assignment 3

Budgeting and Public Policy

Until the 1920s, national budgeting in the United States was a disjointed activity lacking central direction. On their own initiative, departments and agencies prepared their annual budget requests. These requests were then assembled by the Department of the Treasury, without alteration, in a book of estimates and transmitted to Congress for its consideration and enactment. The president typically had little to do with agency budget requests, either prior to or after their enactment. This haphazard and fragmented budgetary process was satisfactory because ample funds were available to finance the national government’s limited array of agencies and programs. Indeed, in the later decades of the nineteenth century, the major financial problem confronting the government was how to spend all of the revenues produced by high protective tariffs so as to provide for their continued justification.

This rather idyllic situation evanesced after the turn of the century. The expansion of the national government’s activities during the Progressive Era created strong pressures on the national revenue system. The level of government expenditures soared upward during World War I, and following the Armistice, remained above pre-war levels. These changed conditions generated pressure for budget reform. The executive budget, whereby the chief executive in a government has responsibility for budget formulation, was identified as an appropriate corrective measure

After several years of study, reports, deliberation, and political struggle, Congress enacted legislation creating an executive budget, only to have it ve- toed by President Woodrow Wilson. The next year it was again adopted and signed into law by President Warren G. Harding, as the Budget and Accounting Act of 1921. The executive budget came into being. Support for it emanated from two disparate sources. Conservatives and businessmen (obviously there was much overlap) supported it as a means of retrenchment, or reducing governmental spending. Democrats, liberals, and reformers viewed the executive budget as a way of achieving more with a given level of expenditures, as a way of increasing government effectiveness.

The Budget and Accounting Act delegated authority to the president to annually prepare a budget and submit it for Congress’s approval. Agencies were prohibited from submitting funding requests directly to Congress unless specifically requested to do so. (In the 1970s, displeased with the Nixon administration, Congress adopted legislation directing several agencies to submit their budget requests concurrently to itself and the executive.)1 The Bureau of the Budget (BOB) (now the Office of Management and Budget) was created to assist the president in budget preparation, and the General Accounting Office was set up to handle the auditing of expenditures. Finally, each department and agency was directed to appoint a budget officer. Reform also occurred separately in the House of Representatives, where authority over appropriations bills, which previously had been scattered among several committees, was consolidated into a single appropriations committee. That had long been the practice in the Senate. Collectively, these reforms were designed to produce a more centralized budgeting system.

The discussion in this chapter has three purposes. First, how the bud- get and budget decisions affect public policies is discussed. Budgeting is a means, and a source of opportunities, for shaping the direction, intensity, and impact of public policies. Agency budgets may be expanded, cut back, or even “zeroed out.” Many policy issues are examined and worked over in the budgetary process. Second, the structure and operation of the national budgetary process—its participants, procedures, and practices—are examined. This will cast light on how budgetary decisions are made and what influences them. Third, we discuss the political struggle to control the budget deficit and balance the national budget, which had temporary success in the period 1998 to 2001. Also of concern here is the national debt. Some call this macro budgeting. In recent years, this has become intensely political and a major policy issue, partly symbolic, but of much importance for the operation of the economy.

The Budget and Public Policy

Once a policy or program has been legislatively authorized, its supporters cannot relax and rest content. Now they must strive to ensure that it is funded, and continues to be funded, at levels sufficient to guarantee satisfactory attain- ment of its goals. Conversely, opponents of the policy have annual opportunities to modify, cripple, or perhaps kill it by getting its funding reduced or eliminated. Consequently, once substantive legislation is enacted, the political struggle over a policy may be renewed in another arena during the appropriations process. Policy supporters must be vigilant, lest they be sandbagged in this arena.

Rare is the public policy that can be implemented without the expenditure of money. At a minimum, funding will be required for personnel, office space, equipment, travel, and other operating expenses. The rigor or effectiveness of antitrust, consumer product safety, banking regulations, industrial safety, and other regulatory programs depends on their levels of funding. Law Professor Thomas McGarity comments, “The business community discovered a long time ago that the best way to achieve regulatory relief is to starve the agencies’ budgets while maintaining the appearance of a protective regime.”

The control of illegal immigration, the maintenance of national parks, the conducting of medical research, national defense, and the collection of taxes by the Internal Revenue Service (IRS) are some activities that are significantly affected by funding levels. Increases in funding for the IRS, for instance, would enable it to collect hundreds of billions of dollars in taxes that are legally owed but go unpaid. Why not better funding for the IRS as a budget deficit reduction measure?

A stark example involves the Occupational Safety and Health Administration (OSHA), which has a legislative mandate to ensure that workplaces, which num- ber in the hundreds of thousands, are safe and healthful. It has funding, however, only to hire enough inspectors to permit inspection of workplaces on the average of once in every ten years, at best. Twenty-five workers were killed in 1991 by a fire in a North Carolina food-processing plant. The building had no sprinklers, and the fire doors could not be opened from the inside. It had never been inspected by OSHA. In April 2013, the explosion of a chemical plant in the town of West, Texas,

killed at least fourteen people and injured many more. It had not been inspected by OSHA since 1985.

Many important programs, such as Social Security, Medicare, Medicaid, and unemployment compensation primarily entail transfer payments— moving large sums of money from taxpayers to government and then to eligible beneficiaries, who spend it on goods and services in the private economy. Money is also central to the farm income-support, highway, AMTRAK, public-housing, medical-research, and Pell Grant programs. The proportion of low-income people who can receive housing assistance, for instance, depends on the amount of money made available for this purpose.

An example of how unfavorable budgetary action can cripple a policy involves noise control. In 1972, Congress passed the Noise Control Act in response to complaints about “noise pollution.” The law authorized the Envi- ronmental Protection Agency (EPA) to issue and enforce standards reducing the noise coming from industrial and commercial vehicles and products (e.g., air compressors and jackhammers) when these adversely affected human health.2 An Office of Noise Abatement and Control (ONAC) was set up in the EPA to implement the act. During the next several years, ONAC issued standards, coordinated noise research, and disseminated information. However, late in the 1970s, its efforts to reduce noise emanating from garbage trucks caused a major political stink and focused adverse attention on it.

The Reagan administration in 1981 decided to terminate funding specifically for ONAC, a decision acquiesced to by the EPA leadership and, in turn, by Congress. The ONAC, which lacked strong political allies, expired. Since then, next to nothing has been done by the EPA to carry out the Noise Control Act because the agency is strapped for resources to enforce its many other programs.3 America continues to be a noisy society, though local governments sometimes act on the problem.

