Budgeting
Processes at a U.S. and Foreign Government Level
In
the United States at the Federal, State, and local levels, budgeting is a
necessity that has many implementations. Rubin (2014) discusses in her
budgeting text that often, the challenge facing many lower-level government
organizations is the fact that they depend on higher-level finances. It
behooves these lower-level entities to be creative in their budgeting because
at times, decisions made at the top will affect their revenue streams (Rubin,
2014). Still, even at the highest levels of government, accountability and
justifications play a vital role in seeing that budgets are approved, money
appropriated, and programs funded. While one would think that the President of
the United States is exempt from such economic jockeying, he too must work
within the American Democratic system. This paper will therefore examine the
constitutional powers of the President as it relates to his engagement in the
national budgeting process. Secondly, the function of the Office of Budget and
Management will be analyzed within the U.S. context and compared to other
nations’ budgeting departments.
The Role of the Presidential Office in
Creating Budget Proposals
Fisher
(2015) tells us that prior to the Budget Act of 1974, the President had
considerable power in managing the use of Federally appropriated funds. This
enraged Congress because it meant that although they did their job in creating
national budgets, the President could still squash said appropriations in favor
of pursuing a personal agenda (Fisher, 2015). A practice known as “impounding”
technically meant that the executive office could derail legislative priorities
by freezing the spending of already designated funds. According to Thomas and
Eig (2012), this impoundment process was meant to be a means by which the
President could ensure the proper spending of funds or “faithful execution of
the law” (pp. 611-612). This practice first occurred in 1941 by President
Roosevelt and later in 1949 by President Truman who led an impoundment initiative
that resulted in the stoppage of some $615,000,000 that were destined to be
spent on military activities (Goostree, n.d.).
In the midst of
growing controversy over this power, Congress passed the Budget and Impoundment
Control Act of 1974 (Watts, 2010). This move was an attempt at curtailing the
power of the President so that he could not hijack congress approved spending.
This Act served the two-fold purpose of (1) creating budgeting committees in
both the Senate and House of Representatives, and (2) establishing the
Congressional Budget Office (CBO) (Watts, 2010). The CBO is a non-partisan
representative body for both parties that performs independent studies that
enable Congress to develop more informed budgets (CBO, n.d.). Furthermore, it
should be noted that while the President belongs to the Executive branch of
Government, his decrees are still subject to Congressional approval. Congress
is the legislative branch of government tasked with creating and changing laws
and they, too, are responsible for approving the executive budget (The White
House, n.d.a). In fact, the President can veto congressional outcomes, but they
can still overrule him provided that both houses agree in a two-thirds
majority.
According to
Lisiero (2014), the constitution does not specifically grant the President a
clear budgetary authority. This ambiguity has led to the budget process
evolving over time and as Meyers and Rubin (2011) make clear, the budget
process is still undergoing changes. Currently, it is the President that first
submits the Executive budget appropriating finances for national priorities.
Secondly, the budget will go on to Congress where it will be adjusted,
modified, and ratified. Thirdly, it then comes back to the President at which
time he can sign, veto, or simply allow it to pass through as law (United
States Diplomatic Mission to Germany, n.d.). A simplified version of the budget
process can be seen in Figure 1 below:
(International
Budget Partnership, n.d.)
In the end, the President does play
an integral role in the national budget, but he is only one piece of the
political machine. It appears as though the founders of the country may have
done this intentionally to ensure a continuance of democratic values that would
consider the voices of the many versus the voice of one, even if that one were
the Commander In Chief.
The Office of Management and Budget
The President, due
to the complex nature of budgeting for such a wide variety of agencies, must
have help in preparing his economic plans. This helps comes from the Office of
Management and Budget (OMB). According to this vital department (Office of
Management and Budget, n.d.), they exist to fulfill the following five
objectives:
1. Help
develop the national budget and then execute it.
2. Manage
all aspects of how budget funds are being used.
3. Ensure
that executive agencies are fulfilling the desired agendas of the President.
4. Manage
the relationship between the Executive office and Congress. In this relationship,
the OMB ensures that information communicated to and throughout Congress is
accurate.
5. Finally,
the OMB directs “Executive Orders and Presidential Memoranda to agency heads
and officials” (para. 7).
The Encyclopaedia Britannica
(“Office of Management and Budget,” 2015) defines the job function of the OMB
as simply preparing and supervising the national budget. In addition, the
public watchdog AllGov states that this department also offers advice to senior
White House staff on relevant financial policy (AllGov, n.d.).
