Federal Budget, Literature Review Example
Words: 8271Literature Review
The conceptual framework of the present literature review is focused on a set of concepts that represent the major interest in the discussed research area. Logically, it is essential to recreate a comprehensive conceptual structure with the purpose of linking the meaningful concepts into a unified whole to operate them successfully in the course of conducting the present research. The broadest categories considered in the present work are the federal budget process and the legislation related to administering the budget process by the US state administration. They occupy the central place within the conceptual framework because all existing problems, discrepancies, inconsistencies, and drawbacks that are the prime focus of the present research may occur only in the budget process, and they derive from imperfection of the legislation and budget-related provisions. Only under the wise and logical arrangement of budgetary legislation the transparency, efficiency, and propriety of budgetary decisions will be established in the federal budget process in the USA.
To explore the present concepts, I relied on the work of Holtz-Eakin (2004) exploring the current budget process through the prism of the past legislation, and its relation to the political and economic changes that have been evident in the USA within the past three decades. I also explored the works of GAO (2005) compiling the glossary and explanations to the key budget-related terms, and Hoagland (2007) who commented on Rubin’s essay on the budget process evolution and critically evaluated the changes that took place in the process due to the major political changes. Finally, I used a set of manuals such as the Community Committee manual explaining the key activities associated with the budget planning process, and the manual prepared by the Office of Management and Budget to explain the budget process to ordinary citizens in plan terms.
The following set of concepts building up the framework of the present research refers to the documented and supposed problems in the contemporary budget process. The critical assessment of the federal budget process is the central topic of the present study; hence, it is of key significance to identify the dominant problematic areas in the discussed process to proceed logically to the evaluation of the decisions and reforms proposed by the modern theorists and practitioners of the federal budget area. In the context of discussing the set of problems and discrepancies that have been identified in the recent past of the federal budget legislative process, and that are pointed out at the present period of time, I relied heavily on the works of Chari (1991) discussing the advantages and disadvantages of the budget process of that time, and proposing reforms to reduce the budget deficit, Porter and Walsh (2006) elaborating on the destructive effect of earmarks on the resource allocation structures, Fraser (2005) discussing the inclusion of unfunded entitlement obligations, and Riedl (2005) exploring the challenges of budget reform.
Finally, the theoretical framework of the present study would be incomplete without an overview of suggested solutions to the problems identified in the field of targeting the drawbacks of the current budgeting process. It stands to reason that the critical evaluation of the realistic situation observed at the present period of time in the field of federal budget generation should be supplemented with the literary findings on which ways are supposed to improve the situation, and which reforms are likely to possess the renewal power bringing the relief to the administration of the state, increasing transparency and satisfaction of the taxpayers who are actually the most interested stakeholders of the budget formation process, and ensuring the successful functioning and rational distribution of funds in the federal budget of the USA. These are the issues of central importance in the present research since they guarantee the practical value and importance of the research. To accomplish this goal and to investigate the range of possible solutions suggested by scholars and politicians nowadays, I utilized such literary sources as Joyce (2009) discussing the ways to increase the access to information for average taxpayers, Walker (2006) proposing the ways to meet the long-term fiscal challenges, Riedl (2005) offering a scheme of a simple and rational budget process, and Savage and Schwartz (1999) discussing the lessons of cutback budgeting that can be of certain help for the modern budget-formation process. Characteristics of an effective budget process outlined by Reishauer (2001) and the recommendations of GAO (2005) on restructuring budgets have also been taken into account besides other regulatory provisions and reform suggestions.
The Literary Overview of the Federal Budget Process
As it comes from the wide body of research literature, the roots of the current budget-making process come from the enactment of the Congressional Budget and Impoundment Act in 1974, though the efforts to distribute the funds raised by collecting taxes were evident for several centuries, since the country’s emergence on the global political map (Hoagland, 2007). In addition, the budget process is a highly changeable and affluent process, with objectives, goals, and standards changing within a short period of time with the purpose of adjusting the variations and alterations to the changing needs of the state and its citizens. Therefore, the research into the federal budget process should be focused on a clearly estimated period of time with its characteristic features and fiscal objectives. The present research is dedicated to the latest changes in the federal budget process starting from the enactment of key relating legislative provisions in the 1970s, 1980s, and 1990s, and the consideration of the modern-time federal budget process.
