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The Process through which the Federal Government makes its Budget
The US federal budget is designed to accommodate the majority of Americans regarding their values and socioeconomic status. To ensure that the budget conforms to Americas democratic values, it passes through a lengthy and complicated process. For instance, the Congress members who are elected as representatives of the people take part in the budget process. The federal budget process should be seen as a four-phase cycle. The first phase involves planning by the federal agencies where they estimate their spending for the pending fiscal year. The Office of Management and Budget performs the second phase. Collectively, the first and second phases are referred to as the Presidents Budget Formulation. The third phase involves appropriations for expenditure by the US Congress. Lastly, the fourth and fiscal step involves assent by the president and the subsequent implementation of the budget as of October 1. This process is broken down into 5 major steps below.
With the authorization legislation in place, the president submits a proposed budget in the form of a request to the legislative body. This process is accomplished each February. It concerns the budget for the fiscal year beginning on October 1 the same year. Next, the House Committee on the Budget and the Senate Commission on the Budget present a vote regarding their budget resolutions. The process begins with the creation of an authorization bill by the parliament. This bill allocates funds the way they should be spent by the federal government. The federal government is bound by this allocation. Since authorization bills can cover several years, the Upper House doesnt need to create one every year. A budget resolution is a non-binding proposal containing budget estimations, which are only used by Congress as a guide on expenditure allocations (Gerston, 2014). At the third ( Markup ) stage, the house appropriations committees debate on the proposed budget by marking areas that need to be amended or rewritten.
The fourth stage occurs after recommendations are obtained from the 12 budgetary committees from each house. During this stage, both full houses (House and Senate) deliberate on the proposed bill and the changes proposed by the appropriation committees as they seek to reconcile any differences between the two frameworks. The final step involves the presidential assent, which occurs after all 12 appropriation bills have been approved by the Upper House. The assent by the president signifies that the budget process is complete. Of importance is the fact that in most cases, Congress will not have passed all appropriation bills by October 1.
Major actors in the budget-making process include federal agencies, the president, senate, and house appropriation committees. One of the strategies used by the budget makers is to allow more than one budget to operate at the same time. As such, three budgets are usually in operation at any given time. For example, in the current scenario, the federal agencies are executing the budget for the 2017 fiscal year while the senate is carrying out appropriations for the 2018 fiscal year budget. At the same time, the presidents office and relevant federal agencies are preparing the budget request for the year 2018. Challenges incurred in the process include the failure by Congress to approve some federal expenditures, especially if the president is from a different party other than the majority of the Congress members. This situation may limit the presidents ability to perform.
The US Federal Budget Process and State/Local Budgeting
The federal and state budgeting processes have key differences. To begin with, state budgets are not allowed to contain a deficit. Instead, they must be balanced. In other words, a state cannot create a budget that is larger compared to its revenue. On the contrary, the federal government is authorized to incur deficits. As such, it can borrow money to offset the difference. This borrowing is done in full realization that the federal government can face emergencies that force it to spend more money relative to what is provided for under the federal budget. Another difference between the federal and state budgets is that the US Constitution allows the federal government to carry out practices such as printing money and/or issuing of currency. Conversely, local and state governments are not authorized to print money in the event they incur deficits.
State and local governments have the capital and operating budget. The operating budget is funded by the state while the capital budget is financed through authorized borrowing. The federal government does not have a distinguished budget. Instead, it operates a single large budget. Another difference occurs regarding military spending, which is majorly a reserve of the federal government. It is authorized to spend on a huge defense budget to meet requirements such as paying military personnel, purchasing military equipment, and carrying out military operations (Birkland, 2014). In contrast, state governments enjoy only an authorized minimum spending that is limited to funding the State National Guard.
Aaron Wildavsky: The Theory of Budgeting is a Theory of Politics
Aaron Wildavsky took the view that the budgeting process was tied to politics to the extent that the latter (politics) dictated the amount of revenue that would be allocated for a given project. Thus, he was opposed to the normative theory of budgeting that he felt was too abstract to be applied in practical situations. According to Wildvasky, this situation occurs because political interests always take precedence regarding how national resources must be utilized (Lee, Johnson, & Joyce, 2012). At the same time, he believed politics to be the wisdom of finding ways to exist together as people, despite possessing different ideologies. As such, an effective budget should facilitate this endeavor. Synoptic budgeting and any similar reforms would only succeed at increasing disagreements.
