Hearing of the Committee on Rules
"Biennial Budgeting: A Tool for Improving Government Fiscal Management and Oversight"
Professor, Cornell University
Mr. Chairman and Members of the Committee, thank you for inviting me to contribute to your hearing on the possibility of establishing a two-year Federal budget and appropriations cycle. I have followed discussions and research on this issue for more than a decade. My remarks build on previous Senate testimony and an article written for Policy Studies Review.(1)
Highly divergent views have been expressed on this issue. Some argue biennial budgeting would be a "dramatic improvement in the way Congress does business" and promises a more efficient and responsive government. I hope this proves to be the case, but there is certainly no guarantee. Others warn of a "collapse" of the budget process. At worst, however, budgeting would be biennial in name only – a condition that would undoubtedly lead to the eventual return of our present system. My prior writings have suggested, primarily on the basis of state experience, that biennial budgeting could have significant benefits if adopted at the Federal level. I continue to hold that position. What follows is some of what we know about biennial budgeting, in addition to my analysis of some of the major issues.
Streamlining the Budget Process
There seems to be consensus in Congress that its Members suffer from what Senators Robert Byrd and Pete Domenici call "fractured attention" – an overwhelming schedule that prevents important issues from receiving sufficient consideration. Last month, for example, more than a dozen Members of Congress offered statements at a hearing regarding the budget process (February 16). Their statements suggest widespread agreement not only that budgeting consumes enormous amounts of time but also that there is insufficient time for oversight, authorization, policy reform, or even a thorough review of spending measures. Even Congressman David Obey, who is uncomfortable with the biennial budgeting idea, observes a lack of oversight and a budget process that is "a mess."(2)
Given the aforementioned problems, a central question is whether biennial budgeting would streamline the budget process – that is, would it reduce Legislative Branch and/or Executive Branch time devoted to budgeting in a two-year period? To answer this question, one would like to examine international experience. But the almost universal use of annual budgeting by other nations makes that impossible. Still, an international perspective on this issue generates two findings worth noting. One is that legislators devote considerably less time to budgeting in parliamentary democracies – interminable budgeting is largely an American phenomenon. The other finding is that annual budgeting is a product of custom and tradition, not fiscal theory.
Turning to examine the very limited Federal experience with biennial budgeting, one finds only a single academic study – on the Department of Defense's formation of a biennial budget for Fiscal Years 1988 and 1989.(3) In that article, Professor Robert J. Art of Brandeis University indicates there were various reasons for the Congress, President and Pentagon to experiment with a two-year budget. Some were attracted by the perceived opportunity to avoid spending cuts, insulate the Department from the 1988 election, and "get Congress off their backs." Others saw the biennial budget as a chance for Congress and Pentagon managers to conduct more effective program oversight, evaluation and planning.
Professor Art concludes the experiment was a "half success." He writes:
Biennial budgeting yielded no payoff for program stability but a great deal of programmatic and policy oversight. The vagaries of deficit reduction and electoral politics subverted the former [i.e., Congress authorized only part of the two-year budget and appropriated only one year of it]; the free time provided by the off year made possible the latter.(4)
Pentagon comptrollers, service programmers and civilian managers agreed that biennial budget preparation was beneficial. The two-year schedule reduced their problems related to overlapping budget cycles, and enabled analysis, evaluation, database updating, and planning. Services chiefs collaborated on the shared problem of pilot retention. The Navy conducted long-range studies on anti-submarine warfare, future ship operating characteristics, and naval aviation needs. Planning for withdrawal from Panama was also begun. Art reports that biennial budgeting allowed Defense Department administrators "the time to do the things they should have been doing but never could because of the rat race of annual budgeting."(5)
In short, even as a "half success," biennial budgeting at the Pentagon saved time relative to annual budgeting.
Recognizing that states provide natural "laboratories of democracy," many studies have examined state experiences in search of insights relevant to Federal biennial-budgeting discussions. There is disagreement about looking to the states for lessons on this issue. On the one hand, some observe that biennial budgeting is found primarily in small states. On the other hand, the executive director of the National Association of State Budget Officers argued in 1986 that many state budgets are "every bit as complex" as the Federal budget.(6) In my view, an examination of state experience is warranted, especially since other forms of evidence are scarce.