In its essence, the federal budget and appropriations processes are the most significant legislative processes at the national level that are used to allocate financial resources for the functioning of the government and its agencies, programs, and organizations (Understanding the Budget Process, 2000). The budget commonly deals with the targets for spending and revenues, as well as the range of priorities Congress should decide on when allocating the portions of capital to various areas of federal funding. It also estimates the limits for allocation of funds for particular areas, and involves the actual process of fund allocation through a set of governmental agencies responsible for the present type of activity (Understanding the Budget Process, 2000). As the Government Accountability Office (2005) defines it, the budget is:
“A detailed statement of anticipated revenues and expenditures during an accounting period. For the federal government, the term “budget” often refers to the President’s budget submission to Congress early each calendar year in accordance with the Budget and Accounting Act of 1921, as amended, and represents proposals for congressional consideration” (GAO, 2005, p. 19)
There are a large number of steps and events included in the federal budget process. The initial procedures – the submission of the President’s budget request to Congress, drafting the Budget Resolution by the Budget Committee, and the hearings held by the Budget Committee – are traditionally held in February. Then, mark-ups, House’s and Senate’s passage of the Budget Resolution and the beginning of work on the Conference Report by the Conference Committee take place in March. April is marked by the release of the Conference Report and passage of the Budget Resolution (deadline stipulated for April 15) (Understanding the Budget Process, 2000).
Coven and Kogan (2006) note that each step in the budget process performs a set of unique and significant functions in the overall process; thus, for example, the President’s Office of Management and Budget (OMB) develops the President’s budget request that has three functions as the initiating step of the process. The President’s request gives an idea about the federal policy he or she wants to pursue in the upcoming fiscal year (which is more common, two fiscal years), what priorities he or she has for certain federal programs (in terms of financing them), and what spending and tax policy alterations he or she plans for the coming period (Coven & Kogan, 2006).
In the context of discussing the first step of the budget process, one essential concept stands out; it is the type of spending estimated in every federal budget. Targets are established in two areas of spending: mandatory and discretionary (Office of Management and Budget, 1998). Mandatory spending refers to approximately 68% of federal spending (data referring to the 1998 budget), and represents the type of spending not going through the 13 appropriations bills; it is authorized by permanent laws. The present type of spending refers to such entitlements as Social security, Medicare, veterans’ benefits, Food Stamps etc. – the federal programs of social assistance that appear reasonably necessary for various categories of the US population (Office of Management and Budget, 1998). The second type of spending, i.e. discretionary spending refers to 32% of the federal budget and is enacted by 13 appropriation bills. It usually refers to the funds spent for the activity of federal agencies such as FBI, Coast Guard, housing, space exploration, national defense and foreign assistance (Office of Management and Budget, 1998).
The forms of spending discussed have been established by the Budget Reinforcement Act (BEA) in 1990 (it will be discussed further in the present section). Holtz-Eakin (2004) notes that the BEA established the budget enforcement framework splitting funding into these categories, and ensured that discretionary spending provided by appropriation acts would be subject to the establishment of annual limits concerning the budget authority and outlays. Mandatory spending became covered by the PAYGO procedure to guarantee the seizure of deficit spreading. The PAYGO method of mandatory spending management refers to:
“A budgetary enforcement mechanism originally set forth in the Budget Enforcement Act (BEA), which effectively expired at the end of fiscal year 2002. Under this mechanism, proposed changes in, or new permanent, law were expected to be deficit neutral in the aggregate in the fiscal year of enactment or in a period of years. PAYGO was intended to control growth in direct spending and tax legislation” (GAO, 2005, p. 75).
As one can see from the present quotation of the Government Accountability Office, the PAYGO scheme is not used anymore, though it proved a quite effective tool for the budgeting process in terms of securing the low level of deficit. However, the division of spending types is still in force and is effectively navigated in the budget process. Coven and Kogan (2006) mention in their work that discretionary programs are sometimes called ‘appropriated’ ones because they fall under the jurisdiction of House and Senate Appropriations Committees, and they are enforced by means of appropriation acts that will be discussed later in this section. The authors also note that mandatory, or ‘entitlement’ spending, is the type thereof not controlled by appropriations, hence it should be clearly articulated by the President in the request for the budget. Finally, the issue the President’s OMB can include in the President’s budget request is the range of tax code changes the President plans for the upcoming fiscal year (Coven & Kogan, 2006).
The next step in the budget process is the Congressional Budget Resolution (Coven & Kogan, 2006). According to the Government Accountability Office, it represents the following notion:
“A concurrent resolution adopted by both houses of Congress as part of the annual budget and appropriations process, setting forth an overall budget plan for Congress against which individual appropriations bills, other appropriations, and revenue measures are to be evaluated. As a plan for Congress, the resolution is not presented to the President for signature and does not have the force of law” (GAO, 2006, p. 33).
