The influence of the gramm-rudman-hollings act on federal budgetary outcomes, 1986—1989

This article analyzes the impact of the Gramm-Rudman-Hollings (GRH) Act on federal budgetary and fiscal outcomes. Rather than portraying it as a two-on federal budgetary and fiscal outcomes. Rather than portraying it as a two-party game between Congress and the president, each with monolithic policy preferences, we view GRH as a multiparty negotiation game among advocates of different programs and agencies. In this game, agencies subject to sequestration and their congressional advocates have an incentive to reach a budget accord, while those exempt from sequestration do not. Consistent with this argument, we find that GRH has restrained outlays for nonexempt programs and that exempt programs have, if anything, experienced more rapid growth. Overall, GRH is estimated to have restrained outlays by $59 billion by fiscal 1989, and to have restrained outlays more effectively after the 1987 modifications in the Act. The Gramm-Rudman-Hollings Act signals another phase in the decade-long struggle between the White House and Congress over public spending priorities. Our final counterfactual analysis suggests that GRH partially returned federal fiscal and budgetary relationships and priorities to those that prevailed before Reagan.     

How Weak Recognition and Measurement in the Federal Budget Encouraged Costly Policy: The Case of "Supervisory Goodwill"

The budget process is the primary means by which federal policymakers allocate resources. The failure of the budget to recognize and measure the full cost of federal programs encourages the Congress and president to skew resource allocation toward policies whose budgetary costs are underestimated. These "low-cost" policies often increase costs to taxpayers without providing taxpayers with benefits. Recent examples of this phenomenon are found in the "supervisory goodwill" cases. This article reviews these cases, the budgetary weaknesses they identify, the influence these weaknesses had on legislators, and the unnecessary costs for taxpayers that result from the supervisory goodwill policy. Specifically, the federal budget did not recognize the cost that would result from encouraging financial institutions to assume the assets and liabilities of insolvent savings and loans. The budget's recognition of costs failed a second time by not recording expenditures when the government abrogated its contracts with acquirers. Both actions raised costs to taxpayers unnecessarily. In addition to analyzing budgetary weaknesses and their potential costs, this article also reviews two proposed budgetary reforms that could address the budgetary failures highlighted by the supervisory goodwill cases.     

The budgetary implications of welfare reform: Lessons from four state initiatives

Required work and training, a major component of recent “welfare reform” proposals, is intended to increase the self-sufficiency of welfare recipients and thereby produce savings for government treasuries as well as more income for the recipients themselves. This analysis focuses explicitly on the budgetary effects of such activities, estimating the cost savings and new revenues generated by welfare employment programs started in four states since 1981. It suggests that when a broad range of effects are taken into account over a sufficiently long period, the overall budgetary implications of the programs are usually positive at the federal, state, and local levels of government. The costs and gains, however, are shared unevenly by the three levels, which encourages disparities in the programs states and localities choose to implement.     

Recent trends in workers' compensation

Workers' compensation provides cash benefits and medical care to employees who are injured on the job and survivor benefits to the dependents of workers whose deaths result from work-related incidents. Workers' compensation programs in the 50 states and the District of Columbia and federal programs together paid $56.0 billion in medical and cash benefits in 2004, an increase of 2.3 percent over 2003 payments. Of the total, $26.1 billion was for medical care and $29.9 billion was for cash benefits. Employers' costs for workers' compensation in 2004 were $87.4 billion, an increase of 7.0 percent over 2003 spending. Workers' compensation programs and spending vary greatly from state to state. As a source of support for disabled workers, workers' compensation is currently surpassed in size only by Social Security Disability Insurance (DI), which covers impairments of any cause that are significant, long-term impediments to work. Although most recipients of workers' compensation recover and return to work, those with lasting impairments may become eligible for DI benefits, subject to an offset to avoid excessive wage replacement from both programs.     

Budgetary Incentives for Retail Activities at Military Bases

The Department of Defense (DoD) operates an extensive system of retail activities at military bases for active duty, retired, and reserve personnel and their families. DoD stores employ 96,000 civilian workers and sell $14 billion of goods and services annually at below-market prices. DoD resists efforts to reduce its role in retail activities, arguing that even within the United States stores with below-market prices are a cost-effective alternative to higher cash compensation for military personnel. This article examines the budgetary incentives that make inefficient, government-operated stores attractive to DoD and describes options that would change those incentives. Because most of DoD's retail stores are controlled by nonappropriated fund instrumentalities of the federal government, reforming those incentives could require changes in the treatment of these poorly understood federal entities.     

