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Independent Financial Institutions and Medium-term Budgetary
Frameworks
Perspective from my work at the
U.S. Congressional Budget Office
Pete Fontaine
My Disclaimer
I am a former analyst and manager at the U.S. Congressional Budget Office and I just recently retired from CBO.
I am very happy to be here to talk about CBO’s work and its role in the U.S. budget process, but since I am no longer part of the agency, I am not officially representing CBO and thus not speaking for my former agency.
In Washington, there is often an obsession with the very near term …
Three timeframes for budget analysis
The near term: the current year and the upcoming budget year
The medium term: used to be 5 years for the U.S. Congress and the Congressional Budget Office; now the medium term is generally a period of 10 years
The long term: Broad-scale projections looking out an additional 25 years or more
Sample CBO Products
Near term: The Monthly Budget Review, a short presentation of spending, revenues, and the deficit for the most recent month and fiscal year-to-date
Medium term: The Budget and Economic Outlook, a detailed presentation of spending, revenues, and deficits for the current year and the next 10 years
Long term: The Long-Term Budget Outlook, each summer, to provide an overview of for at least the next 25 years AFTER the 10-year outlook
Projected Federal Outlays in Major Budget Categories
(Percentage of gross domestic product)
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20250
1
2
3
4
5
6
7
Social Security
Major Health Care Programs
Net Interest
Other Mandatory
Defense Discretionary
NondefenseDiscretionary
6.1
5.7
2.9
2.62.5
2.3
Budget Act Excerpt
The Congressional Budget Act of 1974 started out with a 5-year perspective:
ADOPTION OF CONCURRENT RESOLUTION ON THE BUDGET
On or before April 15 of each year, the Congress shall complete action on a concurrent resolution on the budget for the fiscal year beginning on October 1 of such year. The concurrent
resolution shall set forth appropriate levels for the fiscal year beginning on October 1 of such year and for at least each of the 4 ensuing fiscal years …
Budget Act Excerpt #2
CBO Cost Estimates
The Director of the Congressional Budget Office shall … prepare for each bill … reported by any committee of the House of Representatives or the Senate … and submit to such committee—
… an estimate of the costs which would be incurred in carrying out such bill or resolution in the fiscal year in which it is to become effective and in each of the 4 fiscal years following such fiscal year …
Standard 5-Year Cost Estimate for Funding Authorizations
By Fiscal Year, in Millions of Dollars
2016-
2016 2017 2018 2019 2020 2020
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Estimated Authorization 160 164 170 177 184 855
Estimated Outlays 80 122 150 172 178 702
Transition from 5 to 10 Years
• CBO prepared 5-year budget projections during roughly the first 15 years of its history
• By the early 1990s, the U.S. Congress sought 10-year projections for hoped-for stronger budget enforcement and better planning
• 10-year projections and cost estimates have become the standard in Washington over the past two decades
Standard 10-Year Table for Cost Estimate of Mandatory Spending
By Fiscal Year, in Millions of Dollars
2016-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2025
CHANGES IN MANDATORY SPENDING
Estimated Budget Authority 25 26 27 28 29 30 31 32 33 34 293
Estimated Outlays 17 22 26 27 28 29 30 31 32 33 277
Projected Debt Held by the Public and Net Interest
(Billions of dollars)
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20250
100
200
300
400
500
600
700
800
900
0
5,000
10,000
15,000
20,000
25,000
Net Interest (Left axis)
Debt Held by the Public (Right axis)
Congressional Budget Resolutions
• Most U.S. Congressional plans also now mirror the 10-year horizon
• The Congress has failed to produce such a resolution in recent years, but has completed such plans in about 30 of the past 40 years
• Such budget plans are, however, subject to change and revision each year
Budget Plan Implementation
Occasional use of a special procedure: “reconciliation” (but only successful in a handful of cases over the past 40 years)
Reconciliation was last used in 2010 to enact the health reform known as the Affordable Care Act (often called “Obamacare”)
Enforcement: Caps and Sequestration
In 2011: legislation to impose caps on new annual (discretionary) funding for 10 years (caps have been revised upwards for the past 2 years)
That law also imposed across-the-board cuts of spending authority for selected (mandatory) programs: a process known as “sequestration”
Medium-term Enforcement through “Pay-As-You-Go” Procedures
The Congress revived a procedure known as “pay-as-you-go” budgeting that requires new mandatory spending or tax cuts to be offset by other provisions that save money
That procedure has been suspended sometimes, but “PAYGO” has probably limited the worsening of the budgetary picture
Transparency: CBO updates
Each time CBO updates its projections, all the changes are classified as:
Legislative (if attributable to a recent law),
Economic (if attributable to a change in CBO’s outlook for the U.S. economy), or
Technical (for all other changes)
Uncertainty of Medium-Term Projections
Surplus or Deficit (-) in Billions of Dollars, by Fiscal Year
Surplus Projection in 2001
73% of difference was from new legislation; 27% from economic and technical factors
Conclusions
• U.S. Congress has failed to achieve significant fiscal restraint over the past decade, in spite of attempts to do medium-term planning
• Nonetheless, the use of medium-term plans and budget enforcement procedures has probably limited spending growth
• Policymakers should be cautious in relying on 5-year and 10-year projections because there is a lot of uncertainty in such figures
Medium-term planning is good … but keep in mind:
Thank you
Medium-term Budgetary Frameworks
Pete Fontaine
