Hitting the
Wall
How the Breakdown of the
Federal Budget Process Affects
Government Procurement
42
Contract Management | September 2011
A review of the current
federal budget process
as it has evolved from the
intentions of the founding
fathers into modern
congressional procedure.
BY
Christopher
Robey
Contract Management | September 2011
43
“I used
to think
that if there was reincarnation, I wanted to
come back as the president or the pope or
as a .400 baseball hitter. But now I would like
to come back as the bond market. You can
intimidate everybody.”
—James Carville, Clinton administration political adviser 1
It is clear from recent events that serious
problems impede the U.S. federal budget
process. Symptoms range from an over reliance on continuing resolutions and omnibus
appropriations to the near-miss government
shutdown of nonessential functions, to
the recent controversy over the national
debt ceiling. This article reviews the federal
budget process as it has evolved from the
intentions of the founding fathers into
modern congressional procedure, a topic
of growing interest to both federal agency
management and contractors alike.
A major premise of this article is that there
will be no grand design, compromise, or
solution to the problems described in this
article by the end of the current fiscal year.
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Contract Management | September 2011
Rather, we can expect the consequences
of the breakdown of the budget process to
recur into the foreseeable future until Congress is forced to abide by its own rules.
Aggravated by the uncertainty of the budget
process as it has evolved, systemic shocks
now being discounted into marketing
forecasts by U.S. government contractors
include declines in total discretionary spending to pre–Recovery Act levels, as well as
declines in expenditures for some government market segments to pre-2001 levels.
The Basic Process
In the view of Roy T. Meyers of the University of Maryland and former analyst at the
Congressional Budget Office, there are four
goals of the congressional budget process:
ƒƒ
Allocating time efficiently to different
activities, such as planning, budgeting,
and conducting oversight;
ƒƒ
Completing preparation of the budget
by the target date;
ƒƒ
Responding to changed conditions; and
ƒƒ
Maintaining the proper influence of the
Congress on policy.2
With a foundation in Article I of the U.S.
Constitution, stating that the sole power
to raise revenue, collect taxes, and appro-
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
priate funds resides in the U.S. Congress,
the architecture of the budget process is
shaped by:
Reconciliation instructions are intended to
identify the committees that must recommend changes in laws affecting revenues
or direct spending programs within their
ƒƒ
ƒƒ
The Congressional Budget Act of
19743 (CBA), which provides for the
annual adoption of a concurrent
resolution on the budget. “The
congressional budget resolution is
an agreement between the House
and Senate on a budget plan for the
upcoming fiscal year and at least
the following four fiscal years…. The
budget resolution…provides Congress
a framework for subsequent legislative action on budget matters during
each congressional session.”4
jurisdiction in order to implement the
priorities agreed to in the budget resolution.
All committees receiving such instructions
must submit recommended legislative
language to the Budget Committee in their
respective chamber, which packages the
recommended language as an omnibus
measure and reports the measure without
substantive revision.8
Authorizations vs.
Appropriations
Authorization bills produced by their respective House and Senate committees will
authorize the appropriation of funds from
the U.S. Treasury within the limits of the
budget resolution, and will often contain
programmatic guidance found in organic
legislation; e.g., indicating the Executive
Branch agency responsible for the program,
as well as whether the program shall be
supported through assistance (grants/cooperative agreements) or through acquisition
The Budget Enforcement Act of 19975
(BEA), which builds on the earlier
efforts of the Balanced Budget and
Emergency Deficit Control Act of 19856
and the Budget Enforcement Act of
19907 by establishing discretionary
spending limits and requirements
for pay-as-you-go procedures and a
reconciliation bill to correlate revenue
estimates and total appropriations.
Critically, these controls were allowed
to expire in 2002.
As the name implies, the pay-as-you-go
procedures of the BEA require that any
proposed increase in discretionary spending over the budget baseline established
by the CBA must be offset, either by
increased revenue (e.g., taxes) or a corresponding decrease in discretionary
expenditures (e.g., appropriations) elsewhere in the budget. Budget authority for
nondiscretionary, entitlement spending
is mandated by law other than through
appropriations, and in summary estimates,
it establishes the negotiation room within
discretionary accounts.
The reconciliation procedure of the BEA is
intended to bring revenues and spending
into conformity with the levels set in the
annual, nonstatutory budget resolution
required by the CBA. As explained by
James V. Saturno, of the Congressional
Research Service:
Contract Management | September 2011
45
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
figure
one
Informal Nomenclature
for Fiscal Year 2012
Appropriations
Agriculture
Interior and
Environment
Commerce/
Justice/Science
Labor/HHS/
Education
Defense
Legislative Branch
Energy and Water
Military/Veterans
Financial Services
State/Foreign
Operations
Homeland Security
Transportation/
HUD
(contracts). However, the authorization
process has been weakened by the growing
reliance on indefinite authorization acts,
as well as those allowed to expire without
renewal. As noted in Principles of Federal
Appropriations Law:
tive Branch the budget authority to receive
funds from the U.S. Treasury for agency
operations in the designated fiscal year. The
depth and scope of U.S. appropriations law
and associated decisions of the U.S. comptroller general indicate the importance of
the appropriation power.
The Process as
Executed— Status
Quo Ante
The authoritative source for appropriation
bill status is the THOMAS website operated
by the Library of Congress.10 The informal
nomenclature from the site for the fiscal
year 2012 appropriations is shown in FIGURE
1 on the left.
“definite” (setting dollar limits either in the
aggregate or for specific fiscal years) or “indefinite” (authorizing “such sums as may be
necessary to carry out the provisions of this
act”)…. An authorization act is basically a
directive to Congress itself, which Congress
is free to follow or alter (up or down) in the
The majority of appropriations today are
subsequent appropriation act.9
preceded by some form of authorization,
although, as noted, it is not statutorily required in all cases…. Authorizations
contained in organic legislation may be
30
As is widely understood, the 12 annual
appropriation acts are taken much more seriously because they transmit to the Execu-
It is immediately obvious that the congressional committee jurisdictions for the individual appropriation bills do not neatly coincide with the organization of the Executive
Branch, even to the point at which agencies
are expected to derive operating funds
from different appropriations. However,
recent budgetary pressure and the growing
uncertainty of the timing and amount of
annual funding have forcefully brought
this anomaly to the attention of agency
program managers and the contractors who
Congressional Budget Process Anomalies
25
20
15
10
5
0
figure
two
46
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Fiscal Year
Continuing Resolutions
Supplemental Appropriations
Contract Management | September 2011
Omnibus or Consolidated Appropriations
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
support them. Nowhere has this uncertainty
become more apparent than in the growing
reliance upon continuing resolutions and
omnibus/consolidated appropriations to
evade fiscal year deadlines, as well as the
use of supplemental appropriations to
preserve budget baselines from year to year.
The last fiscal year in which all appropriations were passed on time and that no such
anomalies were required was in fiscal year
1998, which is the point of origin for the
chart shown in FIGURE 2 on page 46.11
tant government services and activities.
Appropriation bills must then address
programmatic problems that should have
been dealt with by the committees with
authorizing jurisdiction.13
As expected, the resulting politicization of
the appropriations process has contributed to delays in timely execution, as well
as created opportunities for the insertion
of earmarks.
Desperate Times
Call for Desperate
Measures
As indicated by the near-miss U.S. government shutdown of 2011, the failure of the
CBA and the BEA to control the budget
process has resulted in the proposals itemized below:
ƒƒ
Since 1974, many amendments to the
U.S. Constitution have been proposed to
require a balanced budget; e.g., as embedded in the “Contract with America”
The budget subcommittee jurisdictions of
the House and Senate were realigned in fiscal year 2004 with the effect of reducing the
number of appropriation bills from 13 to 12.
However, problems remained with missed
deadlines for budget resolutions and baselines,12 supplemental appropriations with
nongermane riders adding to the total,
and dependence upon continuing resolutions and omnibus appropriations prepared
under duress.
The Process as
Executed—The
Wheels Come Off
In addition to the problems with the BEA,
further consequences of the breakdown
of the authorization process are analyzed
by Scott Lilly, former staff director of the
House Appropriations Committee and
currently senior fellow at the Center for
American Progress:
The Congressional Budget Office reports
that in the current fiscal year, FY 2010,
about half of the money provided for the
nondefense activities of the government
($290 billion out of $584 billion) had to
be appropriated without legal authority. That is because a total of 250 laws
authorizing various pieces of the federal
bureaucracy had expired, and Congress
had failed to take the necessary steps
through the authorizing process to enact
replacement legislation…. This problem
then cascades into the appropriations
process as the Senate leaders must decide
whether to fund programs for which there
is no legal authority or terminate impor-
Contract Management | September 2011
47
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
by the 104th Congress as the Line Item
Veto Act of 1996,14 which was subsequently declared unconstitutional. Such
legislation inevitably will include legalistic exceptions described in mechanical
terms, such as “triggers,” “lockboxes,”
and other contraptions intended to
exclude the application of the law to the
circumstances of the day.
ƒƒ
ƒƒ
Biennial budgeting proposals have returned as a means to reduce earmarks
inserted by appropriation committee
members.15 The current bill, S. 211 (“Biennial Budgeting and Appropriations
Act”), has its roots in the identically
titled S. 261 of the 105th Congress of
1997. The appeal of the concept derives
from the expectation that Congress
will devote itself exclusively to agency
management and oversight tasks
