Biennial Budgeting: Better Value for Taxpayers

Every year Congress faces annual battles over how spend to taxpayers’ money, but precious little effort goes into how to both save it and use it more effectively. A biennial budget would enable Congress to be a better steward of taxpayer’s dollars. Instead of an annual budget process, which Congress rarely completes on time, Congress would be able to devote the second year of a two-year budget cycle to oversight, streamlining, and elimination of government programs that are no longer necessary.

THE PROBLEM

The budget process encourages spending, not oversight.

Budget deadlines are repeatedly missed, completed by way of last minute political deals.

From 1975 to 2000, Congress met its statutory deadline for passing its annual budget resolution only five times.¹ Since then it has gotten worse. Congress has failed two-thirds of the time to pass budget resolutions in both years of its two-year term. For appropriations, since 1996, Congress has been late an average of 86 days after the start of the fiscal year.² While Congress doesn’t technically need a budget to raise revenue or appropriate funding, being fiscally responsible is difficult without one. Moreover, Congress can’t use reconciliation rules to cut the deficit if the House and the Senate don’t adopt the same budget.

The delays are because the same budget process that was used for a $500 billion budget is used for a three trillion dollar budget. Each year, the budget and government in general get more complicated and the process that is used to pass it seems more arcane. As a result, budgets are passed by cutting last minute back room deals, the exact type of horse-trading most strongly opposed by the public. Imagine, for instance, that rather than increasing the budget every year and allocating additional revenue, Congress had to cut the budget. Would we really want to reduce funding for programs indiscriminately via last minute deals cut at the highest level of political clout? Obviously not. Neither is this the best way to make appropriations decisions.

With barely enough time for authorizing and appropriating, there’s no time to evaluate and crack down on waste.

Each year, valuable space on the cramped Congressional calendar is absorbed by the annual appropriations process, commanding significant attention, time, and resources from Members of Congress and their staffs. The authorizing committees are similarly oriented toward renewing, expanding and modifying existing programs. As a result, efforts to monitor the performance of government programs and eliminate wasteful spending are often given short shrift.³

The absence of careful and consistent pressure for making government efficient and effective comes with a heavy price. The House Committee on Oversight and Government Reform has identified $26 billion in annual savings the government agencies could save if they had implemented recommendations from the inspectors general in each department, but Congress has done little to follow-up.⁴

For example, the Social Security Administration Inspector General in 2006 estimated the government could save more than $2 billion annually by stopping disability benefit payment to people whose health had improved or who had gone back to work.⁵ Although Congress has held many hearings about ending a backlog of applications, which would increase spending, it has not held a single hearing about stopping overpayments since the inspector general’s report came out.⁶

This example is not an isolated problem. The Project on Government Oversight, a leading independent organization for investigating federal corruption and misconduct, has found a significant decline in Congressional oversight in the past few decades.⁷

The current budget process is short-sighted.

The current budgetary process requires immense time and staff-power. These resources are put to task every year as Congress debates anew issues that got seemingly limitless attention just a year prior. The same is true of executive agencies; preparing annual budgets is time not spent actually fulfilling the mission of the organization. All of this time and energy is spent focusing on the next fiscal year without incorporating longer-term financing and strategic planning. The reality is that vast resources, both in terms of human and financial capital, are wasted on repeating the budgetary process each year, a process that is needlessly short-sighted at that.

THE SOLUTION

Biennial Budgeting

Under the major proposals for biennial budgeting the first session of each Congress would be devoted to budget action. The second session would focus on oversight of federal programs, authorizing legislation, and legislation needed to adjust budget laws for changing conditions or unforeseen events.

Renewing oversight and stewardship.