At the extreme, policies without funding become nullities. Thus, Congress killed the Cold War Subversive Activities Control Program, which was an ex- pression of the anti-communism phobia of the time, not by repealing the legis- lation upon which it was based but rather by ceasing to appropriate funds for its operation. Although the Subversive Activities Control Board, which administered the program, had never succeeded in registering any subversive per- sons or organizations (e.g., the Communist Party), the program was a source of symbolic comfort for some conservatives and a source of employment for a few others for more than two decades.

Farm groups in 2002 finally secured the enactment of country of origin labeling (COOL) for meat products; fruits, vegetables, and nuts; and seafood. Intended to promote the sale of American products rather than protect con- sumers, it rested on the policy notion that, if informed, consumers would often choose domestic products over foreign products. Opponents were able to block its implementation until 2009 through riders in appropriations legislation.4

Here is another example. There has long been controversy over the slaughter of horses, whether for human food, pet food, or other purposes. Some Europeans have a taste for horse meat, but to

Americans, horses are pets, not food. In 2007, a rider in an Agricultural Appropriations Act provided that funds could not be spent on the United States Department of Agriculture (USDA) inspection of plants slaughtering horses. Without inspection the plants could not operate. Seemingly, the protectors of horses had prevailed. In 2011, however, the rider mysteriously disappeared. The controversy over horse slaughter has resumed, albeit beyond the visibility of most people.

Money is not always trump, however. Some public policies entail little or no expenditure of money, or may even prohibit its expenditure. What can be called prohibitory policies—those which impose bans on such actions as fetal-tissue research, human cloning, prayer in the public schools, and the taking of some migratory birds—have sometimes produced major political controversies. Money is not really the issue here, nor is money involved in the Defense of Marriage Act (1996), in which Congress declared that a state does not legally have to recognize a same-sex marriage performed in another state.

Some of the policies discussed in this book—the War Powers Resolution, family and medical leaves, and personal bankruptcy—are little affected by budgetary action. These policies, and others similar to them, are unlikely to receive much attention in the budgetary process. They will usually be dealt with in other policy arenas.

The national budget has grown greatly in size and complexity in recent decades. In 1960, federal expenditures totaled $92.2 billion. When Lyndon Johnson became president in late 1964, he strove to keep the budget below the $100 billion milestone. By 2012 it had soared to over $3 trillion. Even when inflation is taken into account, the budget has more than quadrupled. New policies and programs have been added and existing programs expanded during these decades. In 1960, for example, Medicare and Medicaid did not exist; and Social Security outlays were quite modest, since many people died before reaching retirement age, especially those in the working class.

Much of the growth in expenditures is accounted for by a few policy areas—national defense, social and income security, medical care, and interest on the national debt. Table 5.1 portrays expenditure patterns for several functional (or policy) areas from 1950 to 2010. It deserves a close look. In addition to providing details on major areas of spending and growth, the table indicates how spending patterns vary with changing policy preferences. The jump in natural- resource spending in the 1970s reflects the politics of environmental concern and the proliferation of environmental- protection policies. Also in the 1970s, the energy crises triggered greater spending on energy-development programs. Then, as worries about energy supplies, especially oil, faded in the 1980s, and the Reagan administration put more reliance on the private market, energy spending diminished markedly. Spending for Medicare, which went into effect in 1966, has soared because of strong support for the program, an increasing number of eligible persons, and rapidly rising medical costs.

Table 5.1 also indicates that a small set of government activities— national defense, income security, Social Security, Medicare, and the pay- ment of interest on the national debt—account

for three-fourths of total national spending. Most of these activities involve direct spending (see the following discussion) and have a lot of political support or, in the case of interest payments on the national debt, cannot be avoided. This structural feature of the national budget looms as a major obstacle to those wanting to reduce government spending.

Until the 1960s, most governmental expenditures paid the direct costs of operating government agencies and programs. Taxpayer dollars were used mostly to pay the salaries of government employees, buy vehicles and equipment, cover rent and building-maintenance costs, and the like. Consequently, most people were at best indirectly affected by budget decisions. Whether appropriations were increased for the Department of Commerce or sharply cut for the foreign-aid program had little bearing on the lives of people in Des Moines, Detroit, Dayton, or Dixon. No longer does government spending have this distant or abstract quality. Now, much of the budget goes directly to provide income support for retired persons, veterans, farmers, the needy, bondholders, and other claimants. Also, many corporations and communities have come to rely upon defense spending (or contracting) for their continued prosperity. Projected and actual cutbacks in defense spending for a few years after the end of the Cold War caused consternation in many corporate boardrooms and communities around the nation. They continue to do so.

These changes in the composition of the budget reflect changes in national policy priorities. They also have important consequences for the politics of the budgetary process. Persons directly affected by governmental programs have organized to defend and increase their benefits and have become major participants in the budgetary process. This development has made budget decision- making both more political and more difficult. AARP (formerly the American Association of Retired Persons), for instance, with its many millions of members and hundreds of staff people, strongly opposes efforts to cut back Social Security and Medicare benefits. Even in an age of trillion-dollar budgets, there is not enough money to meet all demands. As elsewhere in the political process, those who are of higher socioeconomic status and are organized tend to fare better than the poor or unorganized.

The budget conveys a good overview of the government’s total set of policies for the fiscal year it covers. In the budget, one can find or extract answers to such policy issues as the balance between private and governmental (national) spending, the balance between civilian and military spending, whether medical research (including AIDS research) will be accelerated or slowed, whether welfare spending in general as well as spending for specific welfare programs will be expanded or contracted, whether more or less regulation is planned for surface or strip-mining, and whether more or less emphasis will be given to environmental protection. This happens because the budgetary process, within the framework of substantive law, is a means for making choices among competing social values and allocating resources for their attainment. The budget is not simply a financial statement; it is also a statement of policy. Conflicts over money are usually conflicts over policy.

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. Not every policy and program will be examined in detail every year, but over a few years most, if not all, will come under scrutiny. Thus, the budgetary process provides a continuing opportunity for exerting presidential and congressional influence and control over implementation of policies. Favored agencies and programs are likely to prosper; those under attack, whether for wasting money, harassing citizens, or misconstruing policies, may suffer cutbacks and restraints.

