Budget Process: Issues in Biennial Budget Proposals (Testimony, 07/24/96,
GAO/T-AIMD-96-136).
GAO discussed several proposals to change the budget process from an
annual to a biennial cycle. GAO noted that: (1) many congressional
members believe a biennial budget cycle would streamline the budget
process, provide longer-term funding levels, enhance agencies' ability
to manage their programs, and provide more time for congressional
oversight; (2) preparation and analysis for the annual budget process is
time-consuming and burdensome for program managers; (3) although eight
states have biennial budget cycles, state budgets fill a different role
and are sensitive to different outside pressures; (4) the state agencies
with the largest budgets submit annual budget requests, since these
budgets are the most volatile and dependent on federal funding; (5) the
state agencies that are on biennial budget cycles are typically small,
single-program agencies that are funded by fees rather than general fund
revenues; (6) budget agreements, authorizations, and budget resolutions
do not have to cover the same time period; (7) Congress has routinely
provided multiyear appropriations for those programs on the annual
appropriation cycle; and (8) a 2-year budget cycle could lessen
congressional control over program and spending matters.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-AIMD-96-136
TITLE: Budget Process: Issues in Biennial Budget Proposals
DATE: 07/24/96
SUBJECT: Budgeting
Fiscal policies
State budgets
Future budget projections
Budget administration
Multiple-year budget authority
Budget controllability
Proposed legislation
IDENTIFIER: Arkansas
Kentucky
Montana
North Carolina
North Dakota
Nevada
Oregon
Texas
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Cover
================================================================ COVER
Before the Senate Subcommittee on Financial Management and
Accountability,
Committee on Governmental Affairs
U.S. Senate
For Release
on Delivery
Expected at
10 a.m.
Wednesday,
July 24, 1996
BUDGET PROCESS - ISSUES IN
BIENNIAL BUDGET PROPOSALS
Statement of Susan J. Irving
Associate Director, Budget Issues
Accounting and Information Management Division
GAO/T-AIMD-96-136
GAO/AIMD-96-136T
(935207)
Abbreviations
=============================================================== ABBREV
CBO - Congressional Budget Office
DOD - Department of Defense
NASBO - National Association of State Budget Officers
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
I am pleased to present our testimony on proposals to change the
budget process from an annual to a biennial cycle. This change has
often been suggested as a way to streamline the budget process,
provide more focused time for congressional oversight of programs
and, by providing funding for a longer period of time, enhance
agencies' ability to manage their operations. While these are
laudable goals, shifting the entire annual budget cycle to a biennial
one is not necessary to achieve these ends. Rather, as I will
discuss below, we believe there are aspects which could work well for
the federal government and an aspect which will cause a shift in
congressional control and oversight--biennial appropriations.
Certainly everyone involved in the budget process shares some
frustration with it. The public finds it confusing. Executive
branch agencies find it burdensome and time consuming. Many members
of the Congress say the annual budget process seems too lengthy, with
its many votes on authorizations, the budget resolution,
reconciliation, appropriations, and the debt limit. And, too often,
the results are not what was expected or hoped for.
In one sense, of course, nothing could be more important than debates
about the budget--and important debates often take time. Budgeting
is the process by which we as a nation resolve the large number of
often conflicting objectives that citizens seek to achieve through
government action. The budget determines the fiscal policy stance of
the government--that is, the relationship between spending and
revenues. And it is through the budget process that the Congress and
the President reach agreement about the areas in which the federal
government will be involved and in what way.
Because the decisions are so important, we expect a great deal from
our budget and budget process. We want the budget to be clear and
understandable. We want the process to be simple--or at least not
too complex. We don't want to make the same decisions over and over
again. But at the same time we want a process that presents the
Congress and the American people with a framework to understand the
significant choices and the information necessary to make the
best-informed decisions about federal tax and spending policy. This
is not easy.
Although there is virtually universal agreement that the current
process has problems, changes must be carefully considered. In fact,
the current process is, in part, the cumulative result of many
changes made to address previous problems.
In October 1993, and in March and April 1994, I testified on
proposals for biennial budgeting.\1 Before discussing biennial
budgeting for the federal government, however, I'd like briefly to
discuss biennial budgeting in the states.
