Lesson 1: Budget Formulation - American Society of ...€¦ · Lesson 1: Budget Formulation “The global hub for educating, informing, ... PPBE Phases Strategic Planning Review Execution

Lesson 1: Budget Formulation

“The global hub for educating, informing, and connecting Information Age leaders.”

The Fiscal Future:

Issues and Options

Issue: Balance Budget

Debt limit agreements to date do not balance the budget

Current FY 14 President’s Budget plans for deficits into future

Option: Start long-term revenue increases and/or spending cuts

Issue: Pay Down National Debt

Requires initial balanced budgets and long-term surpluses

Option: Control growth in mandatory spending and/or raise revenue

Issue: Ensure Long-Term Social Insurance Programs solvency

Social Security will be able to pay out full benefits until 2036

After this point tax revenue will fund pay outs of 75% of full benefits

Medicare will fund full benefits until 2024.

Option: Reduce benefits and/or increase revenue

“The global hub for educating, informing, and connecting Information Age leaders.” 3

Democrats 199

Republicans 233

Vacant 3

Democrats 55

(including 2 independents)

Republicans 45

Issues:

• October 17, 2013

• December 13, 2013

• January 15-18, 2014

• February 7, 2014

• March 4, 2014

• April 15, 2014

• October 1, 2014

• November 4, 2014

Congressional Issues


Federal Budget Trends: 1948-2016

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

1948

1954

1960

1966

1972

1978

1984

1990

1996

2002

2008

2014

est

Fiscal Year (w/o TQ)

Curr

ent D

olla

rs in

Bill

ions

Receipts Outlays

Source: Office of Management and Budget

Federal Budget Trends


Federal Debt Held by the Public and Gross

Dollars

in T

rillio

ns

Source: OMB

11.9 12.9

13.6

4.7

5.0 5.1

0

2

4

6

8

10

12

14

16

18

20

2013 2014 2015

Government Account

Public

0.7 0.6 0.6 Deficit:

18.7 17.9 16.7


Entitlement Reform


Budget Deficits Around the World

Borrowing relative

to the size of the

economy is a sign

of fiscal stress.

The OECD reports

on the FY 06-09

US stress level


Debt Reduction Remaining

All budget-related legislation to date brings annual deficits to

“historic norm” of about 4% of GDP

Most economists agree $4T in savings/revenue increases over 10

years is needed to balance the budget and initially pay down the

debt

Debt Reduction Required:

___ ($T)

Required 4.0

Achieved to date 2.6

Difference 1.4

$1.4T additional still needed to a achieve $4T in savings/revenue

Source: Bi-Partisan Policy Center


Sequestration’s Effect on Debt


Fiscal Year 2015 The President’s Budget

Receipts

FY 2015 Deficit = $564B

Average Annual Deficit FY 16-24 ~

$485B

$3,337B

Outlays

$3,901B

Source: OMB


Defense 16%

Other Discretionary

15%

0%

Social Security 23%

Medicare 13%

Medicaid 9%

Other Mandatory 18%

Net Interest 6%

Immigration Reform**

0%

11

Fiscal Year 2015 President’s Budget (Outlays)

Mandatory $2,709B

(69% of total)

Discretionary $1,192B

(31% of total)

TOTAL $3,901B

* Includes $6B in disaster costs

** About $8B in Implementation costs

Source: OMB


Baby Boom Births by Year

2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3

4.5

19

43

19

44

19

45

19

46

19

47

19

48

19

49

19

50

19

51

19

52

19

53

19

54

19

55

19

56

19

57

19

58

19

59

19

60

19

61

19

62

19

63

19

64

19

65

1966

19

67

Mill

ions o

f B

irth

s

= Baby Start/End Year Source: Statistical Abstract

of the United States


Distribution of Outlays by Agency

0

10

20

30

40

50

60

70

80

90

100

1970

1975

1980

1985

1990

1995

2000

2005

2010

est

imat

e

2015

est

imat

e

Perc

ent

of

Tota

l

Treasury (Int) Soc. Secur. HHS DOD (Military) VA/OPM/AG/DOT/DOL

Growth in Outlays by Agency (includes Mandatory and Discretionary)

DoD has declined and

HHS has increased as

a percent of the total

Competing for less that

10% of all federal

spending (all unlisted

agencies):

NASA

Education

Energy

Interior

Commerce

Foreign Assistance

Homeland Security

Small Business

Environmental

Protection

The Legislative Br

The Judicial Branch


Fiscal Year 2015 President’s Budget (Revenue)