As this department
constitutes part of the Presidential cabinet, its director is appointed
directly by the President. In Article 2, Section 2, of the U.S. Constitution,
allowances are made so that key individuals can be instituted to advise the
President in regards to their respective areas of authority (The White House,
n.d.b). Because the Constitution does not mandate required departmental
representation in the cabinet, it allows the government to evolve alongside the
country and its dynamic needs (The White House, n.d.b). Unfortunately, therein
lays a potential concern. Given that the President appoints the OMB and any
other cabinet secretary, this individual may sense an obligation to
Presidential agendas at the expense of the country. Furthermore, this
individual is responsible directly to the President and can only be fired by
him or her (ABOUT.COM, n.d.). Under such circumstances, it becomes obvious why
transparency is important at the Federal level. Morrison (1986) contends that
this does not always happen, and at times, the OMB may even operate outside of
the eye of public and congressional scrutiny.
A second concern
that should be addressed with the OMB is the cost of projects as they relate to
the department’s bureaucracy. Morrison (1986) argues that when the OMB requests
supporting documents for projects, that process can cost the government
hundreds of thousands of dollars. In addition, the slow down in processing
budget applications means that health and security needs may lack financial
backing needed for timely implementations (Morris, 1986). Unfortunately, as
Gormley (1989) points out, politicians have many reservations when doing battle
against the OMB because of its positional importance. Gormley (1989) goes so
far as to say that politicians will attack the President before facing off with
the OMB.
Beginning
with the European Union, it is not allowed to run a deficit in the national
budget (Guess and Leloup, 2010). Furthermore, whereas it does have an executive
body responsible for creating the national budget, there is no one government
body that carries out this job function. Guess and Leloup (2010) remark that
among the various EU budget institutions, they all have a participatory role in
creating the budget, and the process of final approval will go through “formal
and informal negotiations” (p. 2237). The European Commission (2014) also
states that once the budget has gone through the approval process, it is mostly
(80%), in theory, managed by national and regional governments.
Prior
to fiscal reforms in the Former Soviet Union (FSU), Guess and Leloup (2010)
argue that budgeting was very much not a role of government. Rather than using
standard budgeting analysis of numbers, projections, and trends, the FSU’s
communist policymakers spent money on projects that would organize society
around their desired plans (Guess & Leloup, 2010). This would challenge the
FSU as it came into the free market economy because efficiency was never a part
of that national strategy (Mikesell & Mullins, 2001). What many learned
early on in reform is that historical circumstances dictated that no one
financial model was going to work for every country (Guess & Leloup, 2010).
Reform in this area of the world is still an ongoing process and in reading the
Guess and Leloup (2010) text, it appears as though while there are reform
frameworks that are helpful, much of the work is trial and error as each
country within the FSU needs to figure out what works best for them.
Lastly,
governmental budgeting in Latin America has often been associated with
excessive borrowing, corruption, inefficiencies, poor organization of
government services, and more (Guess & Leloup, 2012; Santiso, 2004). A
study of Peru revealed that only $.29 of every one dollar given to one
government program actually helped provide assistance for poor beneficiaries
(Guess & Lelou, 2012). This helps to explain why it was not until the 90s
that most countries instituted some sort of organic budget law (Curristine
& Bas, 2006). But Santiso (2004) states that reform is a “critical task for
emerging economies” (p.48). Historically, most countries have had a top down
level hierarchy responsible for budgeting that began at the executive level; however,
the research done by Curristine & Bas, (2006) shows that there is now a
near even split of countries with full executive power and those that use the
authority of the legislative branch. Thisis important due to the fact that new
research is demonstrating that more parliamentary involvement will lead to
better national economies (Santiso, 2004). Additionally, many countries in the
region also employ the use of the Central Budget Authority (CBA). According to
the Organisation for Economic Co-operation and Development (2014), this agency
is normally part of the Ministry of Finance and they are the responsible party
for managing and monitoring all aspects of the government budget. One study
found that where more restrictions existed as to how public monies could be
used, these nations experienced “lower deficit and debt levels” (The
Inter-American Development Bank, 2007, p. 172).
Conclusion
As
has been demonstrated, budget policy is a complicated process that sometimes
involves many levels of government. Most often, both the executive and
legislative branches of government are somehow involved in the overall process.
Here in the United States, the process begins at the executive level, but is
then modified to the liking of the legislative branch. The President’s powers
may be limited, although he is helped by his relationship with the OMB. The OMB
is part of the executive branch of government and tasked with creating the
initial budget that should help the President to achieve his political agendas.
The President is Commander-in-Chief, but still subject to other government
entities. The paper also looked at how other nations deal with budget issues.
From the chain of command to the department responsible for the national
budget, it seems as though there is no one size fits all budget design. Global
growth, the free market economy, and the impact of finance crisis’ all demand that
budgeting evolve and this is exactly what appears to be happening on an
international scale.
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