--------------------
\1 See Budget Policy: Biennial Budgeting for the Federal Government
(GAO/T-AIMD-94-4, October 7, 1993), Budget Process: Some Reforms
Offer Promise (GAO/T-AIMD-94-86, March 2, 1994), and Budget Process:
Biennial Budgeting for the Federal Government (GAO/T-AIMD-94-112,
April 28, 1994).
STATE EXPERIENCES WITH BIENNIAL
BUDGETING
---------------------------------------------------------- Chapter 0:1
Advocates of biennial budgeting often point to the experience of
individual states. In looking to the states it is necessary to
disaggregate them into several categories. First, 8 states have
biennial legislative cycles and hence necessarily have biennial
budget cycles.\2 Second, as the table below shows, the 42 states with
annual legislative cycles present a mixed picture in terms of budget
cycles: 27 describe their budget cycles as annual, 12 describe their
budget cycles as biennial and 3 describe their budget cycles as
mixed. The National Association of State Budget Officers (NASBO)
reports that those states that describe their system as "mixed" have
divided the budget into two categories: that for which budgeting is
annual and that for which it is biennial.
Table 1
States With an Annual Legislative Cycle
States with a States with a
biennial budget mixed budget
cycle cycle
---------------- ---------------- ---------------- ----------------
Alaska Mississippi Connecticut Arizona
Alabama New Jersey Hawaii Kansas
California New Mexico Indiana Missouri
Colorado New York Maine
Delaware Oklahoma Minnesota
Florida Pennsylvania Nebraska
Georgia Rhode Island New Hampshire
Iowa South Carolina Ohio
Idaho South Dakota Virginia
Illinois Tennessee Washington
Louisiana Utah Wisconsin
Maryland Vermont Wyoming
Massachusetts West Virginia
Michigan
----------------------------------------------------------------------
Connecticut has changed its budget cycle from biennial to annual and
back to biennial. In the last 3 decades, 17 other states have
changed their budget cycles: 11 from biennial to annual, 3 from
annual to mixed, and 3 from annual to biennial.
Translating state budget laws, practices, and experiences to the
federal level is always difficult. As we noted in our review of
state balanced budget practices,\3 state budgets fill a different
role, may be sensitive to different outside pressures, and are
otherwise not directly comparable. In addition, governors often have
more unilateral power over spending than the President does.
However, even with those caveats, the state experience may offer some
insights for your deliberations. Perhaps significant is the fact
that most states that describe their budget cycles as biennial or
mixed are small and medium sized. Of the 10 largest states in terms
of general fund expenditures, Ohio is the only one with an annual
legislative cycle and a biennial budget. According to a State of
Ohio official, every biennium two annual budgets are enacted, and
agencies are prohibited from moving funds across years. In addition,
the Ohio legislature typically passes a "budget corrections bill."\4
A few preliminary observations can be made from looking at the
explicit design of those states which describe their budget cycle as
"mixed" and the practice of those which describe their budget cycle
as "biennial." Different items are treated differently. For example,
in Missouri the operating budget is on an annual cycle while the
capital budget is biennial. In Arizona "major budget units"--the
agencies with the largest budgets--submit annual requests; these
budgets are also the most volatile and the most dependent on federal
funding. In Kansas the 20 agencies that are on a biennial cycle are
typically small, single-program or regulatory-type agencies that are
funded by fees rather than general fund revenues. In general,
budgeting for those items which are predictable is different than for
those items subject to great volatility whether due to the economy or
changes in federal policy.
--------------------
\2 The following states have biennial legislative cycles: Arkansas,
Kentucky, Montana, North Carolina, North Dakota, Nevada, Oregon, and
Texas.
\3 Balanced Budget Requirements: State Experiences and Implications
for the Federal Government (GAO/AFMD-93-58BR, March 26, 1993).
\4 Ohio has also created a Controlling Board which, under certain
circumstances, can authorize transfer of funds between items and
across fiscal years within an agency. The Board also receives an
appropriation that it can allocate to meet unforeseen contingencies.
The Board is a joint, bipartisan committee of legislators chaired by
Ohio's Director of its Office of Management and Budget.