This is the stage of budget process that involves the hearings in Congress with the purpose of finding out the opinions of Administration officials and to compile a separate budget resolution (which is actually done by the House and Senate Budget Committee). Because of this document’s ‘concurrent’ nature, it should not be signed or vetoed by the President, and it requires a majority vote to pass – the deadline for passing is April 15, as it has already been mentioned (Coven & Kogan, 2006). Before this moment, and simultaneously with public hearings on the budgetary issues in Congress, there are a number of mark-ups held by the House and Senate Budget Committee. The information processed during these mark-ups comes from the hearings, the reports of CBO and other committees, with the purpose of designing the language and numbers taken from the resolution and acting legislative acts on the issues relating to adopting a budget (Understanding the Federal Budget Process, 2000).
According to the opinion of Coven and Kogan (2006), the Congress’ budget resolution is a much simpler and shorter document outlining the sums of spending that should be allocated to each of the 19 budget functions, and the total revenue projected for the same period. The estimates of the Congressional budget resolution are made for 5 (or even 10) years (Coven & Kogan, 2006). Spending in it is defined in terms of coordinating the total sum of money allocated to various needs, which is called ‘budget authority’, and the total expenditures projected for the chosen period of time, denoted as ‘outlays’. The notion of outlays is treated very seriously in terms of making budget-related decisions, since it determines the scale of the budgetary surplus or deficit awaited for the planned fiscal year (Coven & Kogan, 2006). The GAO stipulates another way of interpreting outlays in the federal budget process as well; it notes that outlays also occur
“when interest on the Treasury debt held by the public accrues and when the government issues bonds, notes, debentures, Terms and Definitions monetary credits, or other cash-equivalent instruments in order to liquidate obligations” (GAO, 2005, p. 73-74)
A separate subject of discussion is the way limits for spending are stipulated. This is one of the hardest stages in the design of the Congressional Budget Resolution; the tool used for stipulating the limits is the establishment of 302(a) allocations. It is the Appropriations Committee that makes the 302(a) allocations, and the committees responsible for different types of federal programs choose to redistribute the federal funds within that stipulated limit on their own. It is only ‘authorizing’ legislation that does not have any budgetary impact, unless the changes to the entitlement program are not considered (Coven & Kogan, 2006).
The new fiscal year starts on October 1 every next year, and after the process of aligning the President’s and Congress’ variants of the budget is over, the time for monitoring the budget comes. There is a set of controllers and auditors who have to monitor the process of budget’s execution, including the agency program managers and budget officials (Inspector Generals), OMB, congressional committees, and the GAO as well. Monitoring budgetary execution generally pursues a realm of goals, the main ones including the estimates of successful operation of federal programs, and supervision of non-breach of funding limits. (Office of Management and Budget, 1998).
It may be seen from the present review that the budget process is a quite complex and long-lasting process having its own priorities and procedures. Nonetheless, the modern direction and specificity of the budget process is a direct consequence of the legal action taken regarding the introduction of reformative provisions related to the budget process. As Holtz-Eakin (2004) state, the modern budget process relies mainly on two legislative acts – the Budget and Accounting Act of 1921 (submitting the President’s request for the budget in February), and the Congressional Budget Act of 1974 (enforcing Congress to adopt the Congressional resolution by April 15). Some other items in the legislative base regulating the modern budget process are the Balanced Budget and Emergency Deficit Control Act of 1985, also called the Gramm-Rudman-Hollings Act, and the Budget Enforcement Act (BEA) of 1990 (Holtz-Eakin, 2004).
The present key legislative proceedings outline the development of budget priorities and goals that are evident in the modern federal budgeting process. Thus, for example, one may see that the Congressional Budget Act of 1974 was completely neutral about balancing revenues and expenditures over the business cycle. Nonetheless, the situation changed with the 1970s’ economic objectives outlined by Ronald Reagan’s administration. These new objectives were aimed at decreasing spending, tax reduction as tools to meet the budget deficit effectively (Hoagland, 2007). The result was the Balanced Budget and Emergency Deficit Control Act of 1985 that introduced many new elements to the budget process. Holtz-Eakin (2004) emphasizes the introduction of sequestration as a tool of automatic spending cuts, while Hoagland (2007) notes the procedures that transformed the deficit targets into the statutory law and forced the budget estimates to achieve the projected targets.
However, the tools did not work as effectively as they had been projected to, and after the considerable budget sequester in1990 cutting defense spending by 11% and non-defense spending by 16% it became evident that the deficit-reduction goals could not be achieved by such rough methods, and the BEA was adopted as result (Hoagland, 2007). Holtz-Eakin (2004) considers BEA as an alternative approach to deficit control, and remarks that its provisions enabled the administrative staff to be accountable for breaching the limits of spending from the budgetary funds, but to hold responsibility only for budget-related issues, and not for the economic conditions out of the scope of their influence. The overall estimate of BEA effectiveness is highly positive, and Holtz-Eakin (2004) also notes that its main purpose, fighting with deficits, has been achieved by the second half of the 1990s. The sense of BEA became obsolete then, while budget surpluses were observed; however, the present crisis and post-crisis budget planning might have made use of BEA provisions effectively again.
