The Balanced Budget Amendment: How Would It Be Enforced?

In this article we evaluate the likely effect of enforcement provisions to congressional proposals for a constitutional balanced budget amendment. We define four general areas of enforcement: legislative, executive, judicial, and public opinion. Each of these areas is in turn evaluated along three criteria: political feasibility (can it be enacted and consistently implemented?), effectiveness (is it likely to result in “balance”?), and implications for redistribution of power across branches. We conclude from this analysis that there are limits associated with all balanced budget enforcement provisions. A reliance on one or no explicit enforcement provision would limit the credibility of any constitutional amendment. Ultimately, the enforcement of the amendment would inevitably rest on the commitment of legislators to producing a balanced budget, and in the absence of such a commitment, any enforcement provision would not likely succeed.     

President Clinton's Fiscal 1998 Budget: Political and Constitutional Paths to Balance

This article examines President Clinton's FY 98 budget proposals and the political and economic factors that led to the balanced budget agreement. Also explored are the constitutional approaches to fiscal discipline: the balanced budget amendment, the tax supermajority amendment, and the line item veto that was used 80 times by President Clinton to delete over a billion dollars. The analysis reveals that budget bargaining was continuous before and after the budget agreement was reached, moving downward from decisions on macro-budgetary totals to micro-budgetary choices on tax cuts and appropriations. The study concludes that President Clinton was relatively successful in achieving budgetary goals under divided government, that the agreement was significant despite the economic growth that made it easier, and that constitutional remedies will continue to be important in the coming years.     

State Revenue Forecasts and Political Acceptance: The Value of Consensus Forecasting in the Budget Process

Concerns about political biases in state revenue forecasts, as well as insufficient evidence that complex forecasts outperform naive algorithms, have resulted in a nearly universal call for depoliticization of forecasting. This article discusses revenue forecasting in the broader context of the political budget process and highlights the importance of a forecast that is politically accepted—forecast accuracy is irrelevant if the budget process does not respect the forecast as a resource constraint. The authors provide a case illustration in Indiana by showing how the politicized process contributed to forecast acceptance in the state budget over several decades. They also present a counterfactual history of forecast errors that would have been produced by naive algorithms. In addition to showing that the Indiana process would have outperformed the naive approaches, the authors demonstrate that the path of naive forecast errors during recessions would be easily ignored by political actors.     

Does Direct Democracy Reduce Public Debt Evidence from Swiss Municipalities

Although some countries have managed toobtain balanced budgets or even budgetsurpluses in recent times, public debts ofmany OECD countries remain at high levels.Since structural reforms of public spendinghave only infrequently taken place in mostcountries, fiscal pressure will increaseagain in the future due to society's ageingand the accompanying increases in socialtransfer spending. Constitutionalrestrictions on debt levels and legal rulesof the budgetary process, such as a strongrole of the minister of finance, aresupposed to be helping against the debtbias inherent in political decision-makingprocedures. In addition to such top downbudgetary procedures, this paperinvestigates the impact of referendumapproval of budget deficits by the voterson the level of public debt in a crosssection of the 134 largest Swissmunicipalities in 1990.     

How to Succeed at Increasing Spending Without Really Trying: The Balanced Budget Amendment and the Item Veto

Congressional efforts at budgetary reform generally contain procedural impediments designed to limit profligate spending. In particular, the line-item veto and the balanced budget amendment are intended to limit the ability of legislators to pursue their constituents' interests through pork-barrel politics at the expense of the broader public interest. However, assuming that legislators remain motivated by local constituent interests, we argue that these reforms will promote unexpected results. The supermajorities requires by the line-item veto and the balanced budget amendment include incentives for log-rolling that promote – and may indeed increase – pork-barrel spending.     

Earmarking as a Strategy Against Budgetary Constraints: San Francisco's Children's Amendment

The passage and implementation of the San Francisco Children's Amendment, or Proposition J, in 1991 represents an important expansion of the increasingly common strategy of budgetary earmarking by human service organizations. The core of the initiative was a city charter amendment that earmarked a portion of existing property taxes and established a baseline budget for children's services. Of these provisions, the baseline budget has proven most important in preserving children's services and preventing any substitution effects in a time of increasing fiscal stress for the city/ county of San Francisco. This case also illustrates the role of a strong political appeal in passing technical budgetary initiatives over the objections of elected officials and others. While there was concern about the reduced flexibility created by earmarking a city's budget during a period of retrenchment, this concern was overlooked because of the overwhelming political support for the children's cause. However, conflict between groups was created by the measure as groups fought to be included in the provisions of the amendment and over whether each group had obtained its fair share of funding.     