BIENNIAL BUDGETING AT THE
FEDERAL LEVEL
---------------------------------------------------------- Chapter 0:2
S. 1434, like a number of previous bills, proposes that the entire
budget cycle be shifted from annual to biennial. Under this system,
the President would submit budgets every 2 years. Authorizations
would be for 2 years or longer. Budget resolutions would be adopted,
and appropriations enacted, every 2 years.
We believe that this need not be seen as an all-or-nothing proposal.
Budget agreements, authorizations, budget resolutions, and
appropriations need not cover the same time period. Multiyear fiscal
policy agreements and multiyear authorizations make a great deal of
sense, but they do not require changing the appropriations decision
cycle from annual to biennial. While biennial appropriations could
save time for agencies, they would result in a shift in congressional
control and oversight. Proposals to change the process should be
viewed partly in the context of their effect on the relative balance
of power in this debate.
MULTIYEAR AUTHORIZATIONS MAKE
SENSE; BIENNIAL BUDGET
RESOLUTIONS COULD WORK
---------------------------------------------------------- Chapter 0:3
We have previously supported the use of multiyear authorizations for
federal programs. There seems to be little reason to reexamine and
reauthorize programs more often than they might actually be changed.
Furthermore, multiyear authorizations help both the Congress and the
executive branch by providing a longer term perspective within which
a program may operate and appropriations can be determined. This is
the normal practice for most of the nondefense portion of the budget.
We also agree that a 2-year budget resolution is worth considering.
Especially in an era of multiyear spending caps and multiyear
reconciliation instructions, a 2-year budget resolution may not be a
major change. However, a way would have to be found to update the
Congressional Budget Office's (CBO) forecast and baseline against
which legislative action is "scored." As you know, CBO scores
legislation on the economic assumptions in effect at the time of the
budget resolution. Even under the current system there are years
when this practice presents problems: in 1990 the economic slowdown
was evident during the year, but consistent practice meant that bills
reported in compliance with reconciliation instructions were scored
on the assumptions in the budget resolution.\5 If budget resolutions
were biennial, this problem of outdated assumptions would be
greater--some sort of update in the "off year" would be necessary.
We have also said that we believe that at a time when major efforts
are under way to reduce the deficit, there should be some way to look
back and track progress against any multiyear fiscal policy plan.
Such a formal "lookback" would be even more critical under a biennial
budget resolution.\6
Traditionally, biennial budgeting has been advocated as a way to
advance several objectives: (1) to shift the allocation of agency
officials' time from the preparation of budgets and justifications to
improved financial management and analysis of program effectiveness,
(2) to reduce the time Members of the Congress must spend on
seemingly repetitive votes, and hence permit increased oversight, and
(3) to reduce uncertainty about longer-term funding levels and
allocations and hence improve program management and results.
However, shifting the entire cycle--authorizations, budget
resolutions, and appropriations--to a biennial one may not be
necessary to achieve these objectives.
As I noted earlier, biennial appropriations can be considered
separate from biennial budget resolutions because the two raise quite
different questions. Let me turn now specifically to that issue.
--------------------
\5 See Budget Process: Issues Concerning the 1990 Reconciliation Act
(GAO/AIMD-95-3, October 7, 1994).
\6 See, for example Budget Process: Issues Concerning the 1990
Reconciliation Act (GAO/AIMD-95-3, October 7, 1994); Budget Policy:
Issues in Capping Mandatory Spending (GAO/AIMD-94-155, July 18,
1996); and Budget Process: Evolution and Challenges
(GAO/T-AIMD-96-129, July 11, 1996).
THE CURRENT ANNUAL
APPROPRIATION CYCLE PERMITS
FLEXIBLE PERIODS OF FUND
AVAILABILITY
---------------------------------------------------------- Chapter 0:4
In considering whether the federal government should shift to a
biennial budget, it is important to recognize the critical
distinction between how often budget decisions are made and how long
the money provided for agency use is available. That is the
difference between the periodicity of decisions and the periodicity
of funds. Biennial budgeting proposals seek to change the frequency
with which decisions are made--from annual to biennial budget
decisions. Too often, however, the idea is discussed as though it
were necessary to change the frequency of decisions in order to
change the length of time funds are available.
However, as you know, this is a misconception. The federal budget
today is not composed entirely of annually enacted appropriations of
1-year moneys. Not all funds expire on September 30 of each year.
