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									Government Budget Structures
      and Institutions

           M A R I LY N R U B I N , P H . D .
            J O H N J AY C O L L E G E

               S E P T E M B E R 2 0 11
      What is a Government Budget?

 A government’s budget is an itemized summary of
 estimated or intended expenditures for a given
 period along with proposals for financing them
Historical Context of Budgeting in the U.S.

 The origins of public budgeting in the U.S. was
 influenced by early English history

 In England, a large leather bag was used by the
 king’s treasurer to carry the documents explaining
 the king’s fiscal needs

 The bag was called the “budget” from the French
 word for “leather bag”
          Parliament and the King

 The King of England and the Parliament often
 disagreed on the budget

 Because of this, the U.S. Constitution incorporated
 what are called the “separation of powers” with three
 branches of government each having its own
 responsibilities and powers
  The Executive Branch of Government

 The executive branch is responsible for enforcing the
 laws of the land

 The executive branch includes the president, vice
 president and department heads who are members
 of what is called the president’s “cabinet”
     Legislative Branch of Government

 ArticleI of the U.S. Constitution establishes
 Congress as the legislative or law making branch of

 Congress is made up of two separate entities - the
 Senate and the House of Representatives
      Judicial Branch of Government

 The judicial branch of government is comprised of

 Courts decide arguments about the meaning of laws
 and how they are applied.

 They also decide if laws violate the Constitution
            Separation of Powers

 Under separation of powers, the powers of the three
 branches of government in the U.S. - executive,
 legislative and judicial - are kept separate and

 The separation of powers establishes the framework
 for the U.S. federal budget process
                  Before 1921

 Prior to 1921, the U.S. Congress – the legislative
 branch – dominated the budget process

 The U.S. Constitution gives Congress the power to
 levy taxes and provides that money may be spent
 only as allowed by law
Bringing the Executive Branch into the Process

 The Budget and Accounting Act of 1921 gave the
 President – the head of the executive branch of the
 federal government - a formal role in the budget

 The 1921 Act specifically required the President to
 submit an annual budget to Congress – the
 legislative branch of the federal government
                  The Fiscal year

 The President’s budget has to be submitted for each
 upcoming budget year by a certain date

 The budget year is referred to as the “fiscal year”

 The 1921 act established the federal fiscal year from
 July 1 to June 30th

 The federal fiscal year is now October 1st to
 September 30th
        Other Results of the 1921 Act

 Strengthened the role of the President

 Created the Bureau of the Budget (BOB) to help the
 President create and manage the budget

 Established the General Accounting Office (GAO) to
 provide budget oversight. GAO             is   now   the
 Government Accountability Office
           Bureau of the Budget

 BOB  would eventually become the Office of
 Management and Budget (OMB), one of the most
 powerful units in the federal government structure

 All agencies in the federal government have to
 submit their budgets to OMB not directly to
Government Accountability Office(GAO)

 GAO is the Congressional agency established to hold
  accountable the operations of federal agencies

 It is the “external     auditor”   for   the     federal
The Budget & Impoundment Act of 1974

 Established budget committees in the House of
 Representatives and in the Senate

 Established Congressional Budget Office (CBO) to
 provide both houses of Congress with staff having
 expertise similar to OMB

 President to submit base line budget and functional
 classification budget
  The Budget Enforcement Act of 1990

 Established mandatory and discretionary spending

 Discretionary spending categories include spending
 that needs an annual congressional appropriation

 Mandatory spending is established by legislation and
 does not need an annual appropriation
   Budget and Enforcement Act (Cont)

 Set up pay-as-you-go (PAYGO) requirements for
 mandatory     spending    categories   and     revenue

 Established discretionary spending controls
           The Federal Budget Process

 All three of these acts set the parameters for the
 today’s federal budget process
The Four Stages of the Federal Budget Process

Phase 1: Executive Preparation

Phase 2: Congressional Consideration

Phase 3: Budget Execution

Phase 4: Budget Audit/evaluation
         Phase I:Executive Preparation

Three sets of participants:

    OMB
    The President
    Federal agencies
                 The President

 1921 Budget and Accounting Act provides the legal
 basis for the formal role of the president in the
 federal budget system