Consider the plight of the National Endowment for the Arts (NEA). Many conservatives, inside and outside of Congress, had never been enamored with the NEA, believing that support of the arts was not an appropriate or necessary national activity. In 1989, congressional conservatives were galvanized because two art exhibits that they considered pornographic were sponsored by an organization partly funded by the NEA. (Good art, as is known, is not easily specified.) They called for “zeroing out” NEAs appropriation. With the help of the Clinton administration and congressional supporters, the NEA was able to survive, but at the cost of a severe cutback in its appropriation. For several years the NEA’s funding remained flat, hovering around $100 million annually. Only recently did the NEA’s funding begin to rebound. The conservative assault had important consequences for the agency.

Although most of the budget decisions made during a given year are incremental, involving marginal increases or decreases in agency funds, this constraint does not diminish their importance. At a minimum, they mean that an agency or program will continue to operate. Beyond that, incremental expansion of an agency’s funding, compounded over a number of years, can significantly enlarge its budget.

Fiscal Policy

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.5 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. Briefly stated, according to 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 stimulat- ing the economy. Conversely, 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.

Major reliance was placed on fiscal policy in the 1960s and 1970s by presidential administrations trying to stabilize the economy. However, the large budget deficits annually incurred by the government in the 1980s and 1990s, along with the existence of strong anti-tax attitudes, “neutralized” fiscal policy by foreclosing most major changes in taxing and spending rates.6 Some argued, however, that the deficits provided continuing stimulus to the economy. Regard- less of which interpretation is more accurate, the budgetary situation shifted the task of economic stabilization to the Federal Reserve Board (FRB) and mon- etary policy, which relies on manipulating the interest rate and money supply to influence operation of the economy. The FRB

has been especially concerned with combating inflation. Conservatives favor monetary policy because they view it as less intrusive and less likely to contribute to “big government.”

Discretionary fiscal policy came back into play to combat the major recession that began in December 2007. Monetary policy under control of the FRB had proven insufficient though interest rates had been greatly lowered. Congressional leaders from both parties and Bush administration officials, in a spasm of bipartisanship, quickly put together and adopted the Economic Stimulus Act in February 2008. Intended to “jump-start” the economy, it provided for $180 billion in one-time lump-sum tax rebates to lower- and middle-income persons and business tax breaks to encourage investment. Most of the money went for tax rebates.7 Senate Democrats had favored a more expansive bill, including funding for unemployment benefits and incentives for renewable energy initiatives. These were abandoned in the interest of speedy action and because of Republican opposition.

As it turned out, the stimulus plan did not have the intended effect. Surveys revealed that much of the rebate money either was saved or used to pay down existing debts.8 By the time the Obama administration took office on January 20, 2009, the recession had worsened. The economy was now mired in the sharpest downturn since the Great Depression. Unemployment was rising, reaching 8.5 percent in March, 9.8 percent in September, and finally reaching 10 percent.

Responding to President Barack Obama’s call for quick action on major eco- nomic stimulus legislation, in a few weeks, the Democratic-controlled Congress passed the American Recovery and Reinvestment Act (ARRA). (Work had started on the legislation weeks before the inauguration.) Although the president made appeals for bipartisan support, the act received only three Republican votes in the Senate and none in the House, despite the president’s appeals.

A massive, complex piece of legislation, the ARRA provided for $575 billion in increased expenditures and $212 billion in tax cuts and rebates.9 Some Democrats and liberals said that a considerably larger amount was needed to provide adequate stimulus to the sagging economy. Republicans contended it was too large, full of pork, wasteful, even “socialistic.” They succeeded in time in making “stimulus” an “eight-letter” word.

Expenditure programs in ARRA included infrastructure, public education, transportation, public housing, unemployment benefits, energy efficiency and research, and financial aid to the states. Emphasis was on activities that could quickly get underway (or “shovel ready,” as it was sometimes put), although these were in limited supply. Most of the tax benefits went to individuals, although some tax breaks were awarded to businesses to placate Republicans.10

Controversy persists concerning the effects of ARRA. It is difficult to assess or measure. However, Republican claims that it “did not create a single job” are obviously sheer hyperbole. Jobs were created. The Great Recession would have been worse had there been no ARRA.11

The National Budgetary Process

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. Auditing, which 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 president’s budget, which is supposed to be sent to Congress in February (in 2013 it did not arrive until early April), covers a single fiscal year. The budget year that extends from October 1, 2013, through September 30, 2014 is designated fiscal year (FY) 2014, taking its name from the calendar year in which it ends. Table 5.2 outlines the national budgetary process and indicates the time sequences involved (ideally) for FY 2014. It should be noted that from the initiation of budget preparation through the close of the fiscal year some thirty months elapse. This contributes to uncertainty in fiscal planning and decision-making.

Major Steps in the National Budget Process

Formulation of the president’s budget for FY 2014 - Agencies develop requests for funds and submit them to OMB. The president makes the final decisions on what goes into the budget - February– December 2012

Budget preparation and transmittal - The budget documents are prepared and sent to Congress - December 2012–February 2013

Congressional action on the budget - Congress reviews the president’s budget, develops its budget resolution, and approves spending and revenue bills. March–September 2013

Fiscal year begins - Budget execution - Agency officials execute the budget as enacted into law. October 1, 2013– September 30, 2014

Audit - Before or after the end of the fiscal year

The budget also covers the nine years following the fiscal year (say 2014) for which it is intended. These are called the “out years.” This practice is intended to convey information on the longer term effects of budget decisions. The further into the future, the spongier these projections are likely to be. A broad look at the FY 2014 budget is provided in Figure 5.1.

Executive Preparation

The executive budget system set in place by the Budget and Accounting Act of 1921 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. The BOB was delegated authority to “assemble, correlate, revise, reduce, or increase the estimates.” In its early years, BOB acted on the assumption that its major task was to hold down agency spending and ensure efficiency and economy in the operation of the government. This orientation continues to motivate the Office of Management and Budget (OMB).

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 depart- ments and agencies assemble their budget requests. The latter, which are di- rectly and specifically affected by budget decisions, and which are normally believers in the value and necessity of their programs, are expected to act as the advocates of increased spending (appropriations). What they request is subject to review and revision, upward or downward, by OMB in accordance with the policies and programs of the president.

Because the “policies and programs” of the president are not subject to pre- cise definition, OMB has latitude in determining what is consistent with them. Agencies sufficiently aggrieved by OMB decisions may try to appeal them to the president, who more often than not will uphold the OMB. Some presidents (Richard M. Nixon, for one) have discouraged the appeal of OMB decisions, however, thereby letting OMB make the final decisions on agency appropriations requests.