First, because budget decisions about mandatory programs and
entitlements--which constitute nearly two-thirds of federal
spending--are not made annually, the debate about annual versus
biennial appropriations deals with less than half of the budget.
Annually enacted appropriations apply to that portion of the budget
known as discretionary spending--about 36 percent of federal outlays
in fiscal year 1995.\7
Even within that 36 percent of the budget on an annual appropriation
cycle, not all appropriations were for 1-year funds. The Congress
has routinely provided multiple-year or no-year appropriations for
accounts or for projects within accounts when it seemed to make sense
to do so. Indeed, about two-thirds of the accounts on an annual
appropriation cycle contained some multiple-year or no-year funds.
For these accounts, some prior year and/or current year authority was
available for obligation beyond September 30, 1995, without further
congressional action.
To the extent that biennial budgeting is proposed as a way to ease a
budget execution problem, the Congress has shown itself willing and
able to meet that need under the current annual cycle.
The federal government has had some experience with biennial budgets.
The 1986 Defense Authorization Act directed the Department of Defense
(DOD) to submit a biennial budget for fiscal years 1988 and 1989 and
every 2 years thereafter. DOD submitted 2-year budgets for a number
of fiscal years. However, the authorization committees have not
approved a full 2-year budget, and thus the appropriation committees
have not provided appropriations for the second year.
We have previously reported that if the Congress decides to implement
a 2-year budget at the appropriation account level, it should proceed
cautiously by testing it on a limited basis. Good candidates for a
limited test would be organizations or programs which are relatively
stable and for which there are no obvious impediments. Impediments
would be activities that hamper the forecasting of budgetary needs
for the 2-year period, such as a major reorganization, major changes
in financial management or IRM systems, or major changes in mission.
In its efforts to bring the budget into balance, the Congress is
currently considering major changes in the scope and methods of
delivering government services. The very magnitude of these changes
raises questions about whether a shift to biennial appropriations
could or should be made at the same time.
--------------------
\7 See Budget Issues: Inventory of Accounts With Spending Authority
and Permanent Appropriations, 1996 (GAO/AIMD-96-79, May 31, 1996) and
Budget Account Structure: A Descriptive Overview (GAO/AIMD-95-179,
September 18, 1995).
POTENTIAL EFFECTS OF BIENNIAL
APPROPRIATIONS
---------------------------------------------------------- Chapter 0:5
For agency officials--both agency budget officers and program
managers--the arguments for biennial budgeting may seem quite strong.
Currently, agency budget officers spend several months every year
preparing a "from-the-ground-up" budget with voluminous written
justifications. Much of this work is repetitious. In contrast,
requests for supplemental appropriations are handled on an exception
basis. Only those agencies requesting supplemental appropriations
prepare and present justifications, and those justifications are less
complex than for the annual budget. If, under a biennial
appropriations process, the "off-year" updates, amendments, or
adjustments were treated like supplemental appropriations, the
savings in agency time could be significant, even if the Congress
required--as seems reasonable--that agencies submit audited financial
and spending reports every year.
Would agency time and energy be shifted to improved financial
management or better program evaluation? I suspect that would depend
on the President's and the agency's leadership and on what the
Congress demanded of the agencies.
For agency program managers, the interest in biennial budgets is
slightly different. Although preparation and analysis for the annual
budget preparation and submission process is time-consuming and
burdensome for program managers, they are likely to have a greater
interest in how long money is available for use. Especially in some
programs, such as defense procurement and education programs,
multiyear appropriations tend to smooth program functioning.
However, as noted above, the Congress has already addressed this
budget execution problem for many of these programs by giving them
some multiyear funding. While a shift of the entire cycle would ease
planning and increase predictability for all program managers,
multiyear or advance funding can be provided for those programs for
which 1-year money seriously impairs program effectiveness without
that shift.
Regardless of the potential benefits to agencies, the decision on
biennial budgeting will depend on how the Congress chooses to
exercise its constitutional authority over appropriations and its
oversight functions. Annually enacted appropriations have long been
a basic means of exerting and enforcing congressional policy.
Oversight has often been conducted in the context of agency requests
for funds. A 2-year appropriation cycle could lessen congressional
influence or control over program and spending matters, largely
because the process would afford fewer scheduled opportunities to
affect agency programs and budgets. Although it could be argued that
the existence of fixed-dollar caps on discretionary spending mean
that multiyear decisions have already been made, that is so only at
the aggregate level. The Congress has retained the right to
rearrange priorities within those caps. A shift to a biennial
appropriations cycle could lessen that flexibility.
