the new rules of the federal budget game

The New Rules of the Federal Budget GameAuthor(s): Naomi CaidenSource: Public Administration Review, Vol. 44, No. 2 (Mar. - Apr., 1984), pp. 109-118Published by: Wiley on behalf of the American Society for Public AdministrationStable URL: http://www.jstor.org/stable/975861 .

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109

The New Rules of the Federal Budget Game Naomi Caiden, California State College, San Bernardino

In recent years the capacity of the federal budget process has been more and more open to question. To some observers the process appears on the verge of collapse, disintegrating into a muddle of spiralling deficits, missed deadlines, ad hoc decision making and hazy budget figures.1 There are a large number of widely varying proposals for reform to remedy a multitude of perceived problems. 2 But what may be overlooked in the confusion of present tribulations is the extent to which the federal budget process has already adapted to the pressures upon it. Fiscal stress, economic fluctuations and the need to accommodate seemingly irreconcilable demands have narrowed options and heightened conflict. But even more significantly, they have also begun to transform the rules by which the federal budget game used to be played. While reforms may still be indicated, their potential for success may be enhanced by changes which have already taken place.

What are these rules? They extend beyond the laws and regulations which stipulate the framework of the budget process. Such formal rules are generally rein- forced, modified, or even superseded by informal understandings, the interplay of power relationships, and adaptations to trends and events. Where these informal means of doing business attain some regularity and stability and are sanctioned by mutual expectations of reciprocal behavior, they, too, constitute rules.

The rules of a budget process derive from its nature. It is a means of simultaneously allocating and rationing resources for a future given time period within a speci- fied time cycle. In the federal budget process this task is theoretically accomplished through annual comprehensive decision making governed by the provisions of the 1974 Congressional Budget and Impoundment Act. In the past, observers have indicated that the process has also been facilitated by incremental decision making dependent on budget growth which has blurred issues, prevented conflicts and maintained the structures of the budget process.I

Over the past few years this pattern of conducting financial decision making has come under strain in two main ways. The most marked feature has been a change in the composition of federal expenditures, reflecting growth in the long-term commitments of the federal government and differentiation of its activities.4 These developments have built into the budget a paradoxical combination of both stability and sensitivity, inflexibil- ity, and unpredictability. Prevailing concepts of budgeting, which have stressed an annual framework for decision making, have had difficulty in accommodating this transformation.

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The changes in composition of federal expenditures have been accompanied by more problematic availabil- ity of resources relative to demand. As budget cutting has become the order of the day, conflicts cannot be contained in the old ways. Incrementalism breaks down without an increment, and is overtaken by the entrench- ment of claims in the budget through automatically growing entitlements.5 Institutional rules and mutual expectations cease to contain conflicts or prevent con- frontations on deeply felt issues. The substance of the

The budget becomes prey to the vagaries of assumptions about a fluctuating economy. aa. Seeking to control the economy, the budget has become its prisoner instead.

budget overspills its framework in a welter of deficits, uncounted expenditures of various kinds, and lagging or incomplete time tables.

These developments have disrupted the old rules of the budget game, whose familiarity and apparent stability had given them an aura of permanence. As budget processes and institutions have reacted to fluctuating and conflicting demands upon them, the situation appears fluid, unstable, and ambiguous. The rapid rate of change makes it difficult to identify with certainty the emergence of future budgetary norms, or to distinguish the enduring from the transitory. This account of the new rules of the federal budget game is, therefore, somewhat tentative and exploratory. Yet, it is possible to track patterns of behavior which seem to recur with some regularity and which have cumulatively begun to redefine the shape of the federal budget process.

The eventful record of the past few years presents a bewildering variety of developments whose future sig- nificance is still unknown. It would be impossible to describe every detail of the recent tortuous history of the federal budget. At the risk of ignoring matters of potential importance, the focus of this article has been restricted to four main issues which seem to carry the strongest implications for budget processes and institutions. These relate to formulas and assumptions, budget packages, continuity and flexibility, and budget cutting. It is in these areas that the rules of the federal budget game are presently being redrawn.

Naomi Caiden currently teaches at the California State College, San Bernardino. She is co-author of Planning and Budgeting in Poor Countries, and is the author of numerous articles on budgeting.



110 PUBLIC ADMINISTRATION REVIEW

Formulas and Assumptions

The federal budget is driven by formulas. The figures for budgetary allocations still march across the pages of the budget document in neat ranks by function and by agency, to all appearances the result of conscious annual decision. But in reality a large proportion are de- rived from the operation of legislative formulas which automatically determine their amount. Under the old rules most of these automatic payments-entitlements, debt service, long-term contracts-were regarded as relatively "uncontrollable" through the annual budget process.6 More recently, the use of the reconciliation process has enabled modification of legislative formulas without recourse to formal legislative amendment procedures. Control of the "uncontrollables" has become feasible, and budgeting by formula has become an acknowledged practice. But its pitfalls still remain to be resolved: where formulas are tied to unpredictable variables, such as the level of inflation or unemployment, budget estimates will always be open to doubt. The budget becomes prey to the vagaries of assumptions about a fluctuating economy, errors in forecasting, different interpretations about the direction and speed of economic trends, and even manipulation. Seeking to control the economy, the budget has become its prisoner instead. The intertwining of budget and economy has not only reduced the predictability of the budget, but changed its very nature from a purposeful plan of action to a projection which may or may not be fulfilled.

a a . figures for budgetary allocations still march across the pages of the budget document in neat ranks by function and by agency, to all appearances the result of conscious annual decision.

Paradoxically, budgeting by formula is a source of stability. The formulas represent commitments or advance, priority claims on the budget which enable those dependent on it to plan for the future in the reasonable expectation that those commitments will be fulfilled. Where the formulas cannot be easily changed they also represent an area of agreement, cutting down budgetary conflict and establishing a zone of "non- decision" immune from the annual budget battle.

