Time for a new US budget process

With the latest U.S. fiscal deadline looming – bringing with it the prospect of another government shutdown on Dec. 12 – it’s time for lawmakers and presidential candidates to begin thinking seriously about budget process reform. If history is any guide, the outcome of this round of budgetary brinkmanship between Congress and the president will go down to the wire. In the end, they will most likely agree to either extend temporary funding or put a budget in place for the remainder of the fiscal year. But neither of those outcomes addresses the fact they’re using an outdated budget process that is well past its prime.

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Enacted in the 1970s, with basic tenets flowing from a commission appointed by LBJ in 1967, the process has completely broken down in recent years and certainly doesn’t reflect the world we live in today. Given the seismic demographic, fiscal and geopolitical shifts over the past 50 years, a strong case can be made for reconvening another commission to consider reforms.

·       Boomers are leaving, not joining, the workforce with significant fiscal consequences – not the least of which is skyrocketing entitlement spending.

·       Large peacetime deficits are being incurred, with interest on the national debt consuming a growing share of revenues and debt limit increases anathema politically.

·       The nation’s physical infrastructure is old and in desperate need of repair. Much of the infrastructure we now enjoy (and I use that word loosely given its condition) was either new or being planned in 1967. The improvement of our public assets is made challenging by a budget process favoring consumption spending at the expense of investment.

·       A dramatic, post-financial crisis growth in governmental activities in the financial marketplace – providing credit and insurance to citizens – is rife with complex budgetary implications and contingent liabilities that can last for decades.

·       The use of trust funds – like Social Security – and a proliferation of self-funded programs confuses and distorts budgetary decisions.

·       The tax code is increasingly incomprehensible and in need of constant tweaking to extend tax breaks and to ensure the code works roughly as intended. Also, government spending policies achieved through the code obfuscates costs and the evaluation of such policies.

In addition, we have seen the arrival of tremendous advances in computational power and the availability of data to provide opportunities for transparency and accountability that would have been impossible to consider in the 1960s. While the government has made strides in recent years towards the use of this technology for evidence-based decision-making, much remains to be done.

Taxpayers would benefit if agencies were compelled by a new statutory process to submit budget requests backed with empirical data showing operational and programmatic costs of initiatives, first-order outputs yielded by such spending and broader estimates of expected outcomes and impacts under various funding scenarios.

Alternative budgeting constructs – even the types of zero-based systems previously deemed unworkable due in part to a lack of data – could be enabled with the existence of plentiful performance information. Applying Moneyball-type principles to government that require the use of evidence and hard data would help ensure sound rationales are used to allocate taxpayer dollars, rather than a reliance on gut instincts and intuition.

Within the executive branch, the role of federal chief financial officers (CFOs), who are generally responsible for budget planning and execution for their agencies, could change. The Association of Government Accountants recently laid out a vision for future federal CFOs suggesting they could operate as forward-looking strategists and data scientists rather than transaction processors. Their perspective could morph to dispassion about agency programs with taxpayers as primary stakeholders. CFOs could then apply rigorous analysis to promote transparency, quantify fiscal implications of policies and assess program effectiveness – all within the context of new budget procedures.

Budget process reform appears to be gaining some traction. Among various groups advocating for reform, the National Budgeting Roundtable—a who’s who of scholars and practitioners dedicated to responsible governance and budgeting—is developing an intellectual framework for federal budget process reform and taking other steps to stimulate academic inquiry and fresh thinking. Further, a bipartisan group of congressmen led by Reps. Jim Renacci (R-Oio) and John Carney (D-Del.) introduced legislation earlier this year to reform the budget process significantly. Momentum could be building for change.

While progress has been made, some of the conditions that led to the formation of the ‘67 commission remain. There is still confusion over budgetary and accounting processes and results, poor accountability and transparency, a lack of public understanding and a failure to consider long-term implications of federal fiscal policy. Clearly, form follows substance; while process reforms are no substitute for the tough decisions that must be made to strengthen our democratic governance processes and put the U.S. on a sustainable fiscal path, the time is right for consideration of fresh budgeting procedures for the U.S. government.

Criscitello is executive director of the Center for Finance & Policy at the MIT Sloan School of Management.