Lesson 1: Budget Formulation
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
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Congressional Issues
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



Democrats 199
Republicans 233
Vacant 3

Democrats 55
(including 2 independents)
 Republicans 45
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3
Federal Budget Trends
Federal Budget Trends: 1948-2016
$5,000
Current Dollars in Billions
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
20
0
20 8
14
es
t
20
02
19
96
19
90
19
84
19
78
19
72
19
66
19
60
19
54
19
48
$0
Fiscal Year (w /o TQ)
Receipts
Outlays
Source: Office of Management and Budget
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Federal Debt
Held by the Public and Gross
20
16.7
17.9
18.7
18
5.1
Dollars in Trillions
16
14
5.0
4.7
12
Government Account
10
Public
8
6
11.9
12.9
13.6
2014
2015
4
2
0
2013
Deficit:
0.7
0.6
0.6
Source: OMB
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Entitlement Reform
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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
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Debt Reduction Remaining
All budget-related legislation to date brings annual deficits to
“historic norm” of about 4% of GDP
Most economists agree $4T in savings/revenue increases over 10
years is needed to balance the budget and initially pay down the
debt
Debt Reduction Required:



___
Required
Achieved to date
Difference
($T)
4.0
2.6
1.4
$1.4T additional still needed to a achieve $4T in savings/revenue
Source: Bi-Partisan Policy Center
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Sequestration’s Effect on Debt
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Fiscal Year 2015
The President’s Budget
$3,337B
Receipts
$3,901B
Outlays
FY 2015 Deficit = $564B
Average Annual Deficit FY 16-24 ~
$485B
Source: OMB
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Fiscal Year 2015 President’s Budget
(Outlays)
TOTAL $3,901B
Net Interest
6%
Mandatory $2,709B
(69% of total)
Immigration
Reform**
0%
Discretionary $1,192B
(31% of total)
Defense
16%
Other Mandatory
18%
Medicaid
9%
Medicare
13%
Other
Discretionary
15%
Social Security
23%
0%
* Includes $6B in disaster costs
** About $8B in Implementation costs
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Baby Boom Births by Year
4.5
4.3
3.9
3.7
3.5
3.3
3.1
2.9
2.7
2.5
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
Millions of Births
4.1
= Baby Start/End Year
Source: Statistical Abstract
of the United States
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Growth in Outlays by Agency
(includes Mandatory and Discretionary)
DoD has declined and
HHS has increased as
a percent of the total
100
90
80
70
60
50
40
30
20
10
Treasury (Int)
Soc. Secur.
HHS
DOD (Military)
at
e
es
tim
at
e
tim
20
15
20
10
es
20
05
20
00
19
95
19
90
19
85
19
80
19
75
0
19
70
Percent of 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
Distribution of Outlays by Agency
VA/OPM/AG/DOT/DOL
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Fiscal Year 2015 President’s Budget
(Revenue)
TOTAL $3,337B
Excise, Estate,
Customs Other
Immigration
5%
Receipts Reform*
4%
Othe Social
0%
Insurance
2%
Medicare
7%
Corp Tax
13%
Indiv Income Tax
46%
Social Security
23%
*about $2B in revenue
Source: OMB
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14
Revenue
(As a percent of Total)
Federal Revenue Sources 1948-2016
100
90
70
60
50
40
30
20
10
20 es
16 t
es
t
08
20
12
04
20
20
00
20
96
92
19
88
19
19
84
80
19
76
19
19
72
19
68
64
19
19
60
19
56
52
19
19
48
0
19
Percent of Total
80
Fiscal Year (w/o TQ)
Ind Inc Tax
Corporate Inc Tax
Social Insurance
All other
Source: OMB
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Corporate Taxes Paid as a Percent of
Taxable Income
Percent of Taxable Income
35%
30%
25%
Asset Value of
Corporation
20%
$1-5M
$5-50M
15%
50-500M
500M+
10%
5%
0%
1994
1997
2000
2003
2006
2009
Source: Internal Revenue Service
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Tax burdens among OECD nations,
(Tax revenues as a percent of GDP)
Comparative Tax Burden, 2008
Denmark
Sweden
Belgium
Italy
France
Finland
Austria
Norway
Hungary
Netherlands
Slovenia
Germany
Iceland
Czech Republic
United
Luxembourg
Portugal
OECD - Total
Poland
Israel
New Zealand
Spain
Greece
Canada
Slovak
Switzerland
Ireland
Japan
Australia
Korea
United States
Turkey
Chile
Mexico
0
10
20
30
40
50
60