The major area for application of formulas is that of entitlements, payments made by the federal government according to established criteria for eligibility. Entitle- ments include payments to individuals, as well as other formula-based expenditures such as revenue sharing and food subsidies.7 The largest categories for individual entitlements are for Social Security and health benefits, which in 1982 amounted to more than $200 billion, or about 30 percent of federal outlays. Entitlements to individuals as a whole, together with general revenue sharing and farm price supports, amounted to nearly $350 billion or almost half of outlays. If to these entitlements are added the sums expended for net interest on debt

($84.7 billion) and "other open ended programs and fixed costs" ($0.9 billion), the total amounts to 58.6 percent of annual outlays. (See Table 1.)

The payments for entitlements grow automatically as the number of eligible recipients grows and, where the programs are indexed, with inflation. Of 16 major entitlements in 1980, eight (amounting to $177.4 billion) were tied to the Consumer Price Index, while another three (amounting to $45.2 billion) were partially indexed in some other fashion.8 The annual amount paid out in debt interest, of course, varies not only with the amount of size of deficits and debt incurred, but also prevailing rates of interest, a formula outside the direct control of the federal government. In addition, other formulas relate to federal salaries, reimbursements, and contracts.

Until 1980, it was extremely difficult for Congress to influence the majority of payments made according to formulas entrenched in legislation. The 1974 Congres- sional Budget and Impoundment Act prevented the creation of new entitlements outside the appropriations process and set out a procedure-reconciliation-by which it would be possible for Congress to direct committees to make cuts in authorizations or appropriations at the end of the budget process. The aim of the latter provision was primarily to enable Congress to change appropriations to conform to a general framework of budget targets which was, according to the Act, proposed in a first concurrent resolution at the beginning of the congressional budget process and confirmed as binding totals in a second concurrent resolution at the end.

Only in 1980, when it was transferred to the beginning of the congressional budget process for use in conjunction with the first concurrent resolution, was the full potential of reconciliation realized. Through reconciliation, Congress could direct changes in legislative provisions affecting expenditures by means of instructions to authorizing committees to enact specific amounts of savings. After the committees reported on how they would achieve these instructions, their decisions would be aggregated in a single reconciliation bill for passage through Congress.9 Following initial success in achiev- ing budget cuts in 1980, reconciliation has become a routine part of the budget process, although since the massive omnibus reconciliation bill of 1981 the amounts involved have dwindled considerably.

The modification of formulas is now a recognized part of budget making. In the budget for fiscal year 1983, for example, the president proposed a large number of changes in the formulas relating to the Medi- care and Medicaid programs. These were highly detailed provisions, including, for example, redirection of the "automatic extension of Medicaid eligibility for AFDC cases dropped from the rolls from 4 months to 1 month" and the elimination of reimbursements for "provider delivery of uncovered services" under Medi- caid.10 The whole basis of the Medicare formula for hospital payments was revised during 1983. A variety of proposed formula changes were also included in an

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THE NEW RULES OF THE FEDERAL BUDGET GAME 111

TABLE 1 Expenditures for Entitlements in Fiscal Years 1981 and 1982

(dollars in billions)

Payments for Individuals 1981 1982

Social Security and railroad retirement 143.2 159.3 Federal employees' retirement and insurance 40.5 44.5 Unemployment assistance 19.5 23.6 Medical care 59.3 67.8 Assistance to students 4.7 5.1 Food and nutrition assistance 3.5 3.0 Public assistance and related programs 20.8 20.7 Other 3.0 2.9 TOTAL PAYMENTS TO INDIVIDUALS 294.5 327.0

Net interest 68.7 84.7 General revenue sharing 5.1 4.6 Farm price supports 4.1 11.6 Other open ended programs and fixed costs 4.0 -0.9 TOTAL ENTITLEMENTS 376.4 426.9 TOTAL BUDGET OUTLAYS 657.2 723.4

PAYMENTS TO INDIVIDUALS AS PERCENTAGE OF OUTLAYS 44.8% 44.9%o ENTITLEMENTS AS PERCENTAGE OF OUTLAYS 57.3% 58.6%

Source: Budget of the United States Government Fiscal Years 1983, Table 17 and Fiscal Year 1984, Table 13.

emergency supplementary budget bill, including provisions for employee tax credits for job retraining, benefits to companies in urban zones, limitations on exemptions from tax of employer paid health insurance, and allocation of funds among states and counties."

However, the budget is not made up of formulas but estimates of expenditures, so that every decision involv- ing a formula requires a matching assumption on how much expenditure will result from its operation. In addition, since revenues are also subject to formulas in the form of tax rates, these too are subject to assumptions. The current importance of assumptions in framing the federal budget is attested by the inclusion of a section on the subject right at the beginning of the budget document immediately after the budget message of the president. Economic assumptions govern not only the amounts of entitlements and interest in the forthcoming year, but also the budget as a whole insofar as there is an expectation that services will be maintained in the face of inflation. Forecasts regarding growth of the gross national product, inflation, interest rates, and unemployment have an enormous effect on estimates for budget revenues and outlays.

