taxpayer Bill of Rights. Votes on limiting the government's ability to raise taxes, hinders their ability to provide, but also limits the government on doing rash things.

Reserve requirements

The government tells the bank that they have to keep a reserve and cannot loan any over the reserve amount. Raising is deflationary while decreasing causes higher spending for the GDP.

GAO

Was created as a semi-independent body but interacts with the legislative branch. This branch audits to make sure that all the money was spent according to what congress said. It is primarily an auditing entity. They also do performance audits to see if the money was worth it.

Omnibus Bills

We're supposed to have a whole bunch of bills from all the committees, but they're not done so let's roll them all together and pass them in one bill just for the sake of getting the budget done. One collective bill of all.

Functions of a budget

a financial statement as well as a political statement. A significant political document, stating de facto priorities and representing numerous political compromises. Deciding how to allocate scarce resources and planning how to cover expenditures with revenues or borrowing.

Appropriations

a legal statement saying that you need money to spend.

Deficit

are the yearly amounts that you spend more than you take in

Outlays

are when you've received authority, appropriations, and you have the money that can be spent.

Bureau of Budget/Budget Act of 1921

created the executive budget which made the president have to create a budget. Created the Bureau of the Budget which was an office that compiled revenue and cost estimates to help.

Actors In The Budgeting Process:Budget Office

cut the fat & represent the executive -Federal agency compiles the budget and weeds out what is not needed. They use legislative clearance to make sure the budget is what the president wants to be submitted.

Entitlements

don't go through the appropriation committee because it's automatic. It is a part of the budget where a decision to spend is already made. It is built into the budget every year. It is not negotiable, but you can change them by changing the law. People are entitled to this because they meet certain criteria. Social Security is America's largest entitlement. SNAP, TENAP, etc are also entitlements. Entitlements account for 50% of the total budget. Interest on the debt is not discretionary and does not go through appropriations and it accounts for 10%

Debt

every year budget deficits happen it adds to the nation's total "____"

line item veto

in 43 states the government can take out his red pen and strike out individual lines in the budget and sign the rest into law. These cannot be overridden by the legislature because they usually don't want to cause it's dumb stuff. President doesn't have it cause it's unconstitutional for a president to write legislation.

Authority

is when you ask to be considered for money in each years budget, and that leads to appropriations.

Actors In The Budgeting Process: The Executive

present a budget consistent with your priorities - and political realities -After the president finishes his budget, he sends it to congress.

Pork Barrel

projects that give aid to their district in the budget.

Actors In The Budgeting Process:Legislature

represent your constituents -They want less money in the budget, but want more money for their various districts as well.

Actors In The Budgeting Process:Interest Groups

represent your members -Many interest groups want money for their various agencies. It could be farm subsidies or loans.

Line item/traditional budgeting

t's just a big spreadsheet. Basically accounting, line up all the spending and make sure it's accounted for. ● Orientation: Primary purpose is to maintain control, maintain status quo ● Organized by agency/administrative unit, then by function. I.e. Based on organizational needs. Chancellor looks a budget for running each campus, and then each college, and then what is the money buying(Payroll, supplies, salary an example of function) (Department of corrections -> Green Valley Correctional Facility -> Personnel -> Janitor) Forces the Congress to make sure the money isn't getting lost or wasted.

Actors In The Budgeting Process:Bureau Chief/Agencies

technical experts & advocates -They have to submit budgets for their federal agencies and are expected to be experts on what they need, and then they submit it to the budget office. They ask for more than they need because they know they won't get what they ask for. They want more money for their agency so they can have more power or importance.

Continuing Resolutions

that is the level approved of last year's budget til a certain date. Usually saying give us six more weeks and we'll have it done which was how it was done awhile ago.

Zero-Based Budgeting

was implemented by Jimmy Carter. Start an agency from 0, and build upon that. Right now we ask what did we spend last year? However, we could save money starting from 0. Justify why you exist and if it's not important enough we won't fund you. Opposite of incrementalism. p.78-79 This uses a priority list.

Passback

where they pass back the A-11 to the agencies for them to revise their budget with instructions from the OMB.