Presidents typically do not become much engaged with budgetary details. An exception was President Bill Clinton. As budget expert Allen Schick states:

Each budget bore Clinton’s imprint: he actively participated in making bud- get policy was well informed on matters in dispute, and was familiar with salient details of federal programs.... He made decisions concerning the size and direction of government, the composition of tax legislation, and the shape of policy initiatives. He invested time in mastering the details of the budget, meeting with department heads to discuss their budgets and to resolve issues that remained after OMB completed its review.12

During the early years of the Reagan administration, a “top-down” budget- ary process overlaid the traditional (“bottom-up”) budgetary pattern, except for the Department of Defense. Basic budget decisions were made at the presi- dential level by the OMB director and others and, in effect, imposed on the de- partments and agencies. This sequence meant that departments and agencies had less budgetary influence and discretion than under the former bottom-up procedure. As time went on, however, the centralization of executive authority and ideological unity necessary to make top-down budgeting workable and ac- ceptable waned within the administration. The budgetary process then inched back toward the traditional bottom-up pattern, in which the agencies have more influences on the size and content of their budget requests. Whether a subsequent presidential administration will be able to duplicate the early Reagan administration’s budgetary control is problematical.13

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. Lyndon Johnson in 1967 wanted both “guns and butter”— increased spending for both the Vietnam War and the social-welfare programs for his Great Society. Ronald Reagan in the 1980s, on the other hand, wanted less

spending for various welfare and domestic programs and more spending for national defense. President George Bush’s budget priorities in his first year in office were unclear. Campaigning for the presidency, he had advocated a “flex- ible freeze” on spending, no new taxes, and a reduction in the budget deficit. Although these goals were perhaps sufficient for campaign purposes, they did not amount to a real set of priorities. Once in office, he did little to clarify them.

Unlike his father, President George W. Bush never wavered on taxes—he was always in favor of tax cuts. However, he was not much concerned with spend- ing and signed into law several bills providing for substantially more expenditures than he had recommended. Toward the end of his second term he took a stronger stance against spending increases; details, however, were beyond his purview.14

Presidential and congressional discretion in making budget decisions is constrained by the fact that two-thirds of national expenditures are direct or mandatory in nature and do not depend upon annual appropriations. Most direct spending is accounted for by entitlement programs such as Social Security, Medicare, Medicaid, food stamps, federal retirement benefits, veterans’ pensions, Guaranteed Student Loans, agricultural income-support payments, and many grant-in- aid payments to the states. Interest payments on the national debt, while technically not an entitlement, are clearly mandatory. Entitlement programs are so called because everyone meeting the eligibility standards is legally entitled to benefit payments on the basis of a formula spelled out in law. Direct expenditures, whether entitlements or otherwise, represent continuing obligations and commitments that can be modified or eliminated only if the statutes authorizing them are amended.

Entitlement programs are typically funded by permanent, open-ended ap- propriations—that is, the payment of benefits is authorized to all who are eligible and apply, whatever the ultimate total may amount to. Surprisingly, for instance, some people eligible for Medicaid benefits do not request them.

Many of the entitlement programs are indexed to the consumer price index in order to maintain the real purchasing power of recipients. Consequently, expen- ditures for these programs automatically rise during inflationary periods. Much of the indexing was put in place during the early 1970s, when inflation was low, and consequently, automatic increases were low. As inflation became stronger, the increases became larger and contributed to rising entitlement expenditure levels. Sometimes referred to as “automatic government,” at the time it was in- stituted, indexation was a technique that policy-makers also could use to avoid being blamed for potentially unpopular decisions.15 Entitlement-program ben- eficiaries have been able to mobilize strong political support for the retention of indexation. Thus, indexation stands as another practice that inhibits the ability of the president and Congress to control expenditures or to alter budget priorities.

Much of the one-third of national spending classified as discretionary falls within the national security area and, as a political matter, even with the de- mise of the Soviet Union and the end of

the Cold War, is not subject to extensive alteration.16 Department of Defense officials and their congressional and corpo- rate allies successfully argued that reductions in military personnel and weapons procurement would weaken military preparedness and the capacity of the armed forces to simultaneously conduct two major military operations, should such be necessary. There was also concern that military cutbacks would adversely affect the economic well-being of localities that are home to defense contractors and military installations. After limited success in reducing defense expenditures in its first term, the Clinton administration shifted ground and sought increased military spending in its second term. The September 11 terrorist attack produced pressure for a major increase in defense spending (see Table 5.1). The decisions to go to war in Afghanistan and Iraq further led to increased defense spending.

All of this means that when pressures develop to cut government spending, the primary target is likely to be domestic discretionary spending, which accounts for only about one-sixth of total spending. This money goes to support a broad array of law-enforcement, education, regulatory, welfare, housing, natural-resource, agricultural, and other programs—in short, much of what government does. Spending in these areas was strongly squeezed since the 1990s because of pressure to reduce government spending in the name of deficit reduction.

A point needs to be made explicitly here before we move on. With few exceptions (the food stamp program is one), only discretionary spending programs go through the appropriations process sketched out in this section. Unless the laws on which they are based are changed, funding is automatically provided for mandatory or entitlement programs, sufficient to meet all obligations.

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. To begin, 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 (e.g., the Clean Water Act) 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. The House has had a rule since 1833 stating that “no appropriation shall be reported in any general appropriations bill, or be in order as an amendment thereto, for any expenditure not previously authorized by law.” (This rule, like other congressional rules, is sometimes waived.)

Authorization legislation is handled by the substantive or legislative committees (such as Agriculture, Commerce, and Armed Services), and appropriations legislation is the domain of

the House and Senate Appropriations Committees. Programs for which funding is authorized sometimes either go unfunded or are funded at levels lower than those authorized. The foreign- aid program has frequently been funded below its authorized level. Different committees, members, and processes in Congress can produce different policy results.

The legislative committees have sometimes circumvented the appropriations committees and the obstacles they represent by resorting to “backdoor spending,” which takes a number of forms. Backdoor spending may involve authorizing an agency to borrow money from the Treasury, which the agency can then spend. Or it may involve authorizing an agency to contract for purchasing goods and services. Subsequently, funds will have to be appropriated to cover the borrowing or contracts. The alternative would be for the government to renege on its commitments, which is highly unlikely. Entitlement spending also falls within the backdoor category. The House Appropriations Committee has been especially opposed to backdoor practices because they effectively diminish the committee’s authority over agency spending.

