BASELINE BUDGETING
By Various Organizations
BasicsProject is a Non-Government Sanctioned Non-Profit Organization
The following is a summary of explanations of the budgeting process employed by the
United States government in forming the annual budget.
Wikipedia
Baseline budgeting is an accounting method the United States Federal Government
uses to develop a budget for future years. Baseline budgeting uses current spending
levels as the "baseline" for establishing future funding requirements and assumes future
budgets will equal the current budget times the inflation rate times the population growth
rate. Twice a year—generally in January and August—CBO prepares baseline
projections of federal revenues, outlays, and the surplus or deficit. Those projections
are designed to show what would happen if current budgetary policies were continued
as is—that is, they serve as a benchmark for assessing possible changes in policy.
They are not forecasts of actual budget outcomes, since the Congress will undoubtedly
enact legislation that will change revenues and outlays. Similarly, they are not intended
to represent the appropriate or desirable levels of federal taxes and spending.
The genesis of baseline budget projections can be found in the Congressional Budget
Act of 1974. That act required the Office of Management and Budget (OMB) to prepare
projections of federal spending for the upcoming fiscal year based on a continuation of
the existing level of governmental services. It also required the newly established
Congressional Budget Office to prepare five-year projections of budget authority,
outlays, revenues, and the surplus or deficit. OMB published its initial current-services
budget projections in November 1974, and CBO's five-year projections first appeared in
January 1976. Today's baseline budget projections are very much like those prepared
more than two decades ago, although they now span 10 years instead of five.
The Budget Act was silent on whether to adjust estimates of discretionary
appropriations for anticipated changes in inflation. Until 1980, OMB's projections
excluded inflation adjustments for discretionary programs. CBO's projections, however,
assumed that appropriations would keep pace with inflation, although CBO has also
published projections without these so-called discretionary inflation adjustments.
CBO's budget projections took on added importance in 1980 and 1981, when they
served as the baseline for computing spending reductions to be achieved in the budget
reconciliation process. The reconciliation instructions contained in the fiscal year 1982
budget resolution (the so-called Gramm-Latta budget) required House and Senate
committees to reduce outlays by a total of $36 billion below baseline levels, but each
committee could determine how those savings were to be achieved. The CBO baseline
has been used in every year since 1981 for developing budget resolutions and
measuring compliance with reconciliation instructions.
The Deficit Control Act of 1985 provided the first legal definition of baseline. For the
most part, the act defined the baseline in conformity with previous usage. If
appropriations had not been enacted for the upcoming fiscal year, the baseline was to
assume the previous year's level without any adjustment for inflation. In 1987, however,
the Congress amended the definition of the baseline so that discretionary appropriations
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would be adjusted to keep pace with inflation. Other technical changes, annual increase
of now approximately 3% plus inflation, to the definition of the baseline were enacted in
1990, 1993, and 1997. Presently, the [automatic annual] Baseline Budgeting increase is
about 7%.
Baseline budget projections increasingly became the subject of political debate and
controversy during the late 1980s and early 1990s, and more recently during the 2011
debt limit debate. Some critics contend that baseline projections create a bias in favor of
spending by assuming that federal spending keeps pace with inflation and other factors
driving the growth of entitlement programs. Changes that merely slow the growth of
federal spending programs have often been described as cuts in spending, when in
reality they are actually reductions in the rate of spending growth.
There have been attempts to eliminate the baseline budget concept and replace it with
zero based budgeting, which is the opposite of baseline budgeting. Zero based
budgeting requires that all spending must be re-justified each year or it will be
eliminated from the budget regardless of previous spending levels.
According to the Government Accountability Office, a Baseline is as follows:
Baseline
"An estimate of spending, revenue, the deficit or surplus, and the public debt expected
during a fiscal year under current laws and current policy. The baseline is a benchmark
for measuring the budgetary effects of proposed changes in revenues and spending. It
assumes that receipts and mandatory spending will continue or expire in the future as
required by law and that the future funding for discretionary programs will equal the
most recently enacted appropriation, adjusted for inflation. Under the Budget
Enforcement Act (BEA), to expire at the end of fiscal year 2006, the baseline is defined
as the projection of current-year levels of new budget authority, outlays, revenues, and
the surplus or deficit into the budget year and out-years based on laws enacted through
the applicable date.