The heavy reliance of budget figures on economic assumptions has important implications for the nature of the budget. First, what happens if the assumptions are wrong? The resulting discrepancies may be very large. For example, there was a discrepancy of $48 billion between budgeted and actual outlays in 1980. Rudolph Penner estimated that $29 billion of the excess expenditures resulted from "erroneous assumptions regarding a given set of policies." '2 He estimated that a one percent increase in the Consumer Price Index in the first quarter of a calendar year would have an effect of

raising the cost of indexed programs by $1.9 billion; a one percent increase in interest rates early in the fiscal year could result in an increase in outlays of more than $4 billion; while a one percent increase in the average rate of unemployment could add more than $5 billion to federal unemployment benefits.13 Forecasting errors were responsible for a need to revise 1983 budget figures, which had set revenues $55 billion too high and outlays $11 billion too low, thus increasing the pro- jected deficit by $66 billion.'4

Since budget assumptions are so crucial to budget outcomes, it might be expected that there would be dis- sension on them. In 1981 and 1982, the assumptions of several participants in the budget process differed radi- cally: the administration, the Congressional Budget Office, and the Senate and House Budget Committees all came up with different numbers. In 1983, there was greater consensus on budget assumptions, and those contained in the first concurrent resolution passed by the House based on those of the Congressional Budget Office differed only marginally from those of the administration.'5 Nevertheless, considerable revisions were still necessary in April 1983 (when the administration was required by law to revise its budget estimates), barely four months after the initial budget estimates.'6 By June, harder information on economic trends was allowing more confidence for the prospective year although there was still much uncertainty about longer term prospects.'7

An even more disturbing problem raised by the reliance of budget estimates upon economic assumptions which may or may not be accurate lies in the relation- ship between policy and assumptions. The distinction between the two is easily blurred, so that changes in

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assumptions may substitute for policy actions. Penner has pointed out that

a $1 billion error in estimating outlays is "in the noise." For example, $1 billion can be "saved" in 1982 by lowering the forecast of interest rates starting October 1 . . . by less than one-half of one percentage point. No one can forecast interest rates with anything remotely resembling that degree of accuracy, and few would notice such a change. Faced with the choice of "saving" $1 billion by cutting social security or by a minute change in the economic assumptions, it is little wonder that the latter looks so tempting."

David Stockman's admissions in the famous Atlantic Monthly interview in December 1982 underline how easy manipulation of assumptions can be. Similarly, it was argued that the revision of economic forecasts by the administration to a more rosy scenario in March 1983 would ease pressure for defense cuts by reducing the deficit-at least on paper-by $10 billion.1'9

Recognition of uncertainty and the unwieldiness of coping with it through an annual process has led to a search for more flexible means to deal with contingencies in advance.

The character of the federal budget, then, seems to have changed from one of annual allocation to a stress on formulas and assumptions. From one point of view it seems stable, indeed inflexible, since so much of it is composed of long-term commitments, and thus determined in advance of the annual budget-making exercise. From another perspective, however, the budget is highly sensitive to changes in economic indicators which not only destabilize its figures where forecasts have to be adjusted to keep pace with economic fluctuations, but cast doubt on the reality of those figures. The new rules of the budget game require an expertise in dealing with a new set of parameters-formulas and assumptions- whose little understood details may profoundly affect the real world of spending outcomes.

Packages

The federal budget is composed of packages. These packages are the units for decision making; they are the framework for setting agendas, resolving conflicts, and determining limits and possibilities. They provide an alternative to the unrealistic concept of the unified budget on the one hand, and disintegration of the budget into totally uncoordinated fragments on the other.

Not too long ago, the principle of the unified budget was paramount in the writings of budget theorists. Only by maintaining all transactions within a single budget framework, it was maintained, would it be possible to ensure budgetary control and the ability to exercise optimal choice among claims which would have to com- pete on an equal basis. Along these lines, reform in 1967 brought unification by the inclusion of the trust funds

within the regular annual budget, thus enabling account to be taken of the total impact of federal government revenues and expenditures upon the national economy.

But gaps in the unified budget soon appeared. Agen- cies were created with "off-budget" status.20 Off- budget loans and loan guarantees started to multiply.21 Resources were increasingly allocated through tax expenditures, i.e., tax concessions in favor of specific groups.22 The very concept of "uncontrollables" chal- lenged the idea of a comprehensive annual budget with equally competing claims. In addition, as the older controls exercised through powerful independent committee chairmen disappeared in the face of congressional decentralization,23 the budget seemed to be fragmented into a myriad of pieces, each going its own way without reference to the others or to the budget as a whole.

The 1974 Congressional Budget and Impoundment Act attempted, through the use of budget resolutions, to bring some coherence to the congressional budget process and provide awareness of the budget as a whole. The record is somewhat mixed, but whatever conclusion might be reached as to its success,24 its mechanisms for integrating the budget were relatively weak. The first concurrent resolution, which provided the starting point for later appropriations, contained only non-binding targets, not firm ceilings, and the functional classifica- tions it employed did not correspond with the jurisdic- tions of committees. Even so, however, the totals of the first resolution provided a focus for debate, a package of budgetary proposals, an agenda or benchmark for what would happen later in the process. Later, the first resolution was made binding through the rule that if a second resolution were not passed by the beginning of the fiscal year, the totals of the first resolution would stand.

This first step in packaging the budget was followed by others. Foremost among these has been the employment of reconciliation in conjunction with the first resolution. Reconciliation was a powerful budget tool precisely because it packaged cuts together and demanded a single vote of Congress on the reconciliation bill as a whole. Although the reconciliation package as a whole might possess no real internal coherence beyond the setting of total amounts for savings, it con- stituted a new way of looking at the budget: separating a single aspect of the budget, and voting upon it as an entity.

Space does not permit the detailed history of reconciliation in the past few years. Since its stunning success as a budget-cutting measure in 1981, when administration proposals were backed by a viable majority in both houses of Congress, its use has been less spectacular. In 1982, the reconciliation bill included both tax increases and expenditure reductions, but the package "broke open" in the House so that four separate votes were necessary on different parts, although the final result was similar to initial intention. In 1983, the amounts of the reconciliation measure were relatively small (about $10 billion over three years) and less than those man- dated in the first concurrent resolution. Nevertheless, reconciliation is now clearly available as a means of con-

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solidating an aspect of budget in a separately demar- cated package.

