Tuesday, October 1, 2013

IS there a federal budget process? You'd be surprised, but there is. Almost no one knows what it is except people in Congress, but.....

First, it's useful to know the difference between an "authorization" and an "appropriation". To establish a federal agency or program, you need the legal authority to do so. Generally, when that law is passed, Congress also "authorizes" it to spend money, and sets an upper limit on this spending authority. There are 15 authorizing committees in the House: Agriculture; Armed Services; Education and the Workforce; Energy and Commerce; Financial Services; Foreign Affairs; Homeland Security; Judiciary; Natural Resources; Oversight and Government Reform; Science, Space and Technology; Small Business; Transportation and Infrastructure; Veterans' Affairs; and Ways and Means. There are just 12 in the Senate: Agriculture, Nutrition and Forestry; Armed Services; Banking, Housing, and Urban Affairs; Commerce, Science and Transportation; Energy and Natural Resources; Finance; Foreign Relations; Health, Education, Labor, and Pensions; Homeland Security and Governmental Affairs; Judiciary; Small Business and Entrepreneurship; and Veterans' Affairs. These committees not only create and dismantle programs, but they also provide congressional oversight of them.

An authorization doesn't mean that the agency gets to spend up to its limit, however. Each year, Congress also appropriates money from the U.S. Treasury for that program. An Appropriations Committee exists in the House and Senate to do this. Appropriations committees also duplicate many of the oversight functiions of the authorization committees.

Now, appropriations are not supposed to be higher than the authorization. But sometimes they are, and this is known as a "backdoor authorization". Boy, do backdoor authorizations piss off the authorization committees! A backdoor authorization isn't a bad thing, however. If the authorization committee is full of a bunch of stick-in-the-muds who won't get a program moving, sometimes the political leadership will "backdoor authorize" to get things moving. Sometimes, authorizations lapse (due to a "sunset provision" in the law), but appropriations are still made.

Second, it's important to understand that the Constitution requires all taxation legislation to originate in the House. The House has a special committee just to handle tax bills: The Ways and Means Committee. In practice, however, the Senate gets around this. If the House sends it just a single tax bill, the Senate will amend the fuck out of it and expand it make their own tax bill. That tends to piss off the House, though, so this is usually not done unless there's a good reason.

Third, it's important to know what is "discretionary" spending and what is an "entitlement". An entitlement is where Congress enacts a law and specifies a benefit to the public -- rather than saying "Here is X amount of dollars, do what you can with it to help people". Social Security is a benefit whose level is set by law. How is it paid for? There are Social Security taxes, but if they are not enough to cover the benefits -- oh well, too bad. Social Security runs a deficit. There are a lot of entitlement programs in the federal budget: Social Security, Medicare, Medicaid, most Veterans' Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs. Entitlements consumed 57.4 percent of total federal spending in 2012. Another 6 percent of the federal budget goes to pay interest on the national debt. What's left is "discretionary" spending. This is spending that can go up or down and is not mandated by law. For example, protecting the environment is not mandated. Nor is defense spending, Wall Street regulatory enforcement, keeping the national parks open, or providing housing for the poor.

Fourth, it's hard to spend money on new entitlements. Any new authorization or appropriations for entitlements are subject to pay-as-you-go (PAYGO) rules. This means that (for example) if Congress wanted to spend more on Medicare, it would have to cut existing Medicare programs or another entitlement (say, Social Security or Food Stamps) to pay for it, or raise taxes, or a combination of the two. PAYGO was required by the Budget Enforcement Act of 1990.

All right, on with the show!



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January - The Congressional Budget Office (CBO) issues its annual baseline budget projection and economic forecast. These two reports are required by the Balanced Budget and Emergency Deficit Control Act of 1985. Originally, CBO changed its forecast numerous times throughout the budget cycle. But by the early 1990s, it became apparent that Congress was chasing a moving target. Congress enacted legislation that requires CBO to issue these reports in January, and update them in August. The baseline budget projection estimates federal expenditures for 10 years, assuming no new programs or changes to old ones. The economic forecast provides a 10-year estimate of economic activity. (Historically, CBO's estimate of economic activity has been far better at estimating the state of the economy than the executive branch.)