Finally, the literature overview of the budget process should encompass some data about the measures budget provisions are enforced to ensure the budget discipline in the country. There is a set of tools used to control spending and to ensure compliance with deadlines set in the major legislative acts regulating the administration of the federal budget process. First of all, these are appropriations bills – the legal documents fitting within the 302(a) allocation and the 302(b) sub-allocation. Secondly, these are tax or entitlement bills that must fit within the established limits of the appropriate committees for the estimated fiscal period (Coven & Kogan, 2006). One more popular and effective tool to enforce certain budget changes is the reconciliation process – it s the form of legislation that includes provisions affecting multiple areas of the budget estimate; it may cover all areas such as discretionary, mandatory spending, and tax code changes. The reconciliation bill is unique in the inability to block it in the Senate (Coven & Kogan, 2006). The reconciliation process may be enacted only by Congress, and the initiation thereof requires the inclusion of the ‘reconciliation directive’ in the Congressional budget resolution. However, there is still a constraint in the application of the reconciliation tool – it is the Byrd rule:
“The rule defines six provisions that are “extraneous,” including a provision that does not produce a change in outlays or revenues and a provision that produces changes in outlays or revenues that are merely incidental to the nonbudgetary components of the provision” (GAO, 2005, p. 26).
The process of designing the federal budget is a very complex process because of its strategic outreach for the future. Hoagland (2007) indicates that the critical dilemma for budget-makers is to make prognoses for several years ahead. Hoagland (2007) also marks the critical state of emergency planning, with no unified decisions on how to allocate funds to government insurance programs. The budget process implies two simultaneous processes put in practice by the administration of the state – controlling adherence to the budgetary provisions of the current fiscal year, and generating a comprehensive set of decisions for the coming fiscal period. These are only some complications from which the modern set of challenges, black spots, mistakes, and complications of the budget process derive. The problems the federal budget process has been facing within several past decades, as well as the crisis of budget process the country is witnessing at the present period of time, will be discussed in the next section of the present review.
Problems, Pitfalls, and Loopholes in the Federal Budget Process
Looking at the previous section, one can see how complex and long-lasting the federal budget process is, and how many intricate actions, legislative documents, enforcement procedures and negotiation instruments are enacted in the process of its adoption. It becomes obvious that the current state of the federal budget process is a heavily burdened, over-complicated phenomenon of the administrative activity; the result of those complications and multiple functions and stages is seen in the inability to adopt a clear and transparent budget reform, to gain access to understanding the federal costs and expenditures as they are, and to identify the perspectives of federal budget for the bear future. Judging from the present set of data on the federal budget process, one should identify the following categories of problems evident up to date in the discussed area: the problems coming from the government, problems in approaches to federal financing, unethical and strategically incorrect practices, and the overall complexity of the budget process. Each of these problems will be considered through the prism of relevant literature to identify the ideas and opinions existing on the point.
There are a considerable number of problems with the budget process deriving from the bodies responsible for its enactment – the government. Saxton (1997) noted that the government growth used to be enormous since the 1930s, and the huge share of the national GDP was allocated to federal expenditures (from 3.3% in 1930 to 20.8% in 1997). Since of the gravest problems of the US budget process is lack of funds for the key areas, the enormous sums allocated to the maintenance of a insurmountable administrative apparatus seem simply unreasonable (Saxton, 1997). As the researcher emphasized, the number of governmental officials has grown beyond the level at which they could have been useful for the state, and could have conducted constructive administrative activities; thus, nowadays they only cause the inefficiency in budgetary processes, controlling the spending etc.
The second problem lying within the framework of the governmental attitude and mode of work is the lack of motivation in seeking agreement and constructive consensus between the President and Congress noted by Riedl (2005). According to the researcher’s opinion, these disagreements typical in the process of making budgetary decisions inevitably lead either to the hasty negotiations during which little attention is paid to making really helpful decisions, or to the extension of budgetary deadlines for careful consideration creating crisis situations for many agencies running out of federal funds (Riedl, 2005). The present drawback of organization has also been noted by Jones and McCaffery (2010) who state that “agreement has not been reached about either the value of restructuring budgets around performance or the specific organizational frameworks used to do so” (p. 92).
The present crisis of agreement and lack of mutual understanding appear of critical importance in solving the crisis of the budgetary process nowadays, since the main executives in the identified area are responsible for enacting any reforms, and they will never move the process ahead unless they have a clear vision of how to do that. The things get even worse due to the ambiguity and inefficiency of prime instruments used by these executives, namely the inconsistency of the Congressional Budget Act of 1974 (Saxton, 1997). There is much criticism about the effectiveness of the act to guide the rational budget process, since it has decentralized the budget process and contributed to the complication of the congressional process, making it less clear and transparent, executives involved less accountable, and leading to the current state of affairs in the budget process debate (Saxton, 1997).