 The Act say nothing about how the budget should be

 Each president brings his own style into the budget
The Office of Management and Budget (OMB)

 OMB is the Federal government’s central budget

 The OMB Director is appointed by the President and
 confirmed by the Senate

 OMB issues budget guidelines for all parts of the
 federal government

 OMB consolidates all agency budget requests that
 make up the President’s budget
                  The Agencies

 Develop requests according to their own procedures
 but in accordance with OMB guidelines

 Adjust requests in consultation with OMB staff
President’s Budget Submitted to Congress in Three

 Base Line

 Agency–based

 Functional Area
                 Base Line Budget

 Base-line   budget also called “Current Services

 Tells what budget levels would be if no policy
 changes were to occur in the new fiscal year
            Agency-Based Budget

 Budget requests are by departments and agencies in
 these departments

 An example of a Department is the Department of

 An example of an agency in the Department of
 Commerce is the Bureau of the Census
                Functional Area

 A functional area budget is presented by “function”
 or national needs

 A function must have a common end or ultimate
 purpose addressed to an important national need,
 e.g., national defense

 A functional area budget crosses department and
 agency lines
    From the President to Congress

 The President is required to submit to Congress a
 proposed budget by the first Monday in February

 The President's budget serves as a "starting point"
 for the Congress to consider. Congress is under no
 obligation to adopt all or any of the President's
 budget and often makes significant changes
 Phase II: Congressional Consideration

 The Congressional phase of the budget cycle is
 fragmented and complicated

 Four sets of committees in both houses of Congress
 have budget functions
          House of Representatives

 Budget Committee

 Appropriations Committee (with 12 subcommittees)

 Ways and Means Committee

 Authorization Committees

 Budget Committee

 Authorization Committees

 Appropriations Committee (with 12 subcommittees)

 Senate Finance Committee
         Congressional Committees

 Budget Committees –budget resolution

 Appropriations Committees – appropriations bills

 Authorizing Committees –Authorizing and direct
 spending legislation

 Revenue Committees –revenue legislation and some
   The Congressional Budget Process

 The President’s budget is a “starting point” for the
 Congressional Budget Process

 Within six weeks of the President’s budget
 submission, congressional committees are required
 to submit their “views and estimates” of spending
 and revenues within their respective jurisdictions to
 the House and Senate Budget Committees
     Congressional Budget Resolution

 Views and estimates, along with information from
 other sources, is used by each Budget Committee to
 draft and report what is called the budget resolution
          Budget Resolution (cont.)

 Although it also does not have the force of law and
 does not have to be signed by the President, the
 budget resolution is an important part of the budget
 process in Congress

 The budget resolution sets the overall size of the
 federal budget, and establishes budget priorities
          Budget Resolution (cont.)

 Both House and Senate Budget Committees hold
 hearings on the annual Budget Resolution.

 The committees hear testimony from          Executive
 Branch officials, members of Congress and expert
 witnesses. Based on testimony and their own
 deliberations, each committee writes or "marks-up"
 its respective version of the Budget Resolution
          Budget Resolution (cont.)

 Once the Budget Committees have reported their
 budget resolutions, the full House and Senate take
 action. The Budget Act outlines the procedures for
 floor consideration of the budget resolution in both

 After  appointing conferees and reaching a
 conference agreement both the House and the
 Senate must pass (by majority vote) the conference
 report on the budget resolution
            The Expenditure Side

 The amounts set forth in the Budget Resolution by
 functional area (e.g., education) are translated into
 allocations to each appropriations committee with
 jurisdiction over spending in a process called “cross
                Cross walking

 Cross    walking takes the functional area
 appropriations and translates them into dollar
 amounts for agencies that deliver programs and
       The Appropriations Process

 Congress’s annual appropriations process provides
 funding for discretionary spending        programs
 through 12 regular appropriations bills

 Congress must enact these measures prior to the
 beginning of each fiscal year or provide interim
 funding through a “continuing resolution”
                 The Revenue Side

 The budget resolution provides guidelines for the
 overall level   of revenues,    but   not   for their