TOTAL $3,337B

*about $2B in revenue

Source: OMB

Indiv Income Tax 46%

Social Security 23%

Corp Tax 13%

Medicare 7%

Othe Social Insurance

2%

Excise, Estate, Customs

5% Other

Receipts 4%

Immigration Reform*

0%


Federal Revenue Sources 1948-2016

0

10

20

30

40

50

60

70

80

90

100

1948

1952

1956

1960

1964

1968

1972

1976

1980

1984

1988

1992

1996

2000

2004

2008

2012

est

2016

est

Fiscal Year (w/o TQ)

Perc

en

t o

f T

ota

l

Ind Inc Tax Corporate Inc Tax Social Insurance All other

Source: OMB

Revenue

(As a percent of Total)


0%

5%

10%

15%

20%

25%

30%

35%

1994 1997 2000 2003 2006 2009

$1-5M

$5-50M

50-500M

500M+

Corporate Taxes Paid as a Percent of

Taxable Income

Source: Internal Revenue Service

Pe

rce

nt

of

Ta

xa

ble

In

co

me

Asset Value of

Corporation


Tax burdens among OECD nations, (Tax revenues as a percent of GDP)

Comparative Tax Burden, 2008

0 10 20 30 40 50 60

MexicoChile

TurkeyUnited States

KoreaAustralia

JapanIreland

SwitzerlandSlovak

CanadaGreece

SpainNew Zealand

IsraelPoland

OECD - TotalPortugal

LuxembourgUnited

Czech RepublicIceland

GermanySlovenia

NetherlandsHungaryNorwayAustriaFinlandFrance

ItalyBelgiumSweden

Denmark

Taxes as Percent of GDP

Source: OECD


287 328 365 377 400 411 432

479 513 528 528 530 496 496 496 535 544 551 559

91 76 3 116

8 166

187 146 162 159

115

82 85 79

$0

$250

$500

$750

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

Base Budget OCO

FY10 FY11

Other

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

345

Budget Totals in President’s FY 2015 Budget Request DoD Topline, FY 2001 – FY 2019

(Current Dollars in Billions)

575 565

438 468 479

535

601

666 666 691 687

645

574

316 6

23

3

7 1

17

589

30* 30* 30*

* Reflects FY13 Enacted level excluding Sequestration

* Placeholders only

Focus Only On Base Budget For Remainder Of Briefing

No FY 2015 OCO Budget Yet

*

578 581 30*

2

614* 581

73


Since 2001, real growth has occurred in all

major categories, but O&M has grown the most

in dollar terms

FY14$ in billions, base budget FY 2001

Actual

FY 2014

Enacted

Dollar

Growth

Percent

Change

Percent of

Total Growth

Military Personnel 101.1 135.2 34.8 34% 30%

Operation and Maintenance

(ex. DHP) 114.0 160.5 46.5 41% 40%

Defense Health Program (DHP)* 16.0 32.3 16.3 102% 14%

Procurement 81.6 92.4 10.9 13% 9%

Research, Development, Test, and

Evaluation 54.4 62.8 8.4 15% 7%

Military Construction 7.1 8.4 1.3 18% 1%

Family Housing 4.8 1.4 -3.4 -70% -3%

Other 1.4 2.2 0.8 56% 1%

TOTAL 380.5 496.0 115.6 30% 100%

*The DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military

Personnel funding.

Source: OMB


475

$26B

Initiative 500

525

550 541

575

($B)

600

FY 2014 President’s Budget (PB14)

FY14 FY15

PB14

FY16 FY17

Sequester - Level Budgets

FY18 FY19

PB15

PB15 DoD Base-Budget Topline (Opportunity, Growth, and Security Initiative)

Sequester - Level Budgets 496

PB15

13


475

500

525

FY14 FY15

PB14

FY16 FY17


FY18 FY19

PB15


559

551

550 541

535

575

($B)

600


496 500

537

577

PB15 DoD Base-Budget Topline

PB15

3


500


475

525

550

575

FY14 FY15

PB14

FY16 FY17


FY18 FY19

PB15

$115B Cut

($B)

600


PB15 DoD Base-Budget Topline (Effects Of Sequester-Level Budgets)

PB15

15


FY 2015 Opportunity, Growth, and Security

Initiative

• Total $26 billion for DoD

• Readiness enhancements

– Training adds in Army

– Spares and logistics in Navy

– Unit training in USMC

– Training in Air Force

• Investment increases

– Army Helicopters (56)

– Navy P-8 (8), E-2D Aircraft (1)

– USMC Light Armored Vehicle

– Air Force F-35 (2), C-130J (10),

MQ-9 Aircraft (12)

– Science and Technology ($335M)