Determinants and Evaluation of Local Energy‐Efficiency Initiatives from the American Recovery and Reinvestment Act

This article examines variation in local‐level energy‐efficiency grants and corresponding initiatives from the American Reinvestment and Recovery Act (ARRA) in the United States. The analysis is based upon a hurdle model of counts of energy‐efficiency grants received by 348 local governments that received these grants from 2009 to 2013, as well as 348 matched local governments that did not receive such funds. City‐level characteristics including amount of federal financial support, per capita income, signaling of preferences for sustainability policies, manufacturing, and political influences are shown to be empirically important determinants of variation in local energy‐efficiency initiatives. The evidence suggests that all else held equal, the $21.8 billion in ARRA funds expended with the intent of increasing local energy‐efficiency programs and policies successfully led to this end.     

Budgeting for Federal Capital

This article examines the issues involved in federal investment budgeting and planning for the acquisition of federally-owned assets. It describes the unique role of the federal government and examines the different issues and reforms prompted by differing types of capital and investment sponsored at the federal level. It suggests that meaningful changes can be instituted in our budgeting practices that can make a difference for our budgetary choices without adopting a full-scale capital budget. It also presents a framework for improving federal agency capital decision making based on a study of practices used by leading state and local and private sector organizations. The article is based on testimony delivered before the President's Commission to Study Capital Budgeting.     

The consequences of the US DOJ’s antitrust activities: A macroeconomic perspective

Do the antitrust law enforcement activities of the US Department of Justice act as exogenous “technology shocks” or as “markup shocks” limiting market power and promoting economic growth? We analyze annual time series data from 1947 to 2003 on three measures of federal antitrust intervention: the ratio of the Antitrust Division’s budgetary expenditures to GDP as well as the numbers of civil and criminal antitrust cases instituted. We find that changes in the levels of these policy variables act like negative technology shocks and that the negative effects are transitory; antitrust policy generates no subsequent offsetting increases in productivity.     

From Voucher Auditing to Junkyard Dogs: The Evolution of Federal Inspectors General

Accountability in American government reaches as far back as the Continental Congress and General Washington's army. This tradition of accountability is carried on today by inspector general offices set up in almost every major department of the federal government. Through their audits and investigations, the inspectors general voice concerns over government internal controls, economy, efficiency, and effectiveness. Since 1981 they claim savings from their work totaling $92 billion.
"Some officials handle large sums of public money; it is therefore necessary to have other officials to receive and examine the accounts. These inspectors must administer no funds themselves. Different cities call them examiners, auditors, scrutineers and public advocates." These are the words of Aristotle in 325 B.C. Today, the United States government has its inspectors general to examine, audit, scrutinize, and advocate.     

Games presidents do and do not play: Presidential circumvention of the executive branch budget process

The federal executive budgetary process has been severely criticized in recent years for its apparent inability to curb budgetary growth and limit deficits. Much of this criticism ignores the essentially political, rather than administrative, causes of these trends. Budgetary growth and deficit spending may be viewed in part as the results of presidential circumvention of budgetary and fiscal policy processes. Circumvention consists of the movement of spending decisions out of the annual review and evaluation of current-year budgetary formulation, thus evading the constraints frequently imposed by budgetary and fiscal policies. The precise mechanisms of presidential circumvention have changed over time. However, the long-term impact of circumvention has been a reduction in the controllability and comprehensiveness of the annual federal budget, as well as higher rates of budgetary growth.An earlier version of this paper was presented at the meetings of the American Political Science Association, September 1–4, 1983. We would like to thank George Downs, William Lammers, Harold Seidman, and James Sundquist for useful comments and discussion.     

Evaluating and redesigning subsidy policies for home rehabilitation

A method is developed for empirically estimating the direct leveraging, indirect leveraging, and externality benefits accruing from home rehabilitation subsidy policies. The method is applied to two single-family home rehabilitation subsidy programs administered by Minneapolis from 1976 to 1980. Multivariate statistical analysis of sampled homeowners reveals that for each dollar of grant and loan received, all else equal, participants spent $1.62 and $0.345 more, respectively, of their own funds on home upkeep, all expressed as annual averages for the period. A tentative finding of indirect effects on proximate homeowners' confidence in the neighborhood and concomitant rehabilitation expenditures is also observed. These home improvements, in turn, created an additional aesthetic externality benefit.Benefit-cost analyses employing estimated parameter values are conducted. Results show that both grants and loans are net beneficial from the societal perspective. From the budgetary perspective of the public sector, the grants program was net beneficial. Loan programs involving very low interest rates, deferred payments, and/or lengthy repayment schedules typically were not. Under wide ranges of parameter values, however, subsidized loans can be devised which yield superior budgetary efficiency to grants.These findings suggest that home rehabilitation subsidy policies should be redesigned so that the mix of grants and loans for individual recipients is varied in order to enhance budgetary efficiency. The central principle is to require that recipients who can afford to do so take out loans on terms which render them more net beneficial than grants, before any grants are awarded.     