Taxes as Percent of GDP
Source: OECD
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Budget Totals in President’s FY 2015 Budget Request
DoD Topline, FY 2001 – FY 2019
(Current Dollars in Billions)
$750
666
3
$500
316
438
73
345
468
479
91
76
8
3
187
146
287
687
645
479
513
162
159
614*
581
115 578
85
82
528
528
530
166
575
79*
565
30*
574
30 *
581
30*
589
30*
496
535
544
551
559
116
17
6
23
$250
1
7
601
535
691
666
328
365
377
400
411
432
496
496
$0
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Base Budget
OCO
Other
* Reflects FY13 Enacted level excluding Sequestration
* Placeholders only
Focus Only On Base Budget For Remainder Of Briefing
No FY 2015 OCO Budget Yet
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2
Since 2001, real growth has occurred in all
major categories, but O&M has grown the most
in dollar terms
FY 2001
Actual
FY 2014
Enacted
Dollar
Growth
Percent
Change
Percent of
Total Growth
Military Personnel
101.1
135.2
34.8
34%
30%
Operation and Maintenance
(ex. DHP)
114.0
160.5
46.5
41%
40%
Defense Health Program (DHP)*
16.0
32.3
16.3
102%
14%
Procurement
Research, Development, Test, and
Evaluation
Military Construction
Family Housing
Other
TOTAL
81.6
92.4
10.9
13%
9%
54.4
62.8
8.4
15%
7%
7.1
8.4
1.3
18%
1%
4.8
1.4
-3.4
-70%
-3%
1.4
2.2
0.8
56%
1%
380.5
496.0
115.6
30%
100%
FY14$ in billions, base budget
*The
DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military
Personnel funding.
Source: OMB
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PB15 DoD Base-Budget Topline
(Opportunity, Growth, and Security Initiative)
($B)
600
575
FY 2014 President’s Budget (PB14)
550
541
PB15
525
$26B
Initiative
500
Sequester - Level Budgets
496
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
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13
($B)
PB15 DoD Base-Budget Topline
600
575
FY 2014 President’s Budget (PB14)
577
559
551
550
541
535
537
PB15
525
500
496
500
Sequester - Level Budgets
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
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3
PB15 DoD Base-Budget Topline
(Effects Of Sequester-Level Budgets)
($B)
600
575
FY 2014 President’s Budget (PB14)
550
PB15
$115B Cut
525
500
Sequester - Level Budgets
475
FY14
FY15
PB14
FY16
FY17
Sequester - Level Budgets
FY18
FY19
PB15
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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
Source: DoD
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Budget Lifecycle
Main Players/Overall Process
THE U.S. CAPITOL
Field Activities/
Department
Bureaus
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
WASHINGTON
• Balancing
needs of all
agencies and
macro-budget
picture
• Funding new
Admin or Dept
initiatives
• Working with
White House,
Congress, and
agencies
• Overseeing
execution
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•Balancing
budget needs
and Member
or Party
interests
• Funding new
Congressional
and Admin
initiatives
•Working with
all players
•Oversight
Department of Defense’s
Planning, Programming, Budgeting
and Execution (PPBE) Process
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The Budget Calendar and
the PPBE Process
FY 2014 – 2016 Budget Status
FY 2014
Budget
Planning
Prog/Budget
Today
Planning
FY 2015 Budget
Prog/Budget
Q2
Q3
Q4
FY12
Q2
Q3
Q4
FY13 Q2
Congressional Action???
Planning
FY 2016 Budget
FY11
Execution
Congressional Action
Q3
Q4
FY14
Prog/Budget
Q2
Q3
Q4
Execution
Congressional Action
FY15 Q2
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Q3
Q4
Execution
FY16 Q2
Q3
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
PPBE Phases
Planning
(QDR, DPPG, GEF)
Execution
Review
Program
Review
Budget
Review
Components
submit estimates
Program/Budget
Estimates
JCS
Chairman’s Program
Assessment
JCS
Chairman’s Joint
Planning Document
Budget
Estimate
Submission
(BES)
Strategic
Planning
Program
Objective
Memorandum
(POM)
Final JCS risk
assessment
Prog Decision
Memo
Cost Assessment and
Program Evaluation (CAPE)
Prog. Review
3-Star
SecDef
Group
Budget
Review
3-Star
Dep. Mgmt Act. Grp
Under Secretary of Defense
(Comptroller :USD-C)
Execution
Review
PDMs
Dep. Mgmt Act. Grp
OUSD(C) performs an
Execution review.
Result: Omnibus
Reprogramming
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SecDef
Group
Budget
Submission
Budget
Justification
Resource
PBDs
Mgmt
Decision
Defense Department PPBE:
Planning Phase
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