• Installation support increases

– All Services increase base sustainment

– All Services add MilCon funding

14 Source: DoD


Field Activities/

Bureaus Department

Headquarters

• Addressing New Mission Needs • Protecting traditional “Budget” share • Executing the last budget • Working with Dept HQ, OMB and Congress

• Balancing needs of field activities • Funding new Admin or Dept initiatives • Working with activities/ bureaus OMB and Congress • Overseeing execution

• Balancing needs of all agencies and macro-budget picture • Funding new Admin or Dept initiatives • Working with White House, Congress, and agencies • Overseeing execution

•Balancing budget needs and Member or Party interests • Funding new Congressional and Admin initiatives •Working with all players •Oversight

Budget Lifecycle

Main Players/Overall Process

THE U.S. CAPITOL WASHINGTON


Department of Defense’s

Planning, Programming, Budgeting

and Execution (PPBE) Process


The Budget Calendar and

the PPBE Process

FY11 Q3 FY12 FY13 FY14 FY15 FY16 Q2 Q4 Q3 Q2 Q4 Q3 Q2 Q4 Q3 Q2 Q4 Q3 Q2 Q4 Q3 Q2

FY 2014

Budget

FY 2015 Budget

FY 2016 Budget

Planning Prog/Budget Execution

Planning

Planning

Prog/Budget Execution

Execution

Today FY 2014 – 2016 Budget Status

Congressional Action???

Congressional Action Prog/Budget

Congressional Action


Prog. Review

DoD Planning, Programming, Budgeting, and

Execution (PPBE) System Overview

Yearly PPBE Process and Milestones Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Planning

(QDR, DPPG, GEF)

Program/Budget

Estimates

Components submit estimates

PDMs 3-Star

Final JCS risk assessment

Execution

Review

OUSD(C) performs an Execution review. Result: Omnibus Reprogramming

Dep. Mgmt Act. Grp

PPBE Phases

Strategic

Planning

Program

Review

Execution

Review

Budget

Review

PBDs

Budget Submission

Budget

Review

Budget

Justification

3-Star

SecDef

Group

JCS Chairman’s Program Assessment

Dep. Mgmt Act. Grp

Prog Decision Memo

Resource Mgmt

Decision

SecDef

Group

JCS Chairman’s Joint Planning Document

Budget Estimate

Submission (BES)

Program Objective

Memorandum (POM)

Cost Assessment and Program Evaluation (CAPE)

Under Secretary of Defense (Comptroller :USD-C)


Processes/Products

National Security Strategy

National Military Strategy

Quadrennial Defense Review (QDR)

Chairman’s Program Recommendations (CPR)

Defense Planning and Programming Guidance (DPPG)

Players

National Security Council

Under Secretary of Defense (Policy)

Chairman of the Joint Staff

Defense Department PPBE:

Planning Phase


Processes/Products

Integrated Priority Lists

Program Objective Memorandum (POM)

Chairman’s Program Assessment (CPA)

Program Decision Memorandum (PDM)

Players

Military Departments

Combatant Commanders/Joint Staff

Cost Assessment and Program Evaluation (CAPE)

Office of Management and Budget (OMB)

Three Star Programmers Group


Programming Phase


Strategic Forces

General Forces

Command, Control, Intel & Space

Military Forces

Guard and Reserve Forces

Central Supply & Maintenance

Training, Medical & Other Personnel Activities

Administrative Activities

Support of Other Nations

Special Operations Forces

A

R

M

Y

N

A

V

Y

A

I

R

F

O

R

C

C

E

D

E

F

A

G

E

N

C

I

E

S

O

T

H

E

R

Major Force Programs

Future Years Defense Program (FYDP)


Some central questions include:

Are the plans resource-constrained or - informed?

Are the budget planners invited to participate in strategic planning?

Are final plans produced in time to influence the program/budget build?

Are program plans realistic over the long term?

Planning and Programming:

General Issues


Processes/Products

Budget Estimate Submission

Resource Management Decision (RMD)

Players

Military Departments

Combatant Commanders/Joint Staff

Office of Program Analysis and Evaluation

Office of Management and Budget (OMB)

Office of the Under Secretary of Defense (Comptroller)

Deputy (Secretary) Advisory Working Group (DAWG)


Budgeting Phase


The Office of Management

and Budget


The OMB budget review schedule

July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June

Passback/

Appeals

Program/Budget

Review with

Agency HQ

• Director’s Review • Revised Economic Assumptions

• Review of Congressional Testimony and Actions

• Ongoing Budget Oversight

• Mid-Session Corrections

•Apportionments

Review Proposed Authorizations with Budget impact

MAX Database: Prior Years MAX Database: Budget Years

Budget Chapter Writing

Budget Review Board Meetings

Review Agency

Budget Justifications

July: OMB issueds revised A-1l guidance State of the

Union and Budget Submission


OMB is very flat – information moves up chain very quickly

Ø OMB leadership responsive to West Wing

Ø OMB leaders deal with macro issues

Almost all budget issues have political/policy component

Ø Examiners work in a fast-paced environment

Ø Program examiners want compelling/well-reasoned info

Ø Communication and integrity are key

New OMB leadership experienced in budget and program issues

Ø Director – Vacant

Ø Deputy – Brian Deese

Ø NSD PAD – Steve Kosiak

Office of Management and Budget:

What do they want from me??!