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 (e.g., for defense, energy and water development, interior and related agencies, and foreign operations; see Table 5.3). These are then referred to the House Appropriations Committee, which by long custom acts first on the budget. Its twelve subcommittees hold hearings, at which agency officials and others testify in explanation and defense of their budget requests, and otherwise do most of the detailed legislative work on the budget. In re- viewing agencies and their programs, the members of Congress may seek in- formation on topics such as these17:

1. Existence. Is the agency or the program necessary? Should it be modified or retained? Abstractly, it is easy to state that ineffective agencies or programs should be “zeroed out.” It is the rare agency or program, however, that does not have some supporters who are intensely committed to it and may also directly benefit from it.

2. Objectives. What are the goals of an agency or a program? Are they the correct ones? Are they appropriate for government? What does one decide when goals are multiple and conflicting? Or unclear?

3. Results. What is the program accomplishing? What societal changes (outcomes), intended or unintended, flow from it? Can the agency demonstrate results, as required by the Government Performance and Results Act? (See the chapter titled “Policy Impact, Evaluation, and Change.”) Are there complaints about agency or program operations?

4. Line-item changes. Why does the agency want more money for personnel, equipment, or other matters? Why does it cost so much to administer a program, such as predator control or airline security? What will be the costs of a proposed new program? What will be accomplished by an agency or program with increased funding?

Hearings often focus on the fourth item, which involves changes in the level of an agency’s program funding. This is both easier and more determinate than is deciding whether a program is necessary or what a program has accomplished or might accomplish. Members appear more

comfortable in dealing with the financial aspects of agency operations. They are also much interested in how an agency’s activities and expenditures will affect their constituents.

The subcommittees’ recommendations are usually accepted with only minimal change by the full Appropriations Committee. In turn, its recommen- dations are customarily approved by the House with few changes. As a conse- quence of this pattern, detailed decision-making on appropriations is handled by small groups of House members with a strong interest in the programs with which they deal.

The Senate Appropriations Committee, to which appropriations bills passed by the House are sent, does not examine budget requests as intensively as does the House. Rather, the Senate Appropriations Committee tends to focus on “items in dispute,” and serves as an appellate body to which agencies that have had their budget requests reduced in the House can appeal for restoration of at least a portion of the cuts. The Senate frequently responds positively to such pleas.

Conference committees drawn from the members of the relevant subcom- mittees are used to resolve the differences between the House and Senate ver- sions of appropriations bills. Conflict resolution here often involves “splitting the difference” between the two bills. Compromises are considerably easier to reach on money matters than on social issues such as abortion, school prayer, or gun control. The latter involve “moral” choices on which it is hard to com- promise or divide up the difference. Because its members are more specialized and better informed, and have more time and determination, the House usually does better than the Senate in appropriations conferences.18

The budgetary process also provides legislators with opportunities to pass legislation that would likely not be enacted on its own by inserting it into appropriations bills. For instance, in 2000 a lobbyist persuaded Representative Jo Ann Emerson (R, Missouri) to insert a couple of paragraphs in a 712-page appropriations bill providing for the Data Quality Act. Almost no one else un- derstood what was involved.19 The Data Quality Act has been used mostly to complicate and obstruct regulatory rulemaking, as intended. Policymaking is sometimes done by stealth.

BUDGETARY DECISION-MAKING

The 1950s and 1960s were the heyday of budgetary incrementalism.20 Economic growth made more revenue available to the government each year; consequently, most agencies requested, and the president typically recommended, increased funding for their programs for the next year. In incremental budgeting, an agency’s budget for the current year became its “base”; the additional funds sought for the next year were an “increment,” which was to be used to improve or expand its activities and which represented its “fair share” of the government’s additional revenues. Congressional exami- nation of agency budget requests centered on the increments; the frequent re- sult was a congressional decision to provide an agency with more funds than it had in the current year but less than the president’s recommendation for the next. This permitted members

of Congress to claim that they were holding down or cutting spending at the same time that they were increasing funding for public programs.

Incremental budgeting was depicted by its proponents as a good budgeting process because it lessened conflict over budgetary issues, simplified budgetary decision-making by reducing the need for information and planning, and contributed to stability and predictability in budgeting. Critics contended that incrementalism was a barrier to rational decision-making and change that it assumed a situation involving only public officials, and that it did not adequately acknowledge differences among budgetary actors in power and influence.21

Incrementalism continues to substantially characterize budgetary decision- making, although its scope has been restricted by the growth of entitlements, and for a time the reality of budget cutbacks altered the nature of the action.

Budgeting for agency and program reductions, or what budget expert Allen Schick calls decrementalism, produced conflict because of its redistributive ef- fects.22 More for one agency frequently meant less for another. Agency offi- cials were often pleased to be able to hold cutbacks to modest proportions. In 1995, the House Republican majority sought to make large reductions in some agency budgets, or to eliminate entire agencies in their quest for a smaller national government. Many of these actions were fended off or mitigated by agency supporters in the House, Senate, or executive branch.

Most budget changes, whether incremental or decremental, continue to be limited or marginal in size. Agencies and programs with strong political sup- port still fare best in the appropriations process. Budgetary decision-making can still be well-described as based on limited analysis rather than on systematic or comprehensive analysis. Incrementalism, in short, remains alive and doing well.

Baseline budgeting, though by no means comparable to incrementalism, has become an important aspect of budgetary decision-making. Essentially, baseline budgeting involves the estimation of the future budget implications of current pol- icies, taking into account inflation and uncontrollable changes such as population growth, unemployment rates, and the extent to which people eligible for program benefits will seek them.23 Changes in expenditures caused by new legislation or presidential actions are omitted from baseline projections. What the baseline pro- jection does, in short, is project, on the basis of a number of assumptions, such as the expected inflation rate and growth in target populations, the real future costs of current policies. This can be done for next year, the next five years, or some other time period. It yields what are essentially imaginary numbers.

Baseline budgeting also involves making estimates of the future revenues that will be generated by existing tax programs. These estimates will depend upon the assumptions made about the rate of economic growth, employment levels, and other economic variables. As with spending projections, revenue projections will be as sound and accurate as the assumptions on which they

are based. By manipulating assumptions, officials can increase or decrease projected future revenue and spending levels.

Although appropriate as a way for policy-makers to estimate future reve- nue and spending levels and the impact that policy changes will have on them, baseline budgeting also can be used for less laudable purposes. It can be used, for instance, to make a particular budget decision appear as a reduction or an increase, depending on one’s preference. Take the case of the Reagan administra- tion’s famous fiscal 1982 baseline budget reduction of $35 billion in domestic spending. On a current law projection, which does not figure in inflation, the amount was estimated at $10 billion, a less impressive sum. Allen Schick provides an explanation for the choice of the larger figure:

Why did the Republicans, who only a few years earlier lambasted the current policy [baseline] concept as biased and expansionary, embrace it in 1981, and why did the congressional Democrats go along with this method of measuring cutbacks? The simple but sufficient answer is that the Republicans wanted to magnify the reported savings, and the Democrats wanted the actual cuts to be less than they appeared to be. The . . . baseline allowed the Republicans to claim more savings and the Democrats to save more programs, a happy combination for politicians facing difficult choices.24

Gimmickry and symbolic action are regular components of the budgetary process.