We have long advocated regular and rigorous congressional oversight
of federal programs. Such oversight should examine both the design
and effectiveness of federal programs and the efficiency and skill
with which they are managed. Through the Chief Financial Officers
Act and the Government Performance and Results Act, the Congress has
put in place the building blocks to improved accountability--both for
the taxpayer's dollar and for results. Congressional involvement in
reviewing agency strategic plans and in develop performance
indicators will be critical to the success of these efforts.
However, it is not necessary to change the budget and appropriations
cycle to have effective congressional oversight. Indeed, as I
mentioned before, the regular appearance before Appropriations
committees historically has provided one vehicle for oversight. This
brings me back to my main point: the decision on whether the budget
and appropriations cycle should be annual or biennial is
fundamentally a decision about the form and forum the Congress wishes
to use to affect agency programs and operations.
CONCLUSIONS
---------------------------------------------------------- Chapter 0:6
We believe that multiyear fiscal policy agreements and multiyear
authorizations make a great deal of sense, but they do not require
changing the appropriations decision cycle from annual to biennial.
While biennial appropriations could save time for agencies, they
would also result in a shift in congressional control and oversight.
Proposals to change the process should be viewed partly in the
context of their effect on the relative balance of power in this
debate.
While budgeting always involves forecasting, which itself is
uncertain, the longer the period of the forecast, the greater the
uncertainty. Increased difficulty in forecasting was one of the
primary reasons states gave for shifting from biennial to annual
cycles. Dramatic changes in program design or agency structure, such
as those the Congress is considering in many areas, will make budget
forecasting more difficult. Moving from an annual to a biennial
appropriations cycle at the same time may not be wise, given that
there may be program changes which could in turn create the need for
major budgeting changes in the second year of a biennium. If this
happens, biennial budgeting would exist only in theory.
Biennial appropriations would be neither the end of congressional
control nor the solution to many budget problems. The questions for
the Congress are, how does it wish to exercise its constitutional
authority over appropriations and in what forum will it conduct its
oversight responsibilities?
-------------------------------------------------------- Chapter 0:6.1
Mr. Chairman, this concludes my prepared statement. I would be
happy to answer any questions you or Members of the Subcommittee may
have.
RELATED GAO PRODUCTS
=========================================================== Appendix 1
Budget Process: Evolution and Challenges (GAO/T-AIMD-96-129, July
11, 1996).
Correspondence to Chairman Horn, Information on Reprogramming
Authority and Trust Funds (GAO/AIMD-96-102R, June 7, 1996).
Correspondence to Chairman Kasich, Budgeting for Federal Insurance
(GAO/AIMD-96-73R, March 22, 1996).
Budget Process: Issues Concerning the Reconciliation Act
(GAO/AIMD-95-3, October 7, 1995).
Budget Issues: Earmarking in the Federal Government
(GAO/AIMD-95-216FS, August 1, 1995).
Budget Issues: History and Future Directions (GAO/T-AIMD-95-214,
July 13, 1995).
Budget Structure: Providing an Investment Focus in the Federal
Budget (GAO/T-AIMD-95-178, June 29, 1995).
Correspondence to Chairman Wolf, Transportation Trust Funds
(GAO/AIMD-95-95R, March 15, 1995).
Budget Policy: Issues in Capping Mandatory Spending
(GAO/AIMD-94-155, July 18, 1994).
Budget Process: Biennial Budgeting for the Federal Government
(GAO/T-AIMD-94-112, April 28, 1994).
Budget Process: Some Reforms Offer Promise (GAO/T-AIMD-94-86, March
2, 1994).
Budget Policy: Investment Budgeting for the Federal Government
(GAO/T-AIMD-94-54, November 9, 1993).
Budget Issues: Incorporating an Investment Component in the Federal
Budget (GAO/AIMD-94-40, November 9, 1993).
Correspondence to Chairmen and Ranking Members of House and Senate
Committee on the Budget Committees and Chairman of Former House
Committee on Government Operations (B-247667, May 19, 1993).
*** End of document. ***