Besides the government directly participating in the budget process, there are other contributors to the concurrent failures of the budget to meet the needs of the state and its citizens. The gravest problem at the present moment is recognized by Riedl (2005), Saxton (1997) and Fraser (2005) – it is the irrational approach to financing that stands in the way to cutting deficits, reducing expenditures, and making the overall process of federal financing more logical and rewarding. Riedl (2005), for example, points out the fact that mandatory spending programs are left without annual review, while expenditures for them continue to rise (as in cases with Medicare and Social Security). The author sees the threat to the country’s fiscal health in this neglect towards mandatory programs, including healthcare and disaster/emergency planning programs (that are actually not financed, but to which up to $15 billion are allocated annually) (Riedl, 2005).
Fraser (2005) recognizes the same problem, but takes an alternative standpoint regarding its roots; the researcher believes that the core mistake of the federal government is in the usage of cash-basis budgeting as the prime source of problem-solving in budgetary issues. Today’s taxpayers are paying enormous sums of money to compensate the state’s entitlement obligations of the past (Fraser, 2005). The author agrees with Rield (2005) that the main threat in this respect comes from Medicare and Social Security programs that are likely to require more funds in the near future (Fraser, 2005).
Cash-basis budgeting discussed by Fraser (2005) is very much analogous to the issue of debt financing chosen as a prime tactic by the federal government a decade before; this problem is outlined in the work of Saxton (1997). The latter states that debt financing was chosen as an alternative to raise taxes, and the essence of the technique was hidden from taxpayers who did not realize that they would still have to pay for expenditures, but later and in an indirect way (Saxton, 1997). In the current period, the problem has the face of cash-basis budgeting that represents the long-term obligations of Congress that have been growing for decades and require attention now. Fraser (2005) admits that the danger of this type of financing is that the current budget decisions do not require the proper consideration of previous obligations, and allow making new ones. As a result, the volume of unpaid liabilities and entitlement obligations is rising, while no constructive decisions on their reimbursement are made due to the existence of no urgent need to do so (Fraser, 2005).
The overall conclusion made by Fraser concerning the pitfalls in the financial tools used in the budget process can be generalized to all mistakes and discrepancies evident in the budget process from the economic point of view. Cash-basis budgeting does not have any proper tools to make assessments not only about the present and short-term consequences of financial decisions, but does not take into account the middle- and long-term financial implications at all (Fraser, 2005). As a result, this type of federal resources’ distribution “allows lawmakers to embark on spending sprees like those of recent years while ignoring the looming deficits of Social Security, Medicare, and other programs” (Fraser, 2005, p. 5).
In addition to the administrative and financial factors contributing to the crisis in the current budget process, there is a set of indecent, unethical, and simply doubtful practices used in Congress in the process of distributing funds for the next fiscal year widely discussed in the scholarly literature. These are first of all earmarks – the highly disputable practice of booking certain amounts of money for specific needs of concrete interest groups and small private organizations (Porter & Walsh, 2006). Secondly, a less obvious but still a troubling practice noticed by several researchers (Riedl, 2005; Chari, 1991) is the bias of Congress itself to tend to higher spending and taxes. Both of them require a thorough review to identify their impact on the overall budget process.
Dealing with earmarks involves analysis of lobbying scandals that now attract intense public attention; there is too much objection to the earmark practice nowadays, so there is strong hope that the practice will be dropped soon. However, nowadays it continues to flourish; earmarking refers to the directives that Congress files to certain agencies in giving certain local programs a specific amount of money (Understanding the Federal Budget Process, 2000). This type of funding may be sometimes quite beneficial for particular organizations because of giving them the confidence in sums of funding and enabling them to make more firm activity decisions. On the other hand, the amount of earmarks is ultimately taken away from the allocated federal budgeting sum, reducing the flexibility in of funding priorities. A 2000 earmark situation may illustrate the scale of earmark popularity:
“almost one-third of the budget for Economic Action Programs (EAP) is tied to earmarks (for example, a $500,000 New York City watershed project, $1.17 million for the Dalles riverfront trail in Oregon, and $500,000 for the Nordic Ski Center in Alaska). The FY2000 Appropriations Conference Report shows a total of 11 projects with earmarked funds” (Understanding the Federal Budget Process, 2000).
The name ‘earmarking’ is metaphoric as it means the old tradition of cutting the notch in the ears of swine or cattle to denote the fact of ownership that way (Porter & Walsh, 2006). The notion of an ‘earmark’ may refer to any spending issue from a spending bill that allocates money to a very specific recipient (project, institution, place etc.). However, what distinguishes an earmark is its congressional origin – it is the directive given by Congressmen to the allocation committees (Porter & Walsh, 2006).