Juxtaposed to the present system, a comprehensive biennial budget cycle would encourage more vigorous oversight of federal programs. Biennial budgeting would make the budget process more efficient, reduce needless duplication, and free executive agencies and Congress to better attend to the concerns of American citizens. This improvement would help reorient congressional responsibility away from simply spending money, and towards effective stewardship of the nation. For example, Congress could set a goal to eliminate five percent of existing government spending in each department per cycle, with the idea that it will add a portion of the funds back to programs that are proven effective during the next appropriations year. America’s fiscal health depends to a great extent on the dedication of congressional oversight. With such a process, budget reform would become a critical part of our deficit solution.

Greater opportunity for long-term strategic planning.

If a longer-term perspective on budgeting were adopted by Congress and executive agencies it is likely that the programs created and funded would be better structured than those developed under the current system. A shift to a longer-term plan would bring government in line with a well-established business practice that has been used in the private sector for decades. A biennial budget would also increase predictability and stability for state and local governments, which rely on federal funding and regularly enter into joint ventures with the federal government.

Fewer chances for pork-barrel spending.

While mandatory spending on entitlements and interest is set to consume an increasing proportion of the budget in coming years, pork-barrel earmarks are still a major source of waste and inefficiency. Congress spent $16.5 billion on pork-barrel projects in 2010.⁸ Reducing the number of opportunities for members of Congress to include pet-projects into bills, while increasing the scrutiny of the way money is actually being spent, will either cut spending by tens of billions or create better value for taxpayers by eliminating earmarks altogether. Both outcomes are worthwhile.

Critiques & Responses

Biennial Budgeting

Two-year budget forecasts are less reliable.

A budget is only as good as its underlying predictions. That is true for both annual and biennial budgets—and prediction errors are fairly minimal two years out compared to just one. From 1995 to 2006 budget errors averaged 4.23% for predictions one year ahead and 8.84% for predictions two years out.⁹ When such errors are significant, second year budget adjustments would be necessary. But the gains from better program performance through oversight would offset the risk of budget errors.

Congress will find ways to reopen the budget in off-years.

The success of any budget cycle seems to depend on the commitment of officials to solid implementation. In 2000, a GAO study found that whether a biennial cycle reduces time spent on budget matters depends on the ability of Congress and the Executive to reach agreement on how to design and enforce the off-year process and how to respond to unanticipated needs. If it is easy to trigger a “reopening” of funding decisions, the process could look very much like an annual budget. Thus, if a shift is to lead to increased oversight there must be commitment to such oversight activities over and above any time-savings.

Budgeting every other year will keep government from responding to a crisis.

Any adjustments that need to be made in the face of a crisis like the Great Recession could be done by allowing the President greater latitude for making budgetary adjustments in off-years or by engaging in mid-cycle corrections. It is critical to have a formal structure agreed upon and in place, however, to ensure that any adjustments that are needed do not turn into completely new appropriations bills. For example, Ohio funds its capital budget in the second year of the biennium while Arizona makes technical and mandatory formula adjustments only. In both cases the legislature had to delegate some authority to the executive branch, but the fear that total control will pass to the President is not supported by state experience.

A biennial budget would up the partisan ante by raising the political stakes of each cycle.

Our current process is already highly contentious, and will continue to be for the foreseeable future whether the budget is done every year or every other year.¹⁰ As long as the process is going to be political, which it is supposed to be, it makes sense for it to be structured in a way that better achieves our true objective—effective use of public funds.

Spending cuts would be difficult as they would come in an election year.

False. The second year of the budget process would be about gathering information, not making active cuts. The cuts would come after an election during the process of creating the next 2-year budget. Politics are always going to be involved in but budget, but this process would result in a more rational, evidence-based discussion over what gets cut and why.

A biennial budget doesn’t deal with the root causes of the problem at hand.

No procedural fix can substitute for the tough substantive policy decisions that Congress will be forced to make to curb our ever increasing deficits. That does not mean, however, that we should not create the best environment in which Congress is making those decisions. Reorienting congressional responsibility towards oversight and stewardship and away from spending, while not a silver bullet for difficult policy choices, will help create a context in which those choices can be more effectively made, and then more critically evaluated.