PRESIDENTIAL ACTION

Following the completion of congressional action, appro-priations bills are transmitted to the president for approval. Although these bills were once described as “veto-proof” because the continued operation of the government depends on the spending they authorize, recent presidents have invalidated this bit of conventional wisdom. A number of appropriations bills viewed as budget-busting or inflationary, or including funding for pur- poses not favored, have been turned down by the executive. Congress must then either rework the appropriations bill to meet presidential objections or seek to override the veto.

Presidents may also use their veto power more positively by threatening to wield it on an appropriations bill under congressional consideration. This threat may induce Congress to tailor the bill to fit presidential objectives and avoid the veto, especially if congressional leaders think the votes are not avail- able for an override. This is really a form of strategic bargaining, in which the possibility of future action is used in an effort to influence current action.

Most of the nation’s governors long have had item-veto authority, which en- ables them to reject, or perhaps reduce, particular items in a spending bill while approving most of the bill. This enhances their power vis-à-vis the legislature on appropriations. In comparison, the president has had to accept or reject a bud- get bill in its entirety. Consequently, provisions for pork-barrel

projects or other matters objectionable to the president could get past him or her if incorporated in general appropriations bills that he or she felt compelled to approve.

Many presidents recommended that they be given the item veto. President Ronald Reagan, for example, frequently asserted that he would balance the budget if Congress gave him the item veto, ostensibly by rejecting wasteful pork-barrel projects. The Democratic majorities in Congress displayed scant interest in this proposal. Historically, Congress has jealously guarded its power of the purse; potentially, the item veto could produce a major shift in budgetary power from Congress to the executive.

In 1996, however, the Republican majorities in Congress, joined by many Democrats, passed the Line-Item Veto Act. They apparently saw this as a means of helping to bring government spending under control and balance the budget, matters that drew much public support.25 It was provided that the law would not take effect until 1997, by which time many Republicans thought that President Bill Clinton would be out of office. Bad guess.

The Line-Item Veto Act authorized presidential cancellation of particular discretionary spending items, including items in lump-sum appropriations that were described in the committee reports or manager’s statements accom- panying spending bills; authorization of new or expanded entitlement programs; and tax provisions affecting 100 or fewer beneficiaries. After signing the bill into law, the president had five days in which to cancel specific items. Such items, enumerated by the president in a special message to Congress, were automatically vetoed unless Congress passed a “disapproval bill” reversing the president’s cancellations. This bill was subject to a presidential veto, which in turn could be overridden by a two-thirds vote of each house. This convoluted procedure was sometimes called enhanced rescission.

Opponents of the item veto feared that it might be used extensively as a pork-slashing tool or as a means of putting presidential pressure on legislators to support his programs or face rejection of desired projects.26 As it turned out, President Clinton made limited use of the item veto. When he did veto items, members of both parties in Congress howled. In 1997, his vetoes of thirty- eight projects in a military construction bill were overridden.

The constitutionality of the item veto was quickly challenged by some ad- versely affected parties. Reaching the U.S. Supreme Court under expedited procedure, it was struck down by a 6- to-3 vote in June 1998.27 “If the Line-Item Veto Act were valid, it would authorize the president to create a different law— one whose text was not voted on by either House of Congress or presented to the president for signature,” said Justice John Paul Stevens for the Court. “If there is to be a new procedure in which the president will play a different role in determining the final text of what may ‘become a law,’ such change must come not by legislation but through the amendment procedures set forth in . . . the Constitution.”

In its short life span, the item veto had little impact on government spend- ing. Efforts to overcome the Court’s decision have gone nowhere.

The total amount of funds appropriated by Congress for a fiscal year does not deviate much from the president’s recommendation. A change of 3 or 4 percent, up or down, would be exceptional. For FY 1995, for example, President Clinton sought $1,537 billion in new spending authority; Congress appropriated $1,540.7 billion. For some agencies and programs, however, congressional action may differ substantially from the president’s requests, reflecting differences in policy priorities. In 2002, for example, the Bush administration requested a supplemental appropriation of $20 billion for antiterrorism programs. Of this sum, $7.4 billion was allocated for defense programs, $7.1 billion for disaster recovery in New York and other states, and $5.5 billion for homeland security. Unsuccessful in their efforts to appropriate a larger amount, the Senate Democrats altered the Bush request. As enacted, the appropriation provided $3.5 for defense, $8.2 for disaster recovery, and $8.3 billion for homeland security.

Action on all the appropriations bills, including presidential approval, is supposed to be completed before the beginning of the fiscal year on October 1. It is quite common, however, for some or all of the bills to be pending on that date. Only three of the appropriations bills for FY 2009 had been adopted when it began on October 1, 2008. In 2012, Congress “worsted” this performance by enactment of none of the appropriations bills by the start of FY 2013.

When this sort of inaction occurs, a continuing resolution (CR) will be needed to preclude shutdown of the unfunded agencies and programs. Con- tinuing rules have been used for many decades. A CR may cover a few agencies or programs or it may take omnibus proportions and cover several or all of the appropriations bills. Under House rules, CRs are not considered to be regular appropriations bills. Consequently, just about anything can be stuck in them— unauthorized appropriations, substantive legislation, pork-barrel projects— without being subject to points of order and removed. Spending authorized by a CR for agencies and programs is usually the lower of either the previous fiscal year level or the president’s budget recommendation.

More often than not, Congress has not enacted all of the appropriations bills before the beginning of the fiscal year. These unpassed bills may then be combined in a large omnibus bill. Thus, nine of the appropriations bills for FY 2009 were joined in a 1,100-page omnibus bill and enacted in March 2009, some five months after the inception of the fiscal year. This practice departs from the standard that appropriations bills should be separately enacted. It also makes it more likely that many members will be poorly informed about what they are voting on. Omnibus bills often serve as the vehicles for legisla- tion (riders) that could not move independently through the legislative process. And they were sometimes loaded down with earmarks; there were more than 8,000 in the 2009 omnibus bill. Since then, Congress has mended its ways.