Wildavsky advised that it would be wise to seek ways to make politics effective rather than attempting to replace it. In his theory of budgeting, Wildavsky also opined that the most important element in preparing a budget was the previous one, which he called incrementalism budgeting. Incrementalism is different from relying on a rational decision made by policymakers as it is witnessed in the case of normative budgeting theory. I agree with Wildavskys view of public budgeting. The budget process is not strictly a reflection of the economic situation in the country. On the contrary, it is shaped by the politics of the day. In other words, politics cannot be divorced from the budgeting process.
Line-Item Budgeting, Performance Budgeting, Planning Programming Budgeting System (PPBS), and Zero-base Budgeting (ZBB)
Line-Item Budgeting
Line item budgeting is an accounting procedure whereby financial statements are categorized according to departments or cost centers. It indicates a comparison of financial data for past budget periods against those of the current and future budget periods. One advantage of this type of budgeting is that it provides simplicity where budgeting is restricted to a single area such as a department. Also, since the proposed expenditure depends on historical needs, the justification for the budget is easy. This case prevents disputes among departments. On the other hand, the line-item budget has certain disadvantages. First, it leads to a superficial analysis of spending since budgets are only prepared based on past needs. Hence, a budget may be adopted simply because it worked in the past without due consideration of the ramifications that could occur with time (Lienert, 2013). Another disadvantage is that this kind of budgeting encourages rush spending whereby departments unnecessarily spend unused funds to avoid returning them to the treasury.
Performance Budgeting
According to Martí (2013), performance budgeting is a type of financial planning, which shows a correlation between resources utilized and services obtained for all the units in a department. The government commonly uses it when attempting to account for how public funds have been utilized. The advantages of performance budgeting include easy prioritization and accurate estimation of costs. Disadvantages include the absence of a standard cost system and inflexibility, a situation that makes it difficult to manage emergencies.
Planning Programming Budgeting System (PPBS)
PPBS is an analytical budgeting process that seeks to quantify programs, projects, and goals. It is preferred over the other types of budgeting processes discussed above. One of the key advantages of PPBS is that it is a goal-oriented approach to budgeting. In this case, the goal is to provide people with the desired government services for sustainable living. In the US, this type of budget is majorly used in the Department of Defense. Another advantage of PPBS is that it allows planning for a longer period of up to six years. On the other hand, its disadvantages include the inability to adequately analyze all the multiple items presented by PPBS. In other words, PPBS is a complex process to fund and implement. Also, policymakers and politicians view PPBS as limiting their discretion regarding the number and nature of policies they can pursue at a given time.
Zero-Base Budgeting (ZBB)
ZBB is a budgeting procedure that allows room for all expenditures to be justified at the beginning of the fiscal year. In other words, according to McNally (2017), budgeting commences from a zero-base. Hence, each function within a department is computed based on its demands and costs. The budget is then designed as per the prevailing needs. However, it is irrelevant whether it emerges higher or lower compared to the previous budget. As an advantage, McNally (2017) confirms how ZBB is flexible since allocations for a new phase are not limited to past periods. Secondly, it leads to the lowering of costs. Besides, it is also easier to implement. Its major disadvantage is that it requires large amounts of resources. Also, experienced managers can easily manipulate ZBB. Finally, ZBB tends to be biased toward planning for the short term.
From the above discussion, I believe ZBB is the most suitable budget for the modern needs of a country because of the unpredictable nature of the economy. As observed, ZBB is not tied to past budgeting periods. Moreover, it can be used for planning for a long period, a situation that paves the way for efficient budgeting.
References
Birkland, T. A. (2014). An introduction to the policy process: Theories, concepts and models of public policy making. London, England: Routledge.
Gerston, L. N. (2014). Public policy making: Process and principles. London, England: Routledge.
Lee, R. D., Johnson, R., & Joyce, P. (2012).Public budgeting systems. Burlington, MA: Jones & Bartlett Publishers.
Lienert, I. (2013). Role of the legislature in budget processes: The international handbook of public financial management. Basingstoke, UK: Palgrave Macmillan.
Martí, C. (2013). Performance budgeting and accrual budgeting. Public Performance & Management Review, 37(1), 33-58.
McNally, J. (2017). Zero-based budgeting: building for success again, and again, and again. Pennsylvania CPA Journal, 1(1), 37-42.
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