Budgeting and public policy

Budgeting and public policy

Public policy cannot be implemented without the expenditure of money.

The budget – the government’s estimate of revenue and spending for each fiscal year – conveys a good overview of the government’s total set of policies for the fiscal year it covers.

Budgeting is a means that shapes the direction, intensity, and impact of public policies.

The budget is not simply a financial statement; it is also a statement of policy.

Policies without funding become nullities but some public policies entail little or no expenditure of money (prayer in the public schools, migratory birds)

Once substantive legislation is enacted, the political struggle over a policy may be renewed during the appropriations process.

supporters strive to ensure that it is funded, and continues to be funded, at levels sufficient to guarantee satisfactory attainment of its goals.

Opponents strive to modify, cripple, or perhaps kill it by getting its funding reduced or eliminated.

Government budget

is a document prepared by the government presenting its anticipated revenues and proposed spending for the coming financial year

Revenue

Spending

Deficit/surplus

Revenue

Revenue ($3.863 trillion in FY 2021)

Income taxes contribute $1.932 trillion or 50% of total receipts.

Social Security, Medicare, and other payroll taxes add $1.373 trillion or 36%.

Corporate taxes supply $284 billion or 7%.

Excise taxes and tariffs contribute $141 billion or 4%.

Earnings from the Federal Reserve’s holdings add $71 billion or 2%. Those are interest payments on the U.S. Treasury debt the Fed acquired

Estate taxes and other miscellaneous revenue supply the remaining 1%.

Spending and deficit

The government expects to spend $4.829 trillion in 2021.

Mandatory spending is estimated at $2.966 trillion in FY 2021.

includes entitlement programs such as Social Security, Medicare, and unemployment compensation. It also includes welfare programs such as Medicaid.

Discretionary budget for 2021 is $1.485 trillion

More than half goes toward military spending, including Homeland Security, the Department of Veterans Affairs and other defense-related departments.

The rest must pay for all other domestic programs – Health and Human Services, Education, and Housing and Urban Development.

The Deficit

The budget deficit is estimated at $966 billion.

That’s the difference between $3.863 trillion in revenue and $4.829 trillion in spending.

This shortfall is added to the existing national debt.

In addition to being used to finance the government’s activities and policies, the budget can also be used as an instrument to stabilize the economy, to help prevent inflation or recession.

Fiscal policy involves the deliberate use of the government’s taxing and spending powers to stimulate or restrain the economy by incurring budget deficits or surpluses, respectively.

Keynesian economic theory, a budget deficit, or a larger budget deficit, by putting more money into the hands of people and businesses, adds to the total demand for goods and services in the economy, thereby stimulating the economy.

a budget surplus, or a smaller budget deficit, will extract money from the economy and reduce the total demand for goods and services, thereby imposing restraint on the economy.

The budget process

within the framework of substantive law, is a means for making choices among competing social values and allocating resources for their attainment.

The budgetary process also provides the president and Congress with an opportunity to review periodically the various policies and programs of the government, to assess their effectiveness, and to inquire into the manner of their administration.

the budgetary process provides a continuing opportunity for exerting presidential and congressional influence and control over implementation of policies

The national budgetary process, as well as state and local budgetary processes, can be divided into four fairly distinct stages: preparation, authorization, execution, and audit.

Executive Preparation

The executive budget system required agencies (Congress and the Supreme Court are exempted) to transmit their budget requests to the president for approval before they were sent to Congress in a single, comprehensive budget document.

Preparation of the national budget within the executive branch begins nine months or so before it is sent to Congress in February.

Most of the day-to-day work in developing the budget is handled by the OMB and the executive departments and agencies.

Acting on the basis of presidential directives, the OMB provides instructions, policy guidance, and tentative budget ceilings to help the departments and agencies assemble their budget requests.

The budget sent to Congress reflects presidential decisions and priorities on such matters as its overall size, its possible effects on the economy, its major directions in public policy, and its allocation of funds among the major agencies and programs.

Congressional Authorization

The Constitution provides in Article I that “no money shall be drawn from the treasury, but in consequence of appropriations made by law,” which means appropriations legislation enacted by Congress.

Two distinct steps are usually involved in the funding of public policies and programs.

First, substantive legislation has to be enacted establishing a policy or program and authorizing the expenditure of money in its support.

Second, money actually has to be made available for the policy or program by the adoption of appropriations legislation.

Appropriations legislation is the domain of the House and Senate Appropriations Committees.

For purposes of legislative enactment, the president’s budget, which comes to Congress as a document of several hundred pages, is divided into twelve appropriations bills

These are then referred to the House Appropriations Committee, which by long custom acts first on the budget.

The Senate Appropriations Committee, to which appropriations bills passed by the House are sent, approves or makes changes to the budget

Conference committees drawn from the members of the relevant subcommittees are used to resolve the differences between the House and Senate versions of appropriations bills.

PRESIDENTIAL ACTION

Following the completion of congressional action, appropriations bills are transmitted to the president for approval.

Presidents may also use their veto power more positively by threatening to wield it on an appropriations bill under congressional consideration.

Action on all the appropriations bills, including presidential approval, is supposed to be completed before the beginning of the fiscal year on October 1.

Once approved it becomes an appropriations act – this creates budget authority (BA), which permits agencies to obligate (or commit) themselves for the expenditure or lending of money.

When the money is actually paid out or expended, it is called an outlay. An agency must have budget authority before it can make outlays.

Budget Execution

The obligation and actual expenditure (or outlay) of funds, once appropriated, rest with the various departments and agencies.

To begin spending they must first secure an apportionment from the OMB

An apportionment distributes “appropriations and other budgetary resources” (e.g., the authority to borrow money) to an agency “by time periods [usually quarterly] and by activities in order to ensure the effective use of available resources and to preclude the need for additional appropriations.

The OMB may also direct agencies to set aside funds for contingencies or not to spend funds when greater efficiency in operations or altered needs permit savings to be achieved without restricting accomplishment of agency goals.

The Budget calendar

Major Steps in the National Budget Process

The budget year that extends from October 1 through September 30, of the following year

February 2019 – December 2019 – Formulation of the president’s budget for FY 2021 – Agencies develop requests for funds and submit them to OMB. The president makes the final decisions on what goes into the budget.

December 2019 –February 2020 – Budget preparation and transmittal – The budget documents are prepared and sent to Congress.

March–September 2020 – Congressional action on the budget – Congress reviews the president’s budget, develops its budget resolution, and approves spending and revenue bills.

October 1, 2020– September 30, 2021 – Fiscal year begins – Budget execution – Agency officials execute the budget as enacted into law.

Audit – Before or after the end of the fiscal year; involves checking on expenditures for evidence of illegality, waste, or abuse, is handled by the Government Accountability Office and the Offices of Inspector General located in many departments and agencies and will not be discussed here.

The Congressional Budget Calendar

February Presidential budget is sent to Congress on the first Monday of the month.

March 15 Standing committees send their budget estimates to the House and Senate budget committees.

April 1 Budget committees report budget resolutions to the House and the Senate (This resolution sets the aggregate levels of revenue and spending that is expected to occur in a given fiscal year)

April 15 Congress adopts a concurrent resolution setting targets for revenues, budget authorities, and outlays

May–July House completes action on appropriations