Meanwhile, other packages were making their ap- pearance. For some years the extent of federal credit programs had been causing considerable unease. Although on-budget loans were recorded in the unified budget, they were recorded in net terms,25 while off- budget loans and loan guarantees were not included at all. During 1981, several bills were proposed to create a credit budget, but even without legislation a de facto credit budget has emerged, measuring the gross amount of authorized direct and guaranteed loan principal. It sets controls on the annual volume of new loans, and works well for fully discretionary credit activities, though not so well for demand determined loans that operate similarly to entitlements. It has been suggested that the present dual system (in which on-budget loans are still included in the regular budget) is confusing, and that a completely separate credit budget would be more suitable to reflect the economic effects of credit and control demand-based programs.26 Following original proposals of the President's Commission on Budget Concepts in 1967, "a completely separate credit budget could be designed to fit the nature of credit programs, including all the important measures: new lending and guaranteeing, net changes in the outstanding portfolio, subsidies and losses."27

An analogous development occurred in relation to a policy area. During 1982, it became evident that Social Security required special treatment when administration attempts to make cuts in the program through regular budget mechanisms failed. Instead, a special bipartisan commission was established to consider both long- and short-term aspects of the program and to put forward proposals for solution of the major problems. The commission reported in January 1983, and in March, Con- gress agreed to a series of measures designed to "rescue" the program from current financial difficul- ties and to implement a series of policy changes that would place it on a sound basis in the future. The details of the scheme lie beyond the scope of this paper. From the point of view of the budget process, its most signifi- cant point was the agreement to remove social security from the unified budget by 1992. Until then, it would be shown as a separate function within the budget. As far as possible the program would be run on a self- sustaining basis with automatic provisions to ensure that it did not become a drain on the budget as a whole. Thus, if the reserves in the OASI and Disability Insur- ance trust funds are less than 15 percent of what is required for the year, the annual cost of living adjust- ment (COLA) would be adjusted, based on the lower of the increases in the Consumer Price Index or the increase in average wages. (After 1988 this formula would come into operation if the trust funds fell below 20 percent of annual requirements, and if reserves reached 32 percent or more, "catch up" benefits would be paid.) The board of trustees would be required to inform Con- gress in its annual report if the system were in danger of falling short of funds. The effect of these and similar

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provisions was to set up a separate "package" for Social Security, constituting a distinct budget with its own rules, impinging on the regular budget as little as possible.28

These relatively clear-cut packages-budget resolution, reconciliation, and Social Security-contrast with others whose outlines are blurred and which may vary from year to year. Among the most prominent of these is the annual finance bill which normally contains revenue measures for the forthcoming fiscal year. Because certain entitlements lie within the jurisdiction of the House Ways and Means Committee and the Senate Finance Committee, however, the finance bill has become a separate package, incorporating not only revenue but also expenditure measures. Other packages coalesce around specific budget measures, particularly supplemental appropriations, and in some years the raising of the debt limit.

As budget processes and institutions have reacted to fluctuating and conflicting demands upon them, the situation appears fluid, unstable, and ambiguous.

In addition to the packaging which has already become evident, there are pressures for the creation of a number of other kinds of packages. Some of these resemble the credit budget insofar as they take an area of spending either wholly or partially omitted from the unified budget and attempt to design a decision-making mechanism for it that will measure, set limits, or provide a formula for control. Examples include tax expenditures, regulation, paperwork, and productivity. Some of these are already included in special analyses attached to the annual budget or are the subject of special arrangements. A second category relates to aspects of regular expenditures, which, for one reason or another, appear desirable to discuss in aggregate for policy- making purposes. Such packages resemble cross- sections of the budget. There is already a cross-cutting category of this kind for expenditures on research and development, and consideration has also been given to similar treatment for capital items (presently included in a special analysis).

Packaging the budget in these ways focuses debate on particular issues. The nature of the packages determines what figures will drive the budget. They act as an inte- grative force enabling Congress to deal with specific policy questions and then follow through in later detailed decision making. In this sense, budget packages may increase congressional budget-making capacity even though they may limit the potential of individual members of groups to influence specific decisions.

The trend toward budget packages also has a marked effect on budgetary politics in Congress. It strengthens the hand of the congressional leadership which sets the agenda for debate through its construction of viable packages. Not only may it play a leading role in determining the composition of each package, but it may also




set the rules within which debate may take place, particularly in the number and nature of amendments it allows. For example, during 1983, a new House rule was put into effect restricting most legislative riders in appropriations bills; to offer a rider it would be necessary for the House to reject a motion to rise out of the Com- mittee of the Whole after all other work on the bill was completed and if the motion were defeated only one rider could be offered. Packaging the budget is also a means of helping to resolve and mitigate budgetary conflicts (as an alternative to previously used means such as incrementalism or automatic preempted decision making), since it divides the budget into different areas within which agreement may be reached rather than pit- ting every claim against every other.

The substance of the budget overspills its framework in a welter of deficits, uncounted expenditures of various kinds, and lagging or incomplete time tables.

Yet the packages undoubtedly do complicate the budget process. Instead of tracing a single measure through Congress, it may be necessary to track half a dozen different packages. Voting proliferates and each additional step becomes a hurdle that requires complex negotiations and compromises to keep packages intact. The guidance of each package through Congress in a situation where there is no clear and disciplined majority provides an opportunity for leverage on the part of any group determined to gain a benefit. For example, in 1983, a $4.9 billion emergency public works and humanitarian relief program was attached to a supplemental appropriations bill, which later attracted a large number of amendments including a measure to repeal withholding on interest and dividends, an addition of $115 million for maternal and child care and preventive health services, low income home and school weather- ization assistance, grants for mass transit projects in New Jersey, purchase of surplus domestic fish products, allocations for reforestation and timberstand improvements, part-time employment of senior citizens, supplemental funding for private charitable organiza- tions, a grant for renovation of San Francisco's cable cars, supplemental unemployment benefits for railway workers, and deletion of funds for hospital construction by the Veterans' Administration.29 Under the new rules of the federal budget game, the assembling, negotiation, and steering of acceptable packages is an essential political skill.