State budget periodicity: An analysis of the determinants and the effect on state spending

Much of the public budgeting literature focuses on the institutional rules of budgeting and how those rules affect process and outcomes. This study focuses on a particularly rudimentary rule of budgeting: the length of the budget period. State budgets are dictated (constitutionally or statutorily) to recur over one-or two-year intervals. Statistical analysis of the determinants of state budget periodicity shows that the more states spend, ceteris paribus, the more likely they are to budget annually. I hypothesize that budget periodicity has the opposite effect on spending: Biennial budget states spend more, ceteris paribus, than annual budget states spend. Ordinary least squares analysis does not support the hypothesis, but with instrumental variable methods, biennial budgeting exhibits a positive and statistically significant effect on state spending.     

Budget Balancing in Difficult Times: The Case of the Two New Yorks

The objective of governments is to efficiently provide essential services and infrastructure to their jurisdictions at a competitive tax rate within the constraint of a balanced budget. In recent years, several states have found it difficult to maintain this standard. This article examines the nature of the problem in the overlapping jurisdictions of New York City and New York State. Specifically, it explains the nature of projected budget gaps that have emerged in New York, and describes how the two New Yorks' political leaders have managed their budgets in recent years. Furthermore, this article demonstrates that expenditures significantly exceed revenues, thus leading to inevitable budget gaps, and that policies designed to close the gap have harmful consequences.     

Searching for a Role for Citizens in the Budget Process

Citizen participation in the local budget process is not prevalent, despite encouragement from scholars and professional organizations. This case study of two Kansas cities that have used a variety of input mechanisms in the budget process analyzes the effectiveness of citizen budget participation. Limited effectiveness was found, which may largely be due to the timing of the input, unstated or unclear goals, implementation difficulties, and political and environmental constraints. Citizen input appears to have had little effect on budget decisions, and neither city has institutionalized participation in the process. However, the input mechanisms serve other purposes, such as education and support for specific proposals. Describing the benefits as well as the difficulty of involving citizens in a meaningful way is beneficial to other governments as they wrestle with the issue of defining the citizens' role in the budget process.     

When Politics Matters: The Impact of Politicians' and Bureaucrats' Preferences on Salient and Nonsalient Policy Areas

For three decades, the “politics matters” literature has found that political ideology is an important explanation of public policy. However, this literature systematically fails to include the influence of the bureaucracy. In fact, it is almost impossible to identify a single study in this literature that controls for the influence of the permanent bureaucracy. In this article, we investigate whether politics still matters when bureaucratic preferences are taken into account. We do this in a simultaneous test of political and bureaucratic influences on public budgets, a policy measure often studied in the “politics matters” literature. We find that political preferences trump bureaucratic ones in policy areas salient to the public but not in less salient areas. This might be comforting news from a democratic perspective. However, as public budgets represent an easy case for political influence, it is food for thought that political preferences do not always prevail.     

Budgetary Reform and Formal Modeling: A Comment on Gabel and Hager

In a recent article, Gabel and Hager argue that the line-itemveto and the balanced budget amendment promote (BBA) and mayincrease pork-barrel spending. In their discussion of thebalanced budget amendment, Gabel and Hager present one exampleto support their claim. I demonstrate that the effect of a BBAin their model is highly contingent on parameter values, andthat their results hold only for a specific set of parametervalues. Further, in a generalized model where the balancedbudget amendment is crafted endogenously, the BBA that isenacted has the effect of either decreasing spending orkeeping it constant.     

Niskanen effects in the California Community Colleges

The regression results of this paper show that bureaucrats act to maximize both their outputs and their discretionary budgets as predicted by Niskanen for demand constrained conditions. But the evidence does not confirm the Niskanen hypothesis concerning chronic oversupply by bureaus. Further, the evidence here shows that the discretionary budgets of bureaus may not fall to zero as suggested by Niskanen. Instead, it would appear that, given severe budget constraint bureaus may not produce an excess supply of output and may cut costs in an effort to maintain a positive discretionary budget balance.     