The earmarks are hard to distinguish from many other forms of fund allocation, so they remain primarily the issue of ethics as they are hard to be proven legislatively. Nonetheless, there is one way to identify earmarks – they are usually represented by the projects that usually require a long and hard process of bidding and competition, but receive funds easily instead. Earmarked appropriations usually have one of the three sources: the authorizing committee, the appropriations committee, and the conference committee. Though they usually do not have the power of a law, they are effectively enforced by Congress members and are hard to resist by the committee members, as practice has repeatedly shown (Porter & Walsh, 2006).
Meyers (2009) commented on the issue of earmarks very radically, identifying the problem as a practically unsolvable one. The reason he mentioned is that most pork amendments (relating to earmarks) are continuously failing in Congress because of Congressmen being personally interested in their existence. Thus, Congressmen voting against one earmark have a set of others in the budget (Meyers, 2009). Therefore, the progress is invisible so far, though the revealed disparities in earmark allocations may increase demand, according to Meyer’s (2009) opinion.
The second ethical issue is the bias observed in the governmental decisions in favor of higher spending and higher taxes called to reimburse those spending decisions (Chari, 1991; Riedl, 2005). It is the present bias that has resulted in the decentralization of spending committees writing mandatory spending programs. The present distribution gives the incongruence of the objectives drawn by each committee and lack of interest in each of them to strive to the optimal resource distribution (Riedl, 2005). The root of this problem, according to the researcher’s opinion, is the wrong approach to accounting – the governmental officials making decisions for tax increases do not presuppose the negative effect on the economic activity of households as a result of that measure; however, the tax increases have a proven macroeconomic effect on population spending, which will still return the budget to the same figures, while the projected ones were initially higher, which ultimately causes a budget deficit (Riedl, 2005).
The final point commonly discussed by economists and political science theoreticians in regard to the budget process irregularities is the complexity of the budget process itself. It has been recurrently noted that the budget process lacks transparency, and the federal budget can become the tool in hands of skillful politicians to manipulate the figures and to win millions of dollars for financing some spheres in which they have personal interest, while the overall process of tax revenues’ allocation is mostly unclear for the initial taxpayers, i.e. the US citizens (Riedl, 2005; Saxton, 1997). The present state of affairs is not only harmful for taxpayers in terms of lack of information, but it may be challenging for the provision of high-quality services to the putative beneficiaries of the federal budget (Saxton, 1997).
Solutions, Reforms and Changes – The History and Modernity of Renewal
After a thorough review of the history of the federal budget process and the complications that have emerged due to the evolution of legislation, the innovative (effective and not) responses to various fiscal goals and reality, and due to the changes in the administrative apparatus of the country, one can surely admit that there are a large number of proposals, recommendations, and advice for innovation, reform, and improvement. They all concern the federal budget process, and approach the ways of reforming it from various angles, similarly to the way problems existing in it nowadays are categorized. Therefore, every set of solutions targets some particular problem, and each of them deserves close attention to evaluate it for consistency, potential effectiveness, and realism of implementation.
Before starting any reform, one should have a critical look at the history of reforms in that particular area, and to assess the alternatives that have already been utilized (both successfully and unsuccessfully) for the sake of improvement. The US history of reforming the budget process also has a realm of successes and failures visible in the recent decades. Joyce (2009) identifies a set of ways by which the reforms usually were conducted: these were the administrative reforms (formulated by means of the budget law), financial management reforms, performance reforms, actions to change the system of signaling to the government, and information on the economic and distributional effects of the implemented legislation. In addition, the author states that the three prime sources of data that may serve to improve the federal budget process situation are: the President’s budget information, the Congressional data releases, and the extended research and findings on the budget derived from the activity of think tanks (Joyce, 2009). Since the author’s arguments possess a high level of relevance and credibility, one should use them as a starting point in the consideration of any reform possibilities.
Reischauer (2001) noted that the US budget process had been functioning for nearly a century under the provisions of three separate legislative acts, which created complications and irregularities, so the need for structural reforms was obvious even then. The author outlined four main directions of reform: striving towards aligning the budget with the nation’s needs, encouraging transparency and honesty of the budget process, extending the principles of budget planning towards the far future, and ensuring flexibility of processes related to the budget process (Reischauer, 2001). These ideas are surely sensible, and one can group the theoretical implications of reforming the federal budget process around these four categories.
The first point, making the federal budget process compliant with the nation’s fiscal goals, has found its reflection in the works of Posner (2009), Riedl (2005), and Savage and Schwartz (1999), among others. Indeed, according to Reischauer (2001), a well-functioning budget should be distinguished by a comprehensive framework of decision-making tools regarding the figures of spending, the projections of revenues, and the degree to which a fiscal policy of the US affects the national economy negatively or positively. Posner (2009) also notes that an effective federal budget process should target the long-term challenges in which the lawmakers and the nation’s executives have been involved for many years, and make the budget objectives and tools more realistic, instead of concealing the fiscal reality.