Continuity and Flexibility

Federal budgeting has become continuous. Budget debates extend throughout the fiscal year; discussion of one budget is not complete before it is time to begin on the next; long-term commitments determine expenditures, while adjustments to the budget occur throughout the year. This situation contrasts with budget theory, which emphasizes an annual time cycle with a

set rhythm dictating decision making for a finite period. Instead, despite the formal correspondence of budgets with fiscal years, and adherence to the stipulated steps of the budget process, the budget resembles a continuous flow of financial transactions, modified by occa- sional interventions. This continuity stems from the need to adjust to long-term automatic commitments, uncertainty in economic conditions, and the heightened conflicts brought about by revenue constraints and abrupt policy changes.

The dependence of the budget on long-term commitments, and, hence, on formulas and assumptions, has already been discussed. Their uneasy accommodation in the framework of budget concepts is reflected in their definition as "relatively uncontrollable." Except insofar as the formulas for entitlements, contracts, and interest payments are manipulable in the short or long term, the budget may simply project and record these expenditures without influencing them. Much attention has been paid to the role of the reconciliation process as a means of controlling the uncontrollables, notably individual entitlements under law, but the fact remains that, for good or ill, the majority of the budget is con- ducted on a basis which stretches well beyond an annual period. Accommodations have been made to the long- term nature of federal expenditures. Bernard Pitsvada has recently drawn attention to flexible funding tech- niques which "release the agency from concern with strict one-year time limits in operation at fixed amounts of funding." Devices that enable agencies to continue to use funds beyond annual deadlines include trust funds, public enterprise funds, intragovernmental funds, and non-trust fund contract authority, as well as "perma- nent and indefinite" and multi-year appropriations, and "funds permitted to remain available until expended." These categories amount to over half of appropriation requests.30

The continuity of the budget process is also under- lined by arrangements to change the budget during the budget year. Flexibility in execution is furthered by the use of contingency and emergency operations and authorizations to transfer and reprogram funds. The executive may have gained greater ease in apportion- ment and timing of expenditures from a recent Supreme Court decision, Chadha v. INS, which struck down the requirement for congressional approval of deferrals in the Congressional Budget and Impoundment Act. The routine acceptance of one or more supplementary appropriations for the current budget year emphasizes the fact that budgets these days rarely last a year and require constant monitoring and action to keep up with their commitments.3- For example, in 1983, funds for Farmers Home Administration operating loans ran out, requiring additional appropriations.32

Recognition of uncertainty and the unwieldiness of coping with it through an annual process has led to a search for more flexible means to deal with contingencies in advance. For example, in 1983 the administration requested (without success) "standby" taxes to go into effect in October 1985 if the federal deficit was expected to exceed 2.5 percent of gross national product in

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1986 (assuming enactment of all requested cuts and no recession).33 Similarly, provisions were passed to build flexibility into the long-term social security plan, so that should unforeseen deficits arise they might be dealt with in a pre-arranged way.

Finally, the continuous nature of federal budgeting is attested by resort for three years running to continuing resolutions for virtually the whole of the budget because appropriations remained unpassed at the beginning of the fiscal year, and special sessions of Congress were called to try to resolve outstanding differences. Ap- propriations have been passed gradually, during the current fiscal year; in the meantime, funding has continued based either on the previous year's level, or the status of the appropriations in the House or Senate.

The lagging timetable of the congressional budget process reflects increasing conflict rather than an intrin- sically heavy workload, and it is possible that return to greater stability in budget policies and the economy would restore the congressional cycle. But the twin problems of long-term commitment and necessity for adjustments would remain. It is the composition of federal expenditures themselves that is gradually changing the rules of an annual process to those of a more fluid year-round activity.

Budget Cutting

Cutting expenditures has become a dominant pre- occupation of those involved in federal budgeting. Budget cutting has brought its own technology, vocabulary, and obfuscation to debates, transforming the en- tire atmosphere of the budget process. Not too long ago, the predominant rule of federal budgeting was described as incrementalism, the slow and regular growth of expenditures, which provided stability to the budget process through mutual expectations and given understandings. In contrast, budget cutting is not decre- mentalism, an incrementalism in reverse with similar attributes.34 Rather, it heightens conflict and destabilizes the budget process, placing strain on institutions, so that new rules begin to emerge, even though these may not be wholly satisfactory to participants. These rules relate to the base for cuts, veracity of the cuts, and a new vocabulary of budget cutting.

A major conceptual problem in cutting budgets is understanding exactly what the cuts involve. The first issue to consider is the base from which the cuts will be counted. An obvious choice of base might be last year's budget, but this base might not really be accurate, since, as we have seen., there might be a serious discrepancy between budget estimates and actual outlays. If, however, actual outlays of the current year are chosen as the base to use in constructing the next year's budget, there is the further problem that this figure is not known at the time budget decisions have to be made. In any case, there is the question of inflation. If either last year's budget figures or last year's outlays are used as a base without allowance for inflation, "real" cuts would be much greater than the apparent cuts. In fact, viewed in

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this light, a budget freeze providing the same allocations as the previous year would actually constitute a cut. Similarly, an apparent increase in appropriations might still represent a cut in real terms.