Deputy Associate Director

Responsible for multiple Dept budgets or major accounts

Senior Executive with many years experience

May have a small integration staff (1 or 2 people)

Branches (typically 10 people or less)

Focused on one agency or set of budget accounts

Led by Senior Executive and staffed by Program Examiners

Examiner roles

Involved in major budget process issues

Develop quantitative and policy recommendations

Understand budget technical/legal/program implications of issues

Office of Management and Budget:

Typical Division Organization


Issues Decided on by the OMB Director or taken to the President, include:

Topline for each federal department

Impact of economic factors (inflation, price of fuel, cost of living adjustments, etc) on mandatory and discretionary spending

Major policy issues –

i.e., Economic recovery, funding the overseas contingency operations, etc.

Players

OMB Director

All ExOp Reps (NSC, OSTP, OFFM, OFPP, etc)

OMB Division Staffs

OMB Director’s Review


The Congressional Budget Office


CBO:

Divisional Organization


Success factors:

Relationships

Understand Culture of your organization and those around/above yours

Communicate effectively

Know what to tell, who to tell, and when to tell it

Political Savvy

Understand the programs/activities

Technical knowledge

Summary


Questions, Comments, Concerns?


OMB Sources of Power/Influence

The Top Line

Passback

Scoring

Apportionments

Legal/Regulatory

Statements of Administration Policy


CBO Sources of Power/Influence

10 year baseline

Scoring

Research Reports


BACKUP SLIDES


FY 12/13 DoD Requests vs. Appropriation (Budget Authority in $ Billions)

142

Source: OMB

142 135

Does not include $26B from Initiative Fund in FY 15 or $79B OCO

135.4 135.9 135.2

194 192.8 198.7

91.1 92.4 90.4

63.3 62.8 63.5

0

100

200

300

400

500

600

FY 2013 FY 2014 FY 2015

Revolving Funds

Family Housing

Military Construction

Research, Development, Test and Evaluation

Procurement

Operation and Maintenance

Military Personnel

11.8

495.5

12.0

496.0 495.6

7.8



Then and Now

The world in 1961…

U.S. faced U.S.S.R. in Cold War

Stability was key to survival

U.S.:

GDP - $520B

National Security Budget - $50.2B (9.6% of GDP)

USSR:

GDP - $174B

National Security Budget - $16.5B (9.5% of GDP)

The world today …

U.S. faces varied threats…

Flexibility is key

U.S.:

GDP ~ $15T

National Security Budget ~ $700B (5.0% of GDP)

Sources: Bureau of Economic Analysis, Commerce Dept, OECD and

William T. Lee – “Estimation of Soviet Defense Expenditures,”

1977 Praeger Press


PPBE: Explain the Phases

Processes

Timing

Products

Players

Interests



Programming Phase

Issues

Do program and budget reviews overlap?

Timing

Scope

What do program/budget staffs need to do to be

successful?

Are program plans realistic over the long term?

What can be done to improve them?



Budgeting Phase

Issues

Pros/Cons of the Joint Review with OMB

Should it be sequential?

Should it be stay the same?

Is the decision-making process transparent?

What is the budget review’s relationship to performance measurement?

How can OSD (Comptroller) improve the budget process?

Timelines/Deliverables



Execution Phase

Issues

Is the Execution Phase limited to budget? Should it be?

Pros/Cons: Decentralized Execution/Centralized planning, programming, and budgeting

Is there sufficient feedback on program outcomes to the Secretary?

Should there be a systematic enterprise-wide feedback loop to the Secretary on execution?



General Issues

Who does PPBE serve? How well?

Is the process flexible enough, given the new threat environment?

Is the 2 year cycle realistic?

How do process owners relate to each other?

Can there be better:

Communication/Transparency

Coordination with OMB

Documents

Lesson 1: Budget Formulation - American Society of ...€¦ · Lesson 1: Budget Formulation “The global hub for educating, informing, ... PPBE Phases Strategic Planning Review Execution