Riedl (2005) also favors the structural reforms intended to make the US federal budget process more economically appropriate. The author indicates that to ensure the completion of this goal, Congress should inevitably place annual caps on total spending instead of discretionary caps and PAYGO that did not fulfill its mission; at the same time, the budget resolution should limit annual appropriations as another source of excessive spending (Riedl, 2005). To avoid misunderstanding and time losses, the President should be included in the resolution-making process to enable the government to settle all disputable issues in the process of lawmaking, not afterwards. Finally, the spending schemes should be restructured, distributing money among committees and not by function, which would eliminate a set of overlaps and discrepancies that cause serious money leakages from the federal budget (Riedl, 2005).
Finally, the issue of meeting fiscal objectives of the nation is inseparable from the objective assessment of the economic situation in the country. Despite the fact that the overall budget process presupposes making projections for 5-10 years and keeping to them, the economic crisis that began in 2007 and still produces ruinous effects on the US economy, cannot be overlooked in the subsequently made decisions. What is now happening in the country is called the fiscal stress, and one of the ways to respond to it is described by Savage and Schwartz (1999) – it is cutback spending. The technique involves reducing spending, raising revenues, and modifying the budgetary processes so that they would fit the fiscal constraints evident in the state (Savage & Schwartz, 1999).
Though the present tool proved highly efficient in the tough years for the US economy, it still should be applied with caution, as it does not only presuppose increasing taxes and other fees from citizens alongside with deferring spending. It may also involve the utilization of a softer and more progressive measure such as priority scaling (Savage & Schwartz, 2009). This wise technique of fund distribution may help the government save considerable portions of funds by deciding on the most significant areas of financing, and set aside the non-urgent and non-significant projects that lose their urgency in the critical period.
The second issue, increasing transparency and honesty of the budget process, is also very important as a component of a comprehensive reform, since the complicated and hidden process of adopting a budget has allowed the formation of some indecent practices described in the previous section, such as earmarks and unreasonable bias towards higher spending and tax solutions. As Reischauer (2001) reasonable notes, the American dollars coming from the US budget are quite elusive, while the revenues entering the budget may also be distorted by the interested Congress members, may be received in an untimely manner etc., thus challenging the process of making reasoned decisions based on sole facts. Therefore, as Walker (2006) remarks, the first step to transparency and accountability is the systematic re-examination of “the base” – which means programs for mandatory spending that remain unaltered from year to year, though the conditions of their implementation may have long ago changed, and other federal programs that are usually held “off the table”. In addition, Walker (2006) supposes that the transparency can also be improved by obliging the OMB to report annually in a detailed way about all cost estimates for all budget-related issues. OMB should be directed at ensuring the compliance with cost estimates, and cost improvement measures monitored in all governmental agencies; it is only with the help of improved reporting that the budget analysis will ensure the budget propriety and flexibility (Walker, 2006).
Continuing the topic of transparency, earmarks deserve separate attention, since they represent the most troubling point in terms of ethics and honesty of the budget process. Porter and Walsh (2006) admit that there has been much undertaken so far for the sake of diminishing the effect of earmarking in the overall budget process. For example, Senators Lott and Feinstein targeted the inclusion of earmarks in the conference reports by offering an amendment (as a part of the Legislative Transparency and Accountability Act of 2006), arguing that earmarks should be subject to the 60-vote point of order in either chamber, and asked for a 24-hour public notice before the conference report consideration (Porter & Walsh, 2006). In addition, the authors mention the activity of Senator McCain targeting the issues of appropriations processes – Senator struggled for the right of any Senator to raise a point of order against an earmark (Porter & Walsh, 2006). However, so far no effort seems to yield visible results because of the extreme vagueness of the term of an earmark, and a relative process of its detection.
Following the argument of Reischauer (2001) further, the effective federal budget process should make budget decisions of strategic importance, which means that the long-term implications of budget decisions will be considered along with the current needs and fiscal objectives. The present argument finds agitated support in the works of Fraser (2005) who identifies the erroneous scheme of budget reporting as the prime reason of high levels of unreasonable spending as well as the discrepancies in the budget objectives’ estimates. The author proposes to accrue, and not to disclose, the net unfunded entitlement obligations in order to create a better future for the country’s fiscal climate (Fraser, 2005). In addition, the researcher supposes that the limitations imposed on the growth of the government’s liabilities and obligations are likely to make the distant future economic situation much healthier, since the hidden debt and unrecognized obligations will be eliminated (Fraser, 2005).