The resolution to this dilemma has been to adopt for a base "current services estimates"; that is, estimates of outlays and budget authority needed to maintain current government services at the same level as the fiscal year in progress.35 While generally accepted, this solution still involves problems, since it builds an estimate (of inflation) upon another estimate (current outlays) to arrive at a figure which may or may not be correct. Obviously there is much room for dispute, and typically Congress prefers the estimates of the Congressional Budget Office to those of the administration. There is also the difficulty in a volatile situation that as the year progresses estimates may require revision, leaving the choice of maintaining the old estimates or recalculating the cuts all over again. Faced with this dilemma in 1981, Congress decided to use older estimates rather than recalculate the base and cuts.

The choice of base crucially affects the magnitude of the cuts. If it is high, cuts will appear larger. If it is low, cuts will seem less. For certain purposes, therefore, it may be advantageous to use a base other than current services. For example, in 1981 the Congressional Bud- get Office also provided "current law" estimates, which, had they been adopted, would have shown budget cuts as less than those calculated from a current services base. In 1982 and in 1983, the administration proposed a base of current services "with adequate defense," which by inflating the baseline for defense spending would obscure actual defense increases.36

Yet, notwithstanding all the sound and fury of budget-cutting rhetoric and complexity, the federal budget has undoubtedly continued to grow. Between 1980 and 1982, federal outlays grew from $576.7 billion to $728.4 billion and were estimated to reach $805.2 bil- lion37 in January 1983, and $989.6 billion in 1986. Ac- cording to administration estimates at the beginning of 1983, spending would increase $43.3 billion from fiscal 1983 to fiscal 1984, or about five percent, while fiscal 1983 spending would exceed 1981 spending levels by 21 percent.38 In this situation a new base comes into play: the projection of what expenditures would have been had no action been taken. For example, though costs for the food stamp program grew from $8.3 billion to $12 billion between 1980 and 1983 (a 45 percent increase), it might be observed that without the budget changes of 1981 and 1982 the growth rate would have been 75 percent.39 Estimates of cuts will vary according to which period is used to calculate the baseline growth rate.

As if all this were not confusing enough, further bases are provided by the steps of the budget process itself as each iteration constitutes a new starting point for com- parisons. It is necessary to take into account the figures of the president's budget, the revised president's budget, the House version of the first concurrent resolution, and the Senate's version, with or without reconciliation, as well as the final resolution. In addition,




there are all the alternative versions that are considered in putting together the resolutions. The complexity of trying to assess what has really happened may be illus- trated from the passage in the House of the fiscal 1984 energy and water development appropriations bill amounting to about $14 billion. This figure was $330 million less than fiscal 1983 funding provided by the continuing appropriations resolution, $405 million below the administration's budget request, about $1 billion below the target for energy and water in the House budget resolution, and $236.5 million less than the Appropriations Committee had originally intended.40

Yet the packages undoubtedly do complicate the budget process. . . . Voting proliferates and each additional step becomes a hurdle that requires complex negotiations and compromises to keep packages intact.

It almost goes without saying that the confusions sur- rounding budget cutting provide a situation rife with potential for maneuver. There is considerable vagueness for example about the "out-years" of the reconciliation estimates which typically include figures for cuts three years in advance: do these represent intention or extrap- olation? What exactly are they worth? The necessity to distinguish between budget authority (for which Con- gress votes) and outlays (which lie beyond its control) is another source of confusion, since the effects of changes in budget authority may not be reflected in outlays for the coming fiscal year. Even more problematic are the nature of the cuts themselves where these are expressed as "savings." Savings from changes in legislation accomplished through the reconciliation process are necessarily estimates which may or may not be accurate. Other savings may represent less actual cuts than "management savings," savings from bookkeep- ing changes.4'

Disputes may easily arise whether cuts in an appropriation have really been made. For example, the 1984 appropriation bill for farm and food programs passed by the House was apparently nearly $54 billion less than the president's request and more than $6 billion less than the 1983 appropriation, but according to OMB director, David Stockman, the bill actually exceeded presidential budget requests by $1.9 billion. He accused the Appropriations Committee panel of using "book- keeping gimmicks" and claiming "unrealistic savings," because it had provided inadequate funding for the Commodity Credit Corporation, a key account which would inevitably have to be made up later in the year. The bill also funded food stamps and other food programs at the level of the president's budget, but cut off funding on dates when it estimated funds would run out, so that further appropriation would be necessary to maintain the programs for the remainder of the year.42

Are there really rules for budget cutting or simply a maze of stratagems concealed by a complex euphemistic vocabulary? Budget cuts become "savings," then

"deficit reductions," "long-term structural reforms" and "spending freeze measures." The deficit itself is divided into a "cyclical" deficit resulting from economic conditions, and a "structural" deficit related to long-term factors, the implication being that the former will disappear of its own accord with economic revival.43 Conventions regarding the base for cuts and acceptable ways for measuring them are only slowly emerging. The annual ritualistic budget-cutting exercise may itself be abandoned if greater consensus is established regarding the role of the federal government, the impact of cuts upon public services, and the difficulty of making cuts beyond certain areas whose potential for further repeated cuts will eventually be exhausted.

The Fate of the New Rules

Budget processes are characterized by their rules, the stable formal and informal norms of conduct which determine access to the budget system, their capacity to resolve conflicts, the time cycle for decision making and the permissible agenda for debate. The rules may be seen as choices about how budget decisions ought to be made. Should the budget process favor centralization or decentralization, limited or open access to decision making? Should the rules promote focus on specific issues or the blurring of disagreements? Should the budget timetable be strictly enforced or allow maximum flexibility? What policy matters and data should be included or excluded in the budgetary agenda? The answers to these questions are implicit in the rules of the budget game, which mesh together in a framework for the achievement of budgetary objectives.