It is often argued that the state-level trend is toward annual budgeting. This was true from 1940 through 1986. Since 1986, however, there have been four changes – all in the direction of two-year budgeting. Table 1 identifies states that currently employ two-year budgeting. States changing their budget process since 1986 are noted along with the year of the change.
Biennial-budgeting states devote one year (or a portion thereof) to budgeting and appropriations, and the following year to oversight, planning and evaluation. In my 1996 article, "Biennial Budgeting for the Federal Government: Lessons from the States," I reviewed seven studies of state budgeting published between 1972 and 1995.(7) The studies, including examinations of states changing from one budget length to another, reveal that biennial budgeting is less time consuming and expensive than annual budgeting. In other words, even after mid-term adjustments are taken into consideration, two-year budgeting eases budgetary burdens on the legislature and public agencies. As for the possibility of a correlation between biennial budgets and increased reliance on supplemental appropriations and rescissions, evidence from older studies is mixed while the two most recent studies (published in the mid-1990s) find no correlation.
Concrete estimates of time saving are hard to find. But estimates provided by state budget officers in both the 1970s and 1990s suggest that off-year budget work is about one-third as time consuming as annual budgeting. Estimates of direct cost savings, meanwhile, range from a few thousand dollars to half the price of an annual budget.(8)
| Biennial Enactment of Two Annual Budgets | Biennial Enactment of a Two-Year Budget | Mixed Budget Cycle | |
|---|---|---|---|
| Annual Legislative Session | Arizona (1999) Connecticut (1991) Hawaii Maine Nebraska (1987) Ohio Virginia Wisconsin |
Indiana Minnesota New Hampshire North Carolina Washington Wyoming* *(Wyoming's legislature meets 20 days in the non-budget year.) |
Kansas Missouri (1994) (In Kansas, 20 regulatory agencies are budgeted via two annual budgets; in Missouri, the operating budget is annual while the capital budget is biennial.) |
| Biennial Legislative Session | Arkansas Kentucky Montana Nevada |
North Dakota Oregon Texas |
|
| Total |
Making Government More Effective
Streamlining the budget process might help reduce the "fractured attention" problem mentioned earlier. But is this change likely to make the U.S. Government more effective? If the experience of the Defense Department and the states is any indication, the answer is yes.
According to the aforementioned study of the Defense Department's experiment, biennial budgeting produced better evaluation of policy execution and more effective long-range planning. The study's author adds that such results can have significant budgetary consequences, since gains in the realms of evaluation and planning can improve the future allocation of resources. Thus, the ultimate benefits of biennial budgeting are better-quality decisions and greater government efficiency.
While Professor Art does not provide an estimate for the total of potential indirect cost savings, he insists they can be sizeable -- especially as a result of lower procurement and weapons-production costs. His report suggests that biennial budgeting could help reduce the unit cost of some weapons by over 50 percent.
State-level experience, meanwhile, suggests that biennial-budgeting states give greater attention to legislative oversight, agency management, analyses of program outcomes, and long-term planning.(9) While it is too early to evaluate Arizona's recent move to a two-year budget, Governor Jane Hull's recent mid-biennium report indicates her budget office and other agencies have already devoted more time to program evaluation.(10) According to the studies of state experiences, there is widespread belief in the states that this non-budget work improves government performance.(11)
In addition to promoting increased program effectiveness, biennial budgeting at the Federal level could enable Congress to give closer scrutiny to particular outlays, especially in the difficult realm of "mandatory" spending. Two-year budgeting also permits changes to be imposed gradually – and without an automatic annual revisiting of decisions. Although some have suggested that biennial budgeting will cause agencies to seek greater spending cushions (i.e., budget "padding"), published examinations of state budgets do not support this contention.
Enhancing Economic Stability
As in the states, biennial budgeting at the Federal level would require provisions allowing for changes in response to major unanticipated developments and emergencies. But even with such provisions, state-level studies find that biennial budgets promote increased stability and certainty. This is clearly advantageous to agencies – and compatible with the objective of enabling public managers to focus on improving program results. Yet government contractors, grantees and program recipients also benefit.
In 1997 testimony before the Senate Committee on the Budget, Dr. John McTague discussed the benefits of enhancing predictability with respect to investments in science, technology and capital-intensive projects.(12) More than a decade earlier, Dr. Alice Rivlin went further and suggested the increased continuity of biennial budgeting would benefit all Americans.(13) I agree with Dr. Rivlin that we can prevent often-costly disruptions of public and private activity by minimizing unexpected changes in tax and spending policies.
