With almost half of the fiscal year behind us, Congress is finally completing the 2022 fiscal year budget process. This cycle is perhaps one of the most egregious cases of a broken federal budget process that both reduces government effectiveness and encourages waste. Fixing this budget process should be a priority for policy observers across the political spectrum.
Tardy federal budgets are nothing new in Washington. According to the Tax Policy Center, Congress has only completed the budgetary process in a timely fashion, which requires passing all 12 appropriations bills prior to October 1, four times since fiscal year (FY) 1977. The last time Congress’ budgetary process worked as expected was FY 1997, more than two decades ago.
When the budget does not pass on time, Congress must pass a continuing resolution (CR) to avoid a government shutdown. Since continuing resolutions typically maintain departmental funding at prior-year levels, they do not signal the policy choices ultimately made in the budget process. As a result, federal managers must begin the fiscal year without a clear direction as to whether they should be increasing or decreasing staff and non-employee operational expenditures. If a federal agency or department ultimately receives a significant funding increase or funding cut in the final appropriations bill, managers may have insufficient time to respond efficiently.
While federal budgeting has been broken for some time, the situation in 2022 is especially bad. Over five months into the budgetary year, the House Rules Committee produced a 2,741-page omnibus budget bill in the wee hours of March 9, just hours before the bill’s scheduled vote on the House floor.
At the last minute, lawmakers found what some considered to be a poison pill embedded in the omnibus. To fund a supplemental COVID-19 expenditure, the omnibus clawed back money provided to states in the American Rescue Plan Act of 2021. However, the claw-back was inequitable.
Under ARPA, 20 states received their full aid allocation last year, while another 30 states received half their allocation in 2021 with the rest of the money slated to arrive later this year. The rescission only affected this latter group of states by reducing their second ARPA check.
States receiving a split allocation were those that suffered an increase in their unemployment rates of less than two percentage points during the first year of the COVID-19 pandemic. That universe included some purple and conservative states, such as Florida, Georgia, Alabama, and Utah, which tended to have fewer shelter-in-place and other restrictions in the pandemic.
Given that Florida was already slated to receive the smallest amount of ARPA state and local aid on a per capita basis, singling it out for this rescission seemed unfair to many. California, by contrast, would not have faced a claw-back of the ARPA money even though it recently reported a $75 billion budget surplus.
Eventually, the COVID-19 spending was removed from the package before the omnibus was easily approved in the House and then in the Senate in a bipartisan, 68-31, vote. The ultimate omnibus bill included many earmarks as part of the backroom horse-trading that led to a bloated, “must-pass” bill that will lead to a larger national debt.
The Congressional Budget Office’s last projection of FY 2022 discretionary budget authority was $1.4 trillion. The omnibus ultimately provided a discretionary budget of $1.5 trillion. (Budgetary authority and outlays are not the same but tend to move together.) The ultimate difference, about $35 billion of additional budgetary authority, is likely to increase the deficit in FY 2022. It also sets a higher spending baseline in future years.
As a result, the omnibus bill is likely to add hundreds of billions to the deficit over CBO’s 10-year projection window. The $13.6 billion Ukraine aid package in the bill is also unfunded, and will thus be tacked onto the deficit, but at least it is not a recurring expense (for now).
In the rush to pass the continuing resolution, its long-term deficit implications have received relatively little attention. And this raises another problem with today’s budgetary process or lack thereof. Budgeting is supposed to be a process of allocating scarce resources. This scarcity is typically imposed through a clearly defined limit.
In most state governments, for example, a balanced budget requirement limits spending to the amount of revenue anticipated in any given fiscal year. Having given up on balanced budgets long ago, however, Congress has no clear spending limit. As a result, there is no procedural bulwark against what happened in the current budget cycle. Republicans wanted more defense spending, Democrats wanted more non-defense spending, and they compromised by including both without offsets. Politico noted:
Leaders in both parties have declared the legislation a win. Democrats boast of the almost 7 percent increase they secured for non-defense agencies, increasing that funding to $730 billion. Top Republicans tout the $782 billion they locked in for national defense, a 6 percent hike from current spending.
Looking ahead, it is worth noting that prospects for the FY 2023 budget process already look dim. The process is supposed to kick off with the submission of the president’s budget, required by law to be submitted by Feb. 15, which has yet to happen this year. Once congressional committees start working on the 2023 budget, members will likely be focused on their re-election campaigns, slowing any progress. Sadly, perhaps the best outcome we can expect for the coming fiscal year is a two-month continuing resolution followed by an omnibus budget bill during the lame-duck session after November’s congressional elections.
With the last major federal budget reform now 50 years behind us, and after 20 consecutive years of federal budget deficits, the congressional budget process obviously needs an overhaul. The key elements of any budget reform should be focused on a fixed and realistic timetable for budget consideration and adoption, as well as a clearly defined limit on spending.
The timing issue could be addressed by moving to a biennial budgeting process, which is used in many states, or even a quadrennial timetable coinciding with a presidential term. Enforcement mechanisms might include withholding of Congressional and staff salaries and funding for their offices and travel if the budget is not completed and signed on schedule.
Balanced budgets no longer attract much support from either major political party and no longer seem feasible in the current context of Social Security and Medicare expanding to accommodate Baby Boomer retirements. But, even if lawmakers don’t want to tackle the runaway costs of entitlement programs, federal spending can be limited without requiring that it be equal to revenue.
One alternative to the current process: Limit federal spending to a level at which it does not increase the nation’s debt-to-gross domestic product (GDP) ratio.
It is notable that the shambolic budgets of FY 2022 and FY 2023 are happening under a unified government, just as when Republicans had complete control in the first years of the Trump administration. The hope has to be that, eventually, leaders on both sides of the aisle concerned with government effectiveness can coalesce around meaningful budget reforms, including those covered here.