Undoubtedly changes have taken place in these rules, but it is still difficult to assess their collective impact on the nature of the process as a whole. The new rules are emerging only hesitantly, and are still ambiguous and open to interpretation. According to one view the old rules have disappeared and nothing has taken their place. The budget process is seriously in jeopardy and may be on the verge of collapse." Observers point to ad hoc decision making, loss of integration in the budget process and meaningless and confusing budget figures. In departing from established procedures and escaping the discipline of the budget cycle, the budget process has lost the decision-forcing element which distinguishes it from mere drift. Far from providing a neutral and legiti- mate framework for serious debate in the public interest, the budget process has become heavily politi- cized, a mere focus for cynical manipulation and leverage, reflecting the breakdown of the norms of political discourse.

A second view is less gloomy. While admitting the budget process has many defects, this view suggests that its capacity may, nonetheless, be increasing. Means have been devised to debate and act upon long-term issues and relevant policy questions. The process has become more cohesive and focused allowing greater control, while budget figures are more open to analysis and debate. These developments mark the emergence of

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a new kind of budget process which limits access to decisions yet gains in influence over them, dispenses with an annual time cycle yet makes more timely decisions, and devises new means for bringing together budget evaluation and decision making.45 Inevitably the evolution to new forms is accompanied by misunderstandings and disruptions, and further reforms would be needed before transformation were accomplished. Moreover, it is important to acknowledge its costs, particularly those related to more limited access to the budget.

These opposing views suggest that if new rules do exist, they have both positive and negative aspects, the first tending toward a new conceptual framework and the second threatening the budget framework altogether. Implicit in each rule is a tension between these two aspects which extends beyond process con- siderations to concrete issues of power and influence over the budget. The new rules are ambiguous regarding the extent to which they limit or increase access to the budget, heighten conflict by focusing on issues or blur it through compromises and non-decisions, promote more realistic timing of decisions or allow ad hoc decision making, clarify or hinder analysis and evaluation. Thus, formulas preempt decisions and limit influence over the budget, but they may also increase budgetary control of long-term commitments where budget procedures allow for their modification. The packaging of decisions increases centralization and sharpens conflict, but also provides opportunities for leverage and bargaining. Greater continuity in decision making signals the breakdown of the budget process but potentially encourages creation of a new system dependent on close monitoring and sophisticated financial management based on in- novative information technology. The increasing complexity of budget data and the importance of unifying assumptions enhances the power of the leadership, but also broadens and deepens the scope of budget debates.

The ultimate nature of the rules of the federal budget game cannot be safely predicted. It will depend on the degree of permanence of the present configuration of federal expenditures, the direction of budget policy choices, and the extent to which informal practices are institutionalized through formal reform. Perhaps the federal budget will revert to its old rules, and the new directions discussed in this article may never achieve their potential. It may well be, as Fernand Braudel has suggested, that until conditions are ripe, new solutions cannot emerge:

Can it not be said that there is a limit, a ceiling which restricts all human life, containing within it a frontier of varying outline, one which is hard to reach and harder still to cross? This is the border which in every age, even our own, separates the possible from the impossible, what can be done with a little effort from what cannot be done at all.46

Perhaps we are even now standing at the frontier, and the shadowy, ambiguous, and half-realized outlines we perceive are the tentative beginnings of new possibilities in the management of public finances-an escape from a memory that obstinately repeats known solutions, to

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avoid the difficulty and danger of imagining something else. "II

Notes

1. Congressional Quarterly Weekly Review, May 14, 1983, 928-929.

2. Naomi Caiden, "Guidelines to Federal Budget Reform," Public Budgeting and Finance, Winter 1983.

3. See Allen Schick, Congress and Money (Washington, D.C.: Urban Institute, 1980), 19; Aaron Wildavsky, The Politics of the Budgetary Process, 3rd ed. (Boston: Little Brown, 1979), 13.

4. See Frederick Mosher, "The Changing Responsibilities and Tac- tics of the Federal Government" in Fremont Lyden and Ernest Miller, Public Budgeting: Program Planning and Implementa- tion, 4th ed. (Englewood Cliffs, N.J.: Prentice Hall, 1982), 19-32.

5. Schick, Congress and Money, op. cit., 216-217. 6. Joseph A. Pechman and Robert W. Hartman, "The 1980 Budget

and the Budget Outlook" in Joseph A. Pechman (ed.), Setting National Priorities: The 1980 Budget (Washington, D.C.: Brookings Institution, 1979), 54.

7. Report of the Comptroller General, What Can Be Done To Check Growth of Federal Entitlement and Indexed Spending? (PAD-81-21, 3.3.81), (Washington, D.C.: General Accounting Office, 1981), 10.

8. Ibid., 12. 9. See Allen Schick, Reconciliation and the Congressional Budget

Process (Washington, D.C.: American Enterprise Institute, 1981).

10. Budget of the United States, Fiscal Year 1983, 5-134-135. 11. Congressional Quarterly Weekly Reports, March 19, 1983, 541. 12. Rudolph Penner, "Budget Assumptions and Budget Out-

comes," The AEI Economist, August 1981, reprinted for the Committee for a Responsible Federal Budget, Symposium on the Congressional Budget Act and Process-How Can They Be Im- proved? January 12-13, 1982, 1.

13. Ibid., 3. 14. Congressional Quarterly Weekly Reports, February 5, 1983, 247. 15. Ibid., March 26, 1983, 602. 16. Ibid., April 16, 1983, 732. 17. Ibid., June 4, 1983, 1106. 18. Penner, op. cit., 4. 19. Congressional Quarterly Weekly Reports, April 2, 1983, 656. 20. See James Bennett and Thomas DiLorenzo, Underground Gov-

ernment: The Off-Budget Public Sector (Washington, D.C.: Cato Institute, 1983).