CBO Baseline
Projected levels of governmental receipts (revenues), budget authority, and outlays for
the budget year and subsequent fiscal years, which is now approximately 6% increase
pr fiscal-year, assuming generally that current policies remain the same, except as
directed by law. The baseline is described in the Congressional Budget Office’s (CBO)
annual report for the House and Senate Budget Committees, The Budget and Economic
Outlook, which is published in January. The baseline, by law, includes projections for 5
years, but at the request of the Budget Committees, CBO has provided such projections
for 10 years. In most years the CBO baseline is revised in conjunction with CBO’s
analysis of the President’s budget, which is usually issued in March, and again during
the summer. The “March” baseline is the benchmark for measuring the budgetary
effects of proposed legislation under consideration by Congress."
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Baseline.org
In the world of government budgeting and spending there is more than one type of
budgeting. A simplistic view would simply say a government budget counts up how
much money the government has and then determines how those funds are spent.
Unfortunately, our modern government system at the state and federal level are not so
simple. There are entitlements, technical adjustments, one-time spending, policy
decisions, and discretionary spending. If that's already starting to make your head spin
a little, welcome to the club. Government spending and budgeting is not simplistic; it is
fraught with politics and policies, some decades old and institutionalized.
Baseline budgeting is one of the many types of accounting that government uses. In a
basic sense, a baseline budget represents the spending that stays fairly the same from
year to year to "keep the lights on" in a government program. Assuming the program
won't be cut, significantly reduced, or replaced, this spending amounts to what is "under
the line" or assumed recurring in terms of expenses. However, while many would agree
a certain level of maintenance is required to keep an agency operating, baseline
budgeting can be anything but just that.
Baseline Budgeting Definition
In a one-sentence description, a baseline government budget involves carrying over the
current spending level from year to year and treating it as the floor on which to build
additional spending changes. The major assumption in this approach is that the existing
spending level of the agency is correct and needs no adjustment. Any new change
should be on top of the existing level, not into it. Additionally, the baseline budget needs
to be adjusted to address common issues that devalue spending worth. These factors
include inflation, cost of living increases, and adjustment in supply and resource costs to
maintain the same level of service.
The inherent issue with baseline budgeting is that it doesn't shrink if followed correctly.
There are some exceptions to this rule: caseload programs, for example, flow and ebb
with the number of cases that apply, if all else in the program is allowed to remain
unchanged. Programs driven by statutory formulas will also cause increases on the
natural as the formula math results in new costs. Social services and health services
programs tend to be common examples of this sort of situation.
The treatment of these baseline factors along with the existing spending then get
accepted as the "floor" for any new spending discussions in each new budget cycle.
Many critics argue that any real cuts in government spending needs to cut into such
floors to score real savings. However, government insiders also know how difficult such
an approach can be. Just trying to get a statutory change of an entitlement formula is
like climbing Mt. Everest in a partisan environment. Thus it's easier for politicians, who
actually pass the legislative language of budgets, to focus on policy issues above the
baseline than the baseline costs themselves.
History of Baseline Budgeting
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At the federal level, baseline budgeting first began officially with the passing of the 1974
federal budget. Looking for a way to get out of having to debate the basic and mundane
operations of government every time a budget bill came through, the baseline budget
concept was instituted as a solution. The Office of Management and Budget (OMB), the
President's budget office and control agency, was charged with developing annual
projections of operating costs for the federal government and all of its known agencies.
These projections assumed the same level of service would continue annually without
change. The OMB also established schedules projecting out for five years to detail what
policy changes would result in in terms of revenue, expenses, and deficits. The first set
of five year figures appeared in 1976.Thirty-five years later in 2011, the projection side
of the picture has been expanded to push figures out to ten years rather than five.
Additionally, what has been included in those programs adjusted for inflation and costs
of living have been expanded as well.
The first significant change occurred in 1980 continuing into the next year when
Congress used the inflationary factors to determine adjustments for reductions desired
by policy decisions.
In 1985 Congress enacted the legal definition of a federal baseline budget when it
passed the Deficit Control Act. This definition basically made existing spending
automatic unless consciously adjusted by a Congressional appropriation. Two years
later, however, Congress went back to the drawing board and changed the legal
definition again. They added in their additions and allowed them to be increased for
inflation as well, similar to the baseline floor.