Instrument choice,political reform and economic welfare

The purpose of this paper is to formally examine the effect of placing constraints, such as the line-item veto or a balanced budget amendment, on legislative behavior. There are two basic findings that emerge from the analysis. First, constraints on one type of instrument, such as spending, will in general result in more widespread use of other kinds of instruments, such as regulation. Second, it is naive to conclude that constraints on legislative behavior will promote economic efficiency and/or reduce the growth of government. The primary contribution of the paper is to suggest how changes in the political environment can affect instrument choice, economic welfare, and the size of government.This research was supported in part by a grant from the National Science Foundation Decision, Risk and Management Science Program. The author gratefully acknowledges the helpful comments of Ed Campos and Allan Meltzer. The views in this paper are solely those of the author and do not necessarily reflect the views of the Council.     

Spending Stabilization Rules: A Solution to Recurring State Budget Crises?

Recurring state fiscal crises raise a fundamental question: Is it possible to stabilize budgets over the business cycle? This paper examines spending stabilization rules, an alternative to the inaccurate process of budget forecasting. Under two spending rules, we assess how state budget situations would compare with actual experience. Our analysis reconstructs recent aggregate state budget patterns assuming states had adopted a rule and then takes a closer look at California and South Carolina. With surpluses partially invested in a rainy‐day fund, a spending rule resulted in stable growth of state budgets throughout the recession and sluggish recovery of the early 2000s.     

The contractual nature of budgeting: A transaction cost perspective on the design of budgeting institutions

Viewing budgets as contracts, transaction cost theory focuses on the costs of negotiating and enforcing the myriad political agreements by which policymakers allocate the government's resources. This essay provides an overview of transaction cost theory and its implications for the design of budgeting institutions. It contrasts the behavioral premises (bounded rationality and opportunism) of the transaction cost approach with those of more traditional budgetary theories, and examines whether commitment and agency costs have structured budget actors' institutional choices. Investigation of the usage of key budget instruments- entitlements, multi-year appropriations, and tax expenditures - suggests that Congress has been more discriminating in its institutional choices than is commonly supposed. Sensitivity to the importance of transaction costs would increase the effectiveness of budget reforms.     

Toward a Regulatory Budget

A regulatory budget would require the federal government to treat compliance costs incurred by the private sector as if they were incurred by the government, without requiring the government to actually assume those costs. For example, EPA could be given a regulatory compliance budget of say $80 billion in FY98. A regulatory budget would provoke an annual debate in Congress on the size of EPA's or OSHA's budget. Such a debate would force the proponents to weigh the benefits and costs of various regulatory programs, something now lacking in the political process.
Interest in a regulatory budget reflects the slight gains in the quality of regulatory decision making resulting from mandatory regulatory review. It is now apparent that better information about the costs, benefits, and distributional consequences of regulation will not automatically improve regulatory decision making-although it would not hurt.     

Pollution,Politics, and Preferences for Environmental Spending in the States

While state environmental and natural resource spending is designed to address actual environmental problems, the budget process is also inherently political. Thus, in the following article we ask a simple question: to what extent does state environmental and natural resource spending respond to the scope of environmental problems in a state, versus the demands of the political process? Unlike the bulk of previous research, we consider both aggregate spending and program‐specific spending. We also consider how the severity of environmental problems and the political environment may interact to determine spending. The findings show that politics, specifically the strength of the environmental movement, is a more important determinant of state environmental spending than pollution severity. However, for some program areas, it appears that strong environmental groups make state budgets more responsive to the severity of environmental problems.     

Regulatory budgeting: A bad idea whose time has come?

Advocates of regulatory relief propose a budget that would annually cap regulatory costs. But emulating fiscal budgeting would be much more difficult than they envision. An arbitrary macrobudgetary constraint would have to be selected, and the potential scope of the regulatory budget would be vast. The process of regulatory budgeting would be very-time consuming, and could increase micromanagement by the Congress. Estimating regulatory costs would be challenging, and ignoring regulatory benefits would be unfair and inefficient. A preferable alternative to regulatory budgeting would be to expand the Government Performance and Results Act to include cost-effectiveness reviews for regulations.     

From managerial reform to democratic reformation: Towards a deliverative public administration

In the State of Victoria, Australia the Kennett government implemented a radical public sector reforms matched perhaps only in Britain and New Zealand. Responding to fiscal crisis, the Government balanced the budget, attracted new investment and capital projects, and instilled new economic confidence. However, the revolution had its costs. This article examines the effects of managerial reform on accountability and democracy. The structures, systems and methodologies of the Government eliminated real deliberation over options, benefits and costs. The quality of public discourse between government and constitutents about the democratic process was stifled. An economic and fiscal perspective replaced a political and legal understanding of public bureaucracy. The article provides a case study of Victorian reforms, and a theoretical examination of the case, suggesting that public administration should be reconceptualized in more pluralistic and democratic terms.