21. See Alice Rivlin, Statement before the Task Force on Enforce- ment, Credit and Multiyears Budgeting, Committee on the Budget, United States House of Representatives, October 28, 1981.

22. Congressional Quarterly Weekly Reports, January 30, 1982, 156.

23. James L. Sundquist, The Decline and Resurgence of Congress (Washington, D.C.: Brookings Institution, 1981), 373-383.

24. See Lance T. Leloup, The Fiscal Congress: Legislative Control of the Budget (Westport, Conn.: Greenwood Press, 1980), 149-150; Sundquist, op. cit., p. 220; Dennis Ippolito, Congres- sional Spending (Ithaca: Cornell University Press, 1982), 101; Schick, Congress and Money, op. cit., 361.

25. See Rivlin, op. cit., 7. 26. Elisabeth H. Rhyne, "Appendix B: Federal Credit Activities" in

Joseph A. Pechman (ed.), Setting National Priorities: The 1984 Budget (Washington, D.C.: Brookings Institution, 1983), 241.

27. Ibid. 28. Congressional Quarterly Weekly Reports, March 26, 1983, 638.




29. Congressional Quarterly Weekly Reports, March 5, 1983, 448. 30. Bernard Pitsvada, "Flexibility in Federal Budget Execution,"

Public Budgeting and Finance, Vol. 3, Summer 1983, 86. 31. Congressional Quarterly Weekly Reports, March 26, 1983, 638

1984). 32. Ibid., April 16, 1983, 733. 33. Ibid., February 5, 1983, 255. 34. See Daniel Tarschys, "Rational Decremental Budgeting: Ele-

ments of an Expenditure Policy for the 80s," Political Life in Sweden, No. 12, February 1982, 7; Naomi Caiden, "The Politics of Subtraction," in Allen Schick (ed.), Making Economic Policy in Congress (Washington, D.C.: American Enterprise Institute, 1984).

35. Congressional Quarterly Weekly Reports, February 5, 1983, 249. 36. Ibid. 37. Joseph Pechman (ed.), Setting National Priorities: The 1984

Budget (Washington, D.C.: Brookings Institution, 1983), 17. 38. Congressional Quarterly Weekly Reports, February 5, 1983,

245-247.

39. Ibid., May 7, 1983, 884. 40. Ibid., June 11, 1983, 1153. 41. Ibid., April 2, 1983, 658. 42. Ibid., June 11, 1983, 1152. 43. Ibid., February 5, 1983, 247. 44. Ibid., May 14, 1983, 929; May 29, 1983, 983. 45. See Naomi Caiden, "The Myth of the Annual Budget," Public

Administration Review, 42:6 (November/December 1982), 516-523; Harry S. Havens, "Integrating Evaluation and Budget- ing," Public Budgeting and Finance, 3:2 (Summer 1983), 102-113; Charles A. Bowsher, Testimony before the Task Force on the Budget Process, Committee on Rules, United States House of Representatives, on Improvements to the Congres- sional Budget and Impoundment Control Act of 1974, Septem- ber 29, 1982.

46. Fernand Braudel, Civilization and Capitalism, 15th-18th Cen- tury: vol. I: The Structures of Everyday Life: The Limits of the Possible (New York: Harper and Row, 1981), 27.

47. Ibid., 335.

LIning Objective and Subjective Measures of Performance Roger B. Parks, Indiana University, Bloomington

In several recent articles the utility of "subjective" indicators of the performance of urban service agencies has been discussed.' In this literature, subjective indicators are indicators constructed from the responses of citizens who are surveyed about their experiences, perceptions, and evaluations of services received, typically in their own neighborhoods. These subjective indicators have been contrasted with "objective" indicators, those constructed from the records maintained by the service agencies themselves. Several authors have reported low measures of congruence between subjective and objective indicators. The lack of strong relationships between indicators drawn from survey data and indicators drawn from agency records has led some authors to cast doubt on the utility of subjective indicators. These critics argue that the discrepancy between these two types of indicators may show citizens to be unaware of the true levels of service they receive.2

Examples of this view may be found in Brian Stipak's 1979 article, "Citizen Satisfaction with Urban Services:

Support for the analyses reported here was received from the National Institute of Justice in the form of grant number 80-IJ-CX-0040 to the University of North Carolina. The data were collected with support from the National Institute of Mental Health in the form of grant number 5 ROI MH 19911-02 to Indiana University. This support is gratefully acknowledged, as are the comments and suggestions received from Peter May, John McIver, Duncan McRae, Elinor Ostrom and anonymous reviewers for this journal. The opinions, findings, and remaining errors are my own.

Potential Misuse as a Performance Indicator," and in Brown and Coulter's 1983 article, "Subjective and Ob- jective Measures of Police Service Delivery." Stipak argued that "expressed satisfaction may not reflect service performance."' He presented data from a sample of citizens in the Los Angeles metropolitan area. Citizen evaluations of services in their communities were not strongly related to objective indicators of those services. Evaluations of police services, for example, were not related to clearance rates, property recovery rates, and crime rates or to the number of police personnel and operating expenditures for police per capita. Evalua- tions of park and recreation services were not strongly related to distance to the nearest park or to numbers of personnel and operating expenditures per capita for park and recreation services. Summarizing his findings, Stipak asserted "large improvements in objective performance-large in the sense of what public officials could realistically hope to achieve-generally appear to have negligible effects on citizens' subjective evaluations."4 Brown and Coulter support this position, reporting their findings that "satisfaction levels and ser-

Roger Parks is an associate professor of public and environmental affairs at Indiana University, Bloomington. He is also the director of SPEA's Center for Policy and Public Management, and is a former associate director of Indiana University's Workshop in Political Theory and Policy Analysis.

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the new rules of the federal budget game

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