Between January 24 and February 7 - The Budget and Accounting Act of 1921 requires the President to submit a federal budget to Congress. This process begins 18 months ahead of time, as the President tells his Cabinet what sort of spending priorities he'd like to see. The Office of Management and the Budget (OMB) then issues spending guidelines to each agency. New programs are being added all the time, Congress is constantly fiddling with taxes (changing revenue estimates), and the economy is going up and down. So this process is haphazard, to say the least. The budget starts to come together 12 months out, and agencies can appeal, add, subtract, or change their budget requests over the next six month. The budget is fine-tuned in its last six months. It is then printed, and it is invarably dead-on-arrival when it hits Congress.

April 1: The budget resolutions - Under the Congressional Budget Act of 1974, the House and the Senate both must establish Budget Committees. These committees begin work as soon as the President's budget is submitted, and are supposed to be done by April 1. They not only hold hearings on the president's budget, the CBO estimates, taxation, and the economy, but they also ask each of the authorization committees to report on what legislation they intend to pass during the year. It also asks the appropriations what they intend to do this year. Each budget committee pulls all this information together. By April 1, it is supposed to issue a "budget resolution" that put limits on how much money each authorization committee can authorize, and how much the appropriation committee can appropriate. The House and Senate are supposed to pass their budget resolutions by April 15. Amendments are usually offered on the floor, which usually makes the budget resolutions dead-on-arrival. Congress rarely enacts the budget resolutions on time. In some years, it never enacts them -- and passes a big budget bill at the end of the year with a "this one time only, we will do away with the legal requirement for a budget resolution" clause in it.

After the House and Senate have enacted their resolutions, they set up a conference committee to iron out the differences. This conference committee reports a "conference bill", which is accepted on an up-or-down, yes-or-no vote.

May 15: Appropriations work begins - The House Appropriations Committee cannot begin work until May 15; the Senate Appropriations Committee can begin work whenever. This House rule is to give the Budget Committee time to do its work. Each Appropriations Committee has 12 subcommittees, and the House and Senate appropriations committees are mirror images of one another to help make it easier to pass legislation.

THIS IS WHERE EVERYTHING REALLY AND FINALLY BREAKS DOWN. There is intense pressure on the Appropriations subcommittees to get their work done. Lobbyists want their programs funded. Conservatives want programs cut. Each member of Congress has his or her own pet programs they want funded. PAYGO complicates entitlement spending, so that people begin fighting over what tax to raise or program to cut so that something new can be done. The subcommittees need to keep their eye on the full committee: If they do things the full committee doesn't like, their work won't be included in the final appropriations bill. But they also have to keep their eye on the entire House (or Senate), because they know that an appropriations bill is D.O.A. if they adopt such radical changes, cuts, additions, or whatnot that their bill gets rejected. And they have to keep an eye on the other chamber, which may or may not want to pass their bill.

The Appropriations subcommittees each generates a bill, which means that there have to be 12 appropriations bills passed each year by October 1 (which is when the federal government's fiscal year begins). The House and Senate bills are very different, of course, and so a conference committee is established to work through the differences again.

Sometimes, a number of appropriations bills are lumped together into a single bill. These are known as "omnibus spending bills", and can be massive -- sometimes running into the thousands of pages. Members of Congress rely heavily on their staff members to keep them informed about what's in the omnibus spending bill. Each staffer is responsible for 50 or 75 or 100 pages of the bill, and have to keep a close eye on what's in there to raise red flags.

Since the early 1990s, Congress has increasingly been unable to pass all the appropriations bills by October 1. To keep the federal government open, a "continuing resolution" permits the agency to continue to do its work based on the previous year's authorizations and appropriations. In the past, continuing resolutions affected just one or two appropriations bills. But since the mid 1990s, most of the appropriations bills were not enacted. This means that continuing resolutions now cover most if not all of the federal government.

FAILURE TO PASS A CONTINUING RESOLUTION MEANS A GOVERNMENT SHUT-DOWN. And that is what we have today.

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