Some technical aspects of budgeting now need to be confronted. An appropriations act 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. When Congress considers and acts on presidential budget requests, the focus is on BA (a.k.a., appro- priations).

Discussion of budget deficits and surpluses, however, are concerned with outlays (or money that is actually paid out). The money that an agency obligates itself to pay out in a given fiscal year, however, may not actually go to the recipient until the next year or later. Many Department of Defense purchases of complex weapons systems may be paid to contractors over the course of several years. Many appropriations are for the current budget year only. If the money is not obligated, the agency loses it. Hence, “September buy- ing” occurs. Also, budget authority may be good for a multiyear or indefinite period of time (a “no-year” appropriation). Thus, outlays or expenditures for a given fiscal year cannot be precisely known until after the year is over.

The relationship between appropriations and outlays is illustrated in Figure 5.2. In a given year, FY 2014, for instance, the money spent (outlays) will come from both that year’s budget and previous budgets (in the form of unspent authority). Also, some of the funds appropriated for FY 2014 will actually be paid out in later years. Once money gets into the pipeline— that is, once expenditures are authorized—tremendous pressure grows to spend the money. If one wants to choke off government spending, the best time to act is at the appropriations (or authorization) stage in the budgetary process, before money enters the spending pipeline, but even then it is politically difficult.

THE CONGRESSIONAL BUDGET PROCESS

In the decades immediately after World War II, the budgetary process had again become somewhat disjointed and chaotic. Appropriations and revenues were considered separately by differ- ent committees and processes. The budget surplus or deficit for a fiscal year was an “accidental figure,” determined only when all the appropriations bills, considered separately, were enacted, totaled, and compared with available revenue. Dissatisfaction with this situation, concern about the rapid growth of governmental spending and continued budget deficits, and a desire for greater congressional attention to the fiscal-policy implications of the budget contributed to adoption of the Congressional Budget and Impoundment Control Act of 1974.28

The budgetary reform provisions of the act provide for a congressional budget process to coordinate the decentralized process by which bud- get decisions in Congress had been made. This procedure involves setting overall levels of revenues and expenditures and establishing priorities (and spending limits) among functional areas (such as agriculture, international relations, and transportation) included in the budget. New budget commit- tees were created in the House and Senate to handle these tasks, subject to approval by the full houses. To assist the budget committees in their work, and to provide Congress with its own source of budgeting data and studies, a Congressional Budget Office (CBO) was established. The CBO has typcally been more accurate than the OMB in making budgetary estimations and economic forecasts.

Based on their review of the president’s budget proposal, and on information from CBO and other congressional committees, the budget commit- tees produce a concurrent budget resolution that sets overall levels of budget authority, outlays, revenues, and the budget surplus or deficit.29

The budget resolution also specifies spending ceilings for each of the functional areas. It is supposed to be passed by April 15, although this is rarely achieved, and it does not require presidential approval. The appropriations committees are then expected to perform their scrutiny and evaluation of agency budget requests within the policy framework provided by the budget resolution. In some years, Congress has been unable to pass budget resolutions because of House–Senate, Democratic-Republican differences.

Reconciliation legislation is subsequently adopted in most years to ensure that the revenue goals and spending limits in the budget resolution are actually met. In the reconciliation process, the taxation and the legislative commit- tees propose changes in existing tax laws and entitlement programs (usually to increase revenues or cut spending by specified amounts). These proposed changes are packaged by the budget committees into a single omnibus reconciliation bill, which must be adopted by both houses and, unlike the budget resolution, signed into law by the president. Reconciliation, which makes permanent changes in the affected policies and programs, has been used to cut entitlement spending, increase taxes, modify discretionary programs, and sell government assets.30

Reconciliation was first used in 1980 under the Carter administration to make a modest reduction in the budget deficit for FY 1981. The next year the Reagan administration and the Republican leadership in Congress employed reconciliation to impose a $35 billion cutback in baseline spending. This constitutes the most sweeping use of reconciliation to the present time.

The Congressional Budget Process

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

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

May–July House completes action on appropriations bills

July–September Senate acts on appropriations bills; conference committees resolve differ- ences; appropriations are enacted.

September. Reconciliation legislation enacted if needed.

October 1 Fiscal year begins; continuing resolutions are passed if all appropriations have not been enacted

Observers seem to agree that the new budgetary process has improved the quality of congressional decision-making on the budget. More and better budgetary information is available to Congress. Budget decisions are more fully considered and debated, and members of Congress are compelled to address the overall dimensions of the budget. The budget decision-making process has been made more complex by the new procedures and participation by the budget committees. Conflict sometimes occurs between the budget committees and the appropriations and tax committees. The House Appropriations Committee, once famed for its role as “guardian of the Treasury,” and its subcommittees have consequently become more protective of their members’ favorite agencies and programs. This change in committee behavior illustrates one of the propositions of systems theory, namely, that change in one part of a system will produce changes elsewhere in the system.

Budget Execution

The obligation and actual expenditure (or outlay) of funds, once appropriated, rest with the various departments and agencies. To begin spending, however, they must first secure an apportionment from the OMB, which is authorized by the Antidefi- ciency Act of 1905, as amended. 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.”31 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 discretion that officials have in spending funds and achieving objectives is significantly affected by the language included in appropriations laws. Executive officials prefer to have broad discretion to decide whether to spend funds or to shift funds among programs (reprogramming). Congress does sometimes provide agencies with “lump-sum” or very broad appropriations that confer much spending leeway, albeit within boundaries set by the sub- stantive legislation governing agency action.

Figure 5.3 is the section of the 2010 Agriculture Appropriation Act pertaining to the Animal and Plant Health Inspection Service (APHIS). The amounts of money that can be expended on various programs are specified some limitations and conditions are imposed, and some transfer of funds from other Department of Agriculture programs is permitted. Some of the money is available to the agency until expended. This is a “no-year” appropriation. The agency is also authorized to collect fees for some of its services and retain them until expended. The president’s budget contains more information about the programs and activities of APHIS.

In recent years the Congress, under Republican leadership, has frequently included, or tried to include, specific restrictions in appropriations laws. Such provisions are negatively phrased, that is, “None of the funds provided in this Act shall be used for [a specified purpose].” These

provisions, in effect, make policy in the guise of spending limitations. A classic example of a limitation provision is the Hyde amendment (named for former Representative Henry Hyde, R, Illinois), which provides: “None of the funds appropriated under this act shall be expended for any abortion except when it is made known to the federal entity or official . . . that such procedure is necessary to save the life of the mother, or that the pregnancy is the result of an act of rape or incest.” This provision has been included in several appropriations laws.32

The committee and subcommittee reports accompanying appropriations bills are commonly used to specify how members of Congress think funds should be spent and to help shape policy. The following example comes from the House Appropriations Committee’s report on the annual appropriation for the Food Safety and Inspection Service (FSIS), located in the Department of Agriculture. FSIS has responsibility for regulating the meat and poultry in- dustries to ensure that meat and poultry products are safe, wholesome, and accurately labeled.