Political Science and Prediction: What's Next for U.S. Climate Change Policy?

This article analyzes how U.S. climate change politics and policy making are changing in the public, private and civil society sectors, and how such changes are likely to influence U.S. federal policies. It outlines the current status of U.S. climate change action and explores four overlapping pathways of policy change: (1) the strategic demonstration of the feasibility of climate change action; (2) the creation and expansion of markets; (3) policy diffusion and learning; and (4) the creation and promulgation of norms about the need for more aggressive climate change action. These four pathways seek to fruitfully draw from rationalist and constructivist approaches to policy analysis, without collapsing or confusing the different logics. Building on this analysis, it predicts that future federal U.S. climate policy will include six major components: (1) A national cap on GHG emissions; (2) A national market based cap‐and‐trade GHG emissions trading scheme; (3) Mandatory renewable energy portfolio standards; (4) Increased national product standards for energy efficiency; (5) Increased vehicle fleet energy efficiency standards; and (6) Increased federal incentives for research and development on energy efficiency issues and renewable energy development. In addition, expanding federal climate policy may bring about significant changes in U.S. foreign policy as U.S. international re‐engagement on climate change is likely to occur only after the development of more significant federal policy.     

The Bush Administration's Proposal for Credit Reform: Background, Analysis, and Policy Issues

Large recent and forecasted federal outlays to cover losses on deposit insurance and federally-assisted credit have increased concern in the executive and legislative branches about potential future liabilities of the federal government. These potential liabilities include federal credit; consequently, this renewed interest in federal credit reform. Credit reform would have to change the budgetary treatment of federal direct loans and federal guaranteed loans. Currently, the unified budget measures the cost of federal credit on a cash flow basis. Critics (including the Bush Administration) maintain that the appropriate budgetary measure of the costs of federal credit is the present value of the subsidies to credit recipients in the fiscal year that the credit is advanced. The Bush Administration's proposal for credit reform is presented in most detail in the Federal Credit Reform Act of 1989 (the Act), which was proposed but not enacted. The Act would have had federal officials estimate credit subsidies based on the equivalent interest rates in private credit markets. These subsidies would have been used to measure the budgetary cost of federal credit and would have required annual appropriations. Two credit revolving funds would have been established in the Treasury to finance credit flows. Many of these credit reform practices were included in the Omnibus Budget Reconciliation Act of 1990 though.     

A Comment on "The Great Unraveling: Federal Budgeting, 1998–2006"

To declare that the federal budgetary process is in utter shambles based principally on an analysis of a six-year interval during a single presidential administration, as Professor Irene Rubin does in the preceding article, is unfair to history and misleading. Drawing on significant budgetary experience as a U.S. Senate staff member, the author of this essay argues that (1) the contributions of emergency appropriations and earmarks to the federal budgetary imbalance are overstated, (2) the goal of perpetual budgetary balance is unsound policy, and (3) budgets—inevitably the result of a political process—are artifacts reflecting societal priorities at a given point in time.     

Block Grants: A Perennial, But Unstable, Tool of Government

During 1995 and 1996, the Congress and the president gave considerableattention to block granting over $200 billion in federal intergovernmentalgrant programs, ranging from large entitlement programs to smallerprograms in housing, vocational education, and law enforcement.In the end, the record of successes was modest—highlightedby welfare-reform legislation that, in some respects, resembleda block grant and in others did not. The contrast between processand outcomes in this most recent block-grant cycle reinforcesthe point that block-grant prospects depend on fundamental fiscal,political, and programmatic forces that are separate from federalismconsiderations. The states' maturation as leaders in many domesticpolicy areas strengthens the performance rationale for blockgrants. The federal fiscal crisis will continue to stimulateinterest in block grants among fedeal as well as state policymakers.The proposals offering the greatest fiscal advantage (i.e.,Medicaid and AFDC) may not be those with the strongest performancerationale. Although recent congressional developments suggeststronger support for states, nationalizing forces remain embeddedin domestic policymaking. Thus, substantial questions remain,posing obstacles to a fundamental and sustained role for blockgrants in the federal system.     