By the 1990s baseline budgeting hit the radar of political scrutiny. No longer was it
automatically accepted. This change coincided with the first modern recession that
occurred after the Reagan Administration and the heyday of the 1980s capitalism. The
scrutiny of the practice has continued and has been labeled dozens of different names,
all meaning the same thing. Auto-spending, entitlement programs, techno-bureaucracy,
and runaway government spending represent just a few of slogans and names
describing the same thing.
Zero-Based Budgeting
The name sounds great to those who believe every government expense should be
scrutinized. And there is no argument there are plenty of government programs that
make great examples of where zero-based budgeting could have stopped an offensive
waste of money to most reasonable people. However, zero-based budgeting is not an
easy solution to baseline budgeting flaws. First, it involves a tremendous amount of
work. For fiscal analysts to go through every expense and existing program, in addition
to new proposals, would likely increase related workload by at least ten times if not
more. State and federal governments are simply not staffed up to handle this kind of
approach on a regular basis. While there have been various political attempts to follow
through such as system-wide audits, shakedowns, probes for fraud-waste-corruption,
and other fancy, news-catching titles, they simply don't meet the goal or come close.
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Second, zero-based budgeting would result in a huge amount of bureaucracy for little
gain. First, every program would have to generate tons of information to defense itself
every year. There would be significant turnover in staff because no one would invest
their time in work knowing that in year it could all be shut down. Progress would be little
and incremental waiting for approval to spend one year at a time. And sudden shutdown
would be common at the whim of politics or disfavor by decision-makers. For a process
that is intended to cut down on perceived waste and red tape of baseline budgeting,
zero-based budgeting would actually increase that problem in government.
Third, special interests would have significant say in what programs kept support versus
those that didn't. Decision-makers are ultimately political in nature. Significant lobbying
efforts would occur to protect those program favorable to special interests. Those
programs that create problems or obstacles would see a hard climb. Regulation,
oversight, and enforcement programs would likely be big targets for cuts, not because
they were not doing a good job but because someone was upset with them politically.
Fourth, and probably the most important, vital services of government would come and
go at a whim. The taxpaying public and the nation could never rely on a program as a
safety net or a sure thing because zero-based budgeting could shut it down any year a
review comes up. The reliance on the stability of government would in practice be
shattered. As silly as it sounds imagine a possibility where the military spending gets cut
in half or emergency services get canceled because their haven't been any disasters for
a while. How about air traffic controllers being eliminated because planes seem to fly
okay lately. Maybe food inspectors aren't needed; no one has died from bad meat in the
last month. These oddball scenarios could actually become reality under zero-based
budgeting.
Proponents then argue that some program would be always protected because they
make common sense to continue. But isn't that baseline budgeting as well then,
assuming some kind of spending must continue year to year? The only difference then
is which program is more important than the other.
Because of this kind of back-pedaling in the face of reality, zero-based budgeting
always fails.
Citizens Against Government Waste
"Baseline budgeting" is one of those Washington terms that sounds very dry and boring.
In reality, baseline budgeting is one of the most sinister ways that politicians claim to cut
spending when they are actually increasing spending. The Congressional Budget Office
defines the baseline as a benchmark for measuring the budgetary effects of proposed
changes in federal revenue or spending, with the assumption that current budgetary
policies or current services are continued without change. The baseline includes
automatic adjustments for inflation and anticipated increases in program participation.
Baseline, or current services, budgeting, therefore builds automatic, future spending
increases into Congress's budgetary forecasts.
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Baseline budgeting tilts the budget process in favor of increased spending and taxes.
For example, if an agency's budget is projected to grow by $100 million, but only grows
by $75 million, according to baseline budgeting, that agency sustained a $25 million cut.
That is analogous to a person who expects to gain 100 pounds only gaining 75 pounds,
and taking credit for losing 25 pounds. The federal government is the only place this
absurd logic is employed.
Politicians often like to have it both ways. Baseline budgeting gives politicians an
opportunity to deceive taxpayers by allowing them to claim that they are holding the line
on spending while providing more services.
Baseline budgeting seems like a technicality and should not be such a hotbed of
contention, but every round of budget negotiations involves baseline budgeting with
both sides of the aisle complaining that the other side is using the process to mask
spending increases. Baseline budgeting is an issue that truly separates the deficit
hawks from the budget chickens.
Eliminating the inflated budget baseline will force Congress to justify and account for
increased spending instead of hiding behind automatic increases. Through
commonsense accounting, taxpayers would learn that spending in Washington is not
under control.
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