Some say biennial budgeting would seriously weaken Legislative Branch control over the budget and the Executive Branch. Others disagree by maintaining "the grounds [for this belief that control will be lost] are quite shaky" and suggesting that Congress would retain its authority by using two-year budgeting as an opportunity to intensify oversight.(14) My position falls in the middle. On the one hand, the appropriations process "provides a helpful hammer;"(15) on the other hand, annual use of that hammer seems to contribute greatly to the problem of fractured attention.(16)
Summary and Conclusion
Taking the problem of fractured attention as my starting point, I have examined available Federal and state evidence and suggested that biennial budgeting would streamline the budget process, enabling both the Executive and Legislative Branches an opportunity to make government more effective. I have also argued that a two-year budget and appropriations cycle could enhance economic stability through increased policy continuity and the gradual imposition of major changes.
Biennial budgeting will not make budget decision-making easier. And its success will depend on Congress's ability to engage in vigorous agency oversight during non-budget years. But such budgeting can complement the Government Performance and Results Act and other recent initiatives that demand attention be given to measures of outputs and impacts, not just dollars spent. I hope you find this information useful as you consider the challenges of the current budget process.(17)
1. Charles J. Whalen, "Prepared Statement" before the Committee on Governmental Affairs, U.S. Senate, S. 261 – Biennial Budgeting and Appropriations Act (Washington, DC: U.S. Government Printing Office, 1997); and "Biennial Budgeting for the Federal Government: Lessons from the States," Policy Studies Review 1996 (vol. 14, nos. 3-4, pp. 303-322).
2. It should be noted that views similar to those heard on February 16, 2000 can be found in the record of numerous hearings held since the mid-1970s.
3. Robert J. Art, "The Pentagon: The Case for Biennial Budgeting," Political Science Quarterly 1989 (vol. 104, no. 2), pp. 193-200.
4. Ibid., p. 208.
5. Ibid., p. 206.
6. Gerald H. Miller, quoted in Jonathan Rauch, "Biennial Budgeting Taking Root," National Journal, September 27, 1986, p. 2318.
7. This article is cited in footnote 1 above.
8. New Jersey Office of Management and Budget, "Biennial Budgeting Survey," February 1995.
9. See, for example, my "Biennial Budgeting for the Federal Government: Lessons from the States," and General Accounting Office, Current Status and Recent Trends of State Biennial and Annual Budgeting (GAO/AFMD-87-53FS, July 1987).
10. State of Arizona, " The Executive Mid-Biennium Update: Fiscal Years 2000 and 2001," January 2000.
11. Consistent with this finding is the February 16, 2000 testimony (before the Committee on Rules, U.S. House of Representatives) of the following Members of Congress – all former legislators in biennial-budgeting states: Hon. Charlie F. Bass, Hon. Doc Hastings, Hon. Bill Luther, Hon . Karen McCarthy, and Hon. Robert W. Ney.
12. John P. McTague, "Statement" and "Written Questions and Responses," in Concurrent Resolution on the Budget for Fiscal Year 1998 [February 13, 1997 – Biennial Budgeting]. (Washington, DC: U.S. Government Printing Office, 1997), pp. 110-114.
13. Alice M. Rivlin, quoted in Congressional Record – Senate (November 24, 1981), p. 28954. See also her related article: "Congress and the Budget Process," Challenge (March-April 1981), pp. 31-37.
14. Roy T. Meyers, "Late Appropriations and Government Shutdowns: Frequency, Causes, Consequences, and Remedies," Public Budgeting and Finance 1997 (vol. 17, no. 3), pp. 25-38.
15. Louis Fisher, "Biennial Budgeting in the Federal Government," Public Budgeting and Finance 1997 (vol. 17, no. 3), p. 90.
16. It is worth noting that agency managers also experience fractured attention under annual budgeting. In his article on the Defense Department, Art writes "The Department cannot both budget and review annually, or, if it does, . . . [it does] both poorly."
17. This statement was prepared for delivery at "Biennial Budgeting: A Tool for Improving Government Fiscal Management and Oversight," Committee on Rules, U.S. House of Representatives, March 16, 2000. The author is Senior Institute Economist, Institute for Industry Studies, Cornell University.