There is no free lunch: Unintended effects of the new military retirement system

In June 1986, the new Military Retirement Reform Act was signed into law with the intention of saving $2.9 billion in the 1986 accrual funding of the military retirement budget. This article provides an analysis of the potential effects of the new policy on personnel retention. It concludes that the losses of personnel due to the new retirement system are likely to be much larger than expected, the proportion of higher-quality personnel is likely to be reduced, and policies that can moderate these effects would dilute the intended future cost savings.     

Do intergovernmental grants create ratchets in state and local taxes?

A large literature on the ‘flypaper effect’ examines how federal grants to states at time period t affect state spending (or taxes) at time period t. We explore the fundamentally different question of how federal grants at time period t affect state tax policy in the future. Federal grants often result in states creating new programs and hiring new employees, and when the federal funding is discontinued, these new state programs must either be discontinued or financed through increases in state own source taxes. Government programs tend to be difficult to cut, as goes Milton Friedman’s famous quote about nothing being as permanent as a temporary government program, suggesting that it is likely that temporary federal grants create permanent (future) ratchets in state taxes. Far from being purely an academic question, this argument is why South Carolina’s Governor Mark Sanford attempted to turn down federal stimulus monies for his state. We examine both the impact of federal grants on future state budgets and how federal and state grants affect future local government budgets. Our findings confirm that grants indeed result in future state and local tax increases of roughly 40 cents for every dollar in grant money received in prior years.     

Budget Deficits in the States: Massachusetts

Massachusetts entered the current recession carrying a structural deficit counterbalanced by a healthy, $2.1 billion stabilization fund, equal to 10 percent of total tax revenue. Like most states, Massachusetts only dimly realized the depth of the current recession in October 2008 when revenue collections began to slip and welfare caseloads began to increase. By May of 2009, a total FY2009 budget gap of $4 billion had been identified, the combined effect of plummeting revenues and increased costs for welfare and medical assistance. The Commonwealth closed the FY2009 budget gap through a combination of budget cuts, stabilization fund transfers, and federal stimulus funds. The Commonwealth faced an even larger $4.8 billion budget gap in FY2010. With the stabilization fund severely depleted, the FY2010 budget gap was closed primarily by budget cuts, federal stimulus money, and a sales and use tax increase. Because of the Commonwealth's reliance on one-time money to close current budget gaps, a significant budget gap of at least $2.8 billion for FY2011 was identified soon after passage of the budget. In this paper we discuss the political and historic context in which the budget gaps occurred, outline the causes of the budget gaps, and evaluate the strategies employed to close them.     

Forecasting the number of social security retirees: Improving forecasts for better policy making

There is evidence that past and current forecasts by the Social Security Administration (SSA) substantially underestimate future U.S. Populations of age 65 and older. The policy significance of this can be seen in the forecasts by other researchers that predict outlays of $30 to $50 billion more for Social Security retirees in the year 2000 than projected by the SSA. Clearly, we need an improved 15-to 20-year forecast of the aged—one that combines the use of time-series forecasting methods and expert opinions on future mortality trends. This forecast would supplement SSA's current long-term (75-year) actuarial projections and provide policy makers with improved information for monitoring Social Security and other programs for the aged. This article recommends that independent advisory groups be established to provide SSA with advice to support development of this shorter-term forecast.     

Energy demand‐side management: New perspectives for a new era

Over the past decade and a half, state governments have assumed greater responsibility over demand‐side management (DSM) operations. Whereas DSM programs formerly were initiated primarily by utilities or state public utility commissions, they are now becoming increasingly state‐initiated and incentivized through funding mechanisms or efficiency‐level mandates. The supporting literature, however, has yet to respond to these changes and to verify that DSM funding or mandates are effective policy mechanisms. Furthermore, the supporting literature has yet to resolve some of the research design and methodological challenges that traditionally plague DSM evaluations. As states continue to expand their energy and climate policy efforts, and the federal government considers the possibility of national decarbonization policies, of which DSM is a key strategy, the need for empirical research on the effectiveness of DSM programs will grow. This essay describes the current status of DSM efforts in the U.S. and explores how these programs affect electricity operations. The relationship between DSM policy and program efforts and the amount of saved electricity is tested with a methodological approach aimed at minimizing the selection bias that is inherent in the nonexperimental research design. Results confirm that state‐run DSM efforts contribute to electricity savings across the country. Public benefit funds coupled with performance incentives are found to encourage utility participation in DSM programs. Energy efficiency portfolio standards and performance incentives effectively promote electricity savings, but public benefit funds without the support of other DSM policies are not significant drivers of either DSM program participation or total DSM electricity savings. © 2011 by the Association for Public Policy Analysis and Management.