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28
Defense Department PPBE:
Programming 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
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29
Future Years Defense Program (FYDP)
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
Major Force Programs
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A
R
M
Y
D O
A E T
N I F H
E
A R
V
A R
Y F G
O E
R N
C C
C I
E E
S
Planning and Programming:
General Issues
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?
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31
Defense Department PPBE:
Budgeting Phase
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)
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32
The Office of Management
and Budget
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The OMB budget review schedule
July
Aug
Sept
Oct
Nov
Jan
Feb
Mar
Apr
May
June
• Director’s Review
• Revised Economic
Assumptions
Program/Budget
Review with
Agency HQ
July: OMB
issueds
revised A-1l
guidance
Dec
Passback/
Appeals
Budget Review Board
Meetings
MAX Database: Prior Years
MAX Database: Budget Years
State of the
Union
and
Budget
Submission
Budget Chapter Writing
Review Agency
Budget Justifications
Review Proposed Authorizations with Budget impact
• Review of Congressional Testimony and Actions
• Ongoing Budget Oversight
• Mid-Session Corrections
•Apportionments
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Office of Management and Budget:
What do they want from me??!
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
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35
Office of Management and Budget:
Typical Division Organization
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
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36
OMB Director’s Review
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
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37
The Congressional Budget
Office
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CBO:
Divisional Organization
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Summary
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
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40
Questions, Comments, Concerns?
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OMB Sources of Power/Influence
The Top Line
Passback
Scoring
Apportionments
Legal/Regulatory
Statements of Administration Policy
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CBO Sources of Power/Influence
10 year baseline
Scoring
Research Reports
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BACKUP SLIDES
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FY 12/13 DoD Requests vs. Appropriation
(Budget Authority in $ Billions)
600
495.5
500
496.0
495.6
11.8
12.0
7.8
63.3
62.8
63.5
Revolving Funds
Family Housing
400
91.1
92.4
90.4
Military Construction
300
Research, Development,
Test and Evaluation
194
192.8
198.7
200
142
Procurement
Operation and
Maintenance
142
135
Military Personnel
100
135.4
135.9
135.2
FY 2013
FY 2014
FY 2015
0
Does not include $26B from Initiative Fund in FY 15 or $79B OCO
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Source: OMB
Defense Department PPBE:
Then and Now
The world in 1961…
U.S. faced U.S.S.R. in Cold War

Stability was key to survival
U.S.:


The world today …
U.S. faces varied threats…

Flexibility is key
U.S.:
GDP - $520B
National Security Budget $50.2B (9.6% of GDP)


GDP ~ $15T
National Security Budget ~
$700B (5.0% of GDP)
USSR:


GDP - $174B
National Security Budget $16.5B (9.5% of GDP)
Sources: Bureau of Economic Analysis, Commerce Dept, OECD and
William T. Lee – “Estimation of Soviet Defense Expenditures,”
1977 Praeger Press
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PPBE: Explain the Phases
Processes
Timing
Products
Players
Interests
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Defense Department PPBE:
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?
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Defense Department PPBE:
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
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Defense Department PPBE:
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?
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Defense Department PPBE:
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
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