The last objective described by Reischauer (2001) deals with the sustainability of the overall budget process, and the author sees it in the provision of flexibility of budget-related decisions under the modern conditions of unpredictability and volatility of the economic situation. In connection with these suggestions, there are some constructive thoughts and recommendations voiced by Holtz-Eakin (2004) regarding some measures that can be taken to achieve financial flexibility. The author claims that the most preferable measure to achieve this goal is to establish reserve funds such as the emergency reserve fund suggestion; such reserve funds are called to balancing the true needs of the country during the fiscal period, and the projected spending amounts that rarely coincide in the end (Holtz-Eakin, 2004). Inflation adjustment to the discretionary caps is also seen by the author as an effective tool to enhance flexibility, since it will enable the government to achieve more agreement on the spending caps, and will ensure this agreement for a longer period of time (Holtz-Eakin, 2004).
Finally, going beyond the scope of characteristics a rational, good, and effective federal budget process should have, one should obviously pay attention to the requirement of simplicity voiced by many stakeholders nowadays. Simplicity is the main precondition of the budget process’ transparency, and the second objective outlined by Reischauer (2001) cannot be achieved without the proper regard of simplicity in the formulation and adoption of all bills related to the budget process. The main recommendation of Saxton (1997) to achieve this goal was to concentrate the spending power in the hands of one committee in each house; though it sounds rather unrealistic, it would solve the huge problem of repetitive, over-complicated legislative budgeting processes. However, the concentration of power may lead to power abuse – the committee, even being highly accountable, still will manage to manipulate decisions that used to be disputed and canceled, and now being only its responsibility, in favor of special groups’ interests. To eliminate such threat, Riedl (2005) offers to introduce considerable, frequent rotation principles not to let any committee member keep the position long enough create connections with such groups.
Some other recommendations on the simplification of the budget process were voiced by GAO (2004). The GAO officials indicated in their rationalization plan that the surest way to simplification would be: reorganization and consolidation of programs and activities resembling each other in objectives and audiences to avoid duplication; usage of innovative tools such as reengineering, benchmarking, streamlining, performance management etc. (GAO, 2004). The potential for simplification is also seen in budget restructuring: GAO (2005) indicated that the restructuring efforts proved the shift of attention to such aspects as strategic planning, performance, and increased coordination of programs that were aimed at similar objectives etc. Thus, restructuring and simplification should also become some of the prime directions on the way of budget process reformation.
Conclusions and Implications of Literature Review
Summarizing the large body of literature considered for the present research, one should note that there is much disagreement about what the most aching problems in the modern budget process are, and what the main priorities in the problem-solving and reformation process should be. Nonetheless, the literature review has also certified that there is much attention to the budget process of the past years, as well as the state of the budget process at the present period of time. There are different reasons for this, some of them deriving from the agile public interest to the notion of the federal budget and its irregularities preventing the modern US citizens from finding out and understanding where their taxes go. Some other reasons come from the increased awareness of the fact that the huge, non-volatile, and excessive governmental apparatus is only budget-consuming, and the main problems come from the excess of committees, funds, organizations, programs, boards, and officials. Therefore, there are various reasons for the growing inconsistency of the federal budget process with the real needs of the country and its nation, and for the resulting attention of mass media, scholars, and the general public to the issue.
It is possible to identify a set of dominant flows of the modern theoretical thought on the subject of the federal budget process, its drawbacks, and ways of reforming it for the sake of clarity, simplicity, honesty, and transparency. There are some scholars who see the reasons for the downturn in the budget effectiveness in the chaotic and messy role of the government nowadays; too many officials, too many hearings, stages of seeking agreement, bills to adopt, appropriations and allocations etc. All this flow of documents, information, and events connected with the adoption of the federal budget makes it unclear not only for laymen, but to the specialists in politics as well.
Another group of scholars is united by the recognition of a large set of economic errors that the government has made, and continues to make, in the process of fund distribution, mandatory and discretionary spending planning, emergency planning, and setting fiscal objectives for several years ahead etc. The issues of striving to the balanced budget, fighting the inflation and the hard economic times, and the loss of a large portion of revenues due to massive lays off – these items remain unconsidered, aggravating the situation with the discrepancies between budgetary planning and the real economic situation. The cash-basis spending and unwillingness of the government to recognize its long-term obligations aggravate the situation even further.
Finally, the last group is more focused on the issues of integrity, honesty, and decency in making budgetary decisions. The notions of earmarks and bias towards higher spending alone may make anyone believe that without the honest, dedicated approach to spending, no budget reform effort will succeed. Anyway, the present review shows the whole realm of directions in which the theory and practice of the federal budget process move nowadays, and the further task of the research is to investigate each of them in practice, and apply the findings to the formulation of hands-on recommendations.
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