The Committee believes a HACCP regulatory reform process is needed to maintain the production of a clean, safe, quality meat product that ensures consumer confidence. The Committee believes its objective of timely implementation of regulations that make the strongest practicable improvement in food safety is dependent upon the development of work- able, scientifically sound rules. Therefore, the Committee has included language directing the Department to convert the rulemaking on Pathogen Reduction, Hazard Analysis and Critical Control Point (HACCP) Systems, the so-called “MegaReg,” to a negotiated rulemaking procedure. The Committee expects that the Department will be able to develop more effective food safety rules due to the quality of input this procedure will permit regarding issues addressed in this rulemaking and related regula-tory requirements. Further, the Committee directs the Department to pro- ceed expeditiously with this rulemaking to avoid significant delay in the promulgation of modernized meat and poultry regulations. Specifically, the Department is expected to act promptly to initiate a negotiated rule- making and to require a report from the negotiated rulemaking committee within nine months of its establishment.33

The negotiated rule-making specified by the committee in its convoluted language is authorized by the Negotiated Rulemaking Act (1990). Here, it was intended to provide meat-industry groups with greater opportunity to intervene and soften the content of new meat and poultry regulations. Designed to reduce bacterial contamination, the new rules did not bear down as hard on the meat-packing industry as consumer groups had hoped, though they were better than the “poke and sniff” method. Also, the new rules could be enforced more stoutly.

The funding of pork-barrel projects that benefit particular localities or groups—such as a railroad museum, a blueberry research program, re- search on reduction of hog manure odor, or a highway interchange—was also frequently provided in committee reports. There it may be stated that the committee hopes, expects, or directs that funding will be used for specified purposes. Although committee and subcommittee reports are not legally binding on agencies, it is impolitic for officials to ignore them. Members of Congress may subsequently call to account those who disregard committee instructions.

The practice of presidential impoundment of funds has frequently stirred controversy with Congress.34 The first impoundment on record was made by President Thomas Jefferson, who withheld funds for a couple of gunboats to operate on the Mississippi River. With the Louisiana Purchase in 1803 and the departure of the French from the New World, there was no longer need for them. Since then, presidents have claimed and exercised authority to pre- vent expenditure of funds for purposes they disagreed with on budgetary or policy grounds. Presidents Truman and Eisenhower refused to spend funds for military programs that they had not requested. President Lyndon Johnson impounded billions of dollars to combat inflation, although much of what he held back was subsequently released. Until the 1970s, impoundment was usually done on a selective and limited basis, and although some dissatisfac- tion was created and voiced in Congress, major confrontations were avoided.

President Nixon, however, precipitated an intense political conflict over impoundment that made it a high-priority item on the national policy agenda. Following his reelection in 1972, he decided to use an administrative strategy to “take on the bureaucracy and take over the government.” One facet of this strategy entailed extensive impoundment of appropriations for water-pollution controls, mass transit, food stamps, medical research, urban renewal, agricultural programs, and highway construction. These impoundments “were unprecedented in their scope and severity.”35 Numerous rationales were provided, including the need to prevent the inflationary effects of “reckless” spending and the existence of inherent and implied executive power under the Constitution to take such action. In various instances, however, it was apparent that presidential impoundment was simply being used to reduce or eliminate congressionally authorized programs of which the administration disapproved. Nearly all the impoundments were chal- lenged by adversely affected parties and were held to be illegal by the federal courts.36

Congress was provoked into action by the Nixon impoundments and included some controls on impoundment in the 1974 budget law. Under the act, a deferral of expenditures, in which the executive seeks to delay or stretch out spending until a time in the fiscal year when it is needed, could be done unless or until either house of Congress voted to disapprove. In contrast, an executive rescission of funds, which cancels budget authority and thus stops the expenditure of funds, becomes effective only if, within forty-five days of notification, both houses pass a rescission bill. In actuality it is not always easy to distinguish deferrals from rescissions. Overall, the new impound- ment procedures gave Congress more (and the executive less) authority over spending and made appropriations legislation more of a mandate for agen- cies to spend allocated funds.

In Immigration and Naturalization Service v. Chadha of 1983,37 a case involving a minor immigration matter, the Supreme Court declared unconstitutional the use of the legislative veto. The legislative veto was held to permit Congress or its committee to disapprove rules or actions of executive agencies and officials, such as deferral of spending, in violation of the Constitution’s presentment clause, which requires that bills must be presented to the president for approval or veto before they become law. Did this ruling mean, then, that the president could still engage in deferral of spending although Congress, if it so desired, could not veto the actions?

This issue came to a head when President Reagan moved to defer expenditure of $5.1 billion for housing and related aid to low-income people. This action was quickly contested in the courts. In May 1986, a federal district court, later upheld by an appeals court, ruled that the president no longer had deferral authority under the 1974 bud- get law. Both courts took the view that Congress would not have given deferral authority to the president without retaining a legislative veto for itself. Hence, when the legislative veto perished, deferral authority for the president, based on policy or programmatic premises, also bit the dust. Deferrals based on the Antideficiency Act are still permitted. These provide for contingencies or take into account savings made possible through changes in requirements or efficiencies in operations.38

The problem pointed up in the controversy over deferral applies to the budgetary process generally: What is the appropriate balance between presi- dential discretion and congressional control in spending? In cases of conflict, whose judgment should prevail? It would be much easier to answer these questions if only managerial matters were at stake. As we have seen, though, the budget is a policy document that reflects major policy values and pri- orities, a characteristic that makes budgetary decision-making much more contentious.

Among others, economists disagree about the importance of budget defi- cits and their impact on the economy. Historically, however, popular belief in the desirability of a balanced federal budget has persisted. A balanced budget has been seen as emblematic of “prudent management,” as a source of restraint on government, and as necessary to prevent shifting the costs of government to future generations. The notion that government, like a family, cannot live forever beyond its means is conventional wisdom. Almost all the American states constitutionally require an annually balanced budget. Most public officials have thought it wise to pay homage to the goal, sooner or later, of a balanced budget. Balancing the budget has often become a political issue, with the “out” part.