 Legislative language controlling revenues is reported
 by the Ways and Means Committee in the House of
 Representative and the Senate Finance Committee
       Phase III: Budget Execution

 During execution, agencies carry out their approved

 Appropriations are spent and services delivered

 Spending takes place in a manner consistent with
 appropriation laws which may be amended by
      Phase IV: Audit & Evaluation

 An audit is an examination of records, facilities,
 systems and other evidence to verify desired

 The audit seeks to discover deviations from accepted

 May be internal to an agency or conducted by GAO
   The Federal Reserve System: U.S. Central Bank

 Under the Federal Reserve Act of 1913 and
  amendments over the years, the Federal Reserve
  System Conducts America's monetary policy
 It maintains the stability of America's financial
  system and provides financial services to the U.S.
  Government, the public, financial institutions, and
  foreign financial institutions
 The Federal Reserve is independent of the
    State and Local Government Budgeting

 The U.S. Constitution does not say anything about
 state and local government budgets

 The 50 U.S. states are autonomous with regard to
 their budgets

 Local governments are “creatures of the states” with
 regard to their budgets, but states can allow some
 degree of autonomy
      Colombia Structure of Government

 Executive branch
      President is both the chief of state and head of
 Legislative Branch
     Bicameral Congreso: Senado (102 seats and the
  Camara de Representantes (166 seats)
 Judicial branch
     The Budget Process in Colombia: the Legal

 There were several laws that impacted Colombia’s
  budget process dating back to 1923 when a modern
  procedural rule was approved for the budgetary
  processes (Ley 34, July of 1923). This law is the
  origin of the budgetary practices that are still in
  operation in Colombia today
 Major changes in the budgetary process were
  introduced by the new Constitution of 1991.
    1991 Constitution and the Central Bank

 The Central Bank was granted autonomy.
 The Bank is the independent authority in Colombia’s
  monetary, credit and exchange matters.
 The Constitution prohibits Central Bank credit for
  the public sector, except to provide liquidity to the
  financial sector and when the bank is a bank of last
   1991 Constitution and the Budget Process

 The new Constitution added to the transparency of
  the process by requiring that the budget submitted to
  Congress and the budget law that it would eventually
  approve should include all the expenditures and
 It prohibited off-budget expenditures and subjected
  all taxes to congressional approval.
 1991 Constitution and the Budget Process (Cont’d)

 The Constitution did not call for a balanced budget
  but called on government to raise the additional
  revenues required in a separate project to balance
  the budget
 If this is not achieved, the Constitution gave the
  executive branch the power to cut expenditures until
  the budget is balanced.
       Columbia Budget Process: Budget Preparation

 Budget Preparation: The Minister of Finance is
 responsible for presenting the budget to Congress
 jointly with the President. The Director of Planning
 has considerable authority in the distribution and
 size of its investment component. Both have the
 power to overrule other cabinet members at different
 stages of the budgetary process
            Legislative Consideration

 Congress has deadlines for approving the budget. If
  the budget is not approved, the originally presented
  budget proposal of the executive branch will
  automatically become the new budget.
 Congress is required to vote first on the size of the
  budget and then on its composition. It is not allowed
  to increase expenditures -- aggregated or line items -
  - or to reduce revenues without the authorization of
  the Minister of Finance.
                 Budget Execution

 Except in the case of war or "socio-economic
  emergency", the executive branch is not permitted to
  increase expenditures beyond the budget originally
  approved by Congress, unless given approval to do so
 When an emergency is declared, this decision will
  be reviewed by Congress and by the courts, to
  prevent misuse of the emergency powers. There is
  not a lot of flexibility for changing expenditure items
  but the executive branch can reduce the actual

 The U.S. budget process has been evolving since
  the early days of this country’s history
 The U.S. Constitution does not talk about budgets
  except to say that all legislation for raising revenue
  shall originate in the House of Representatives
 The President and Congress are “partners” in the
  federal budget process
 The states are autonomous with regard to the
  budget process; local governments are under
  control of states.
                  Conclusions (cont’d)

 There are has similarities and differences in U.S. and
 Columbia’s budget processes
     Constitutions and the budget process
     Powers of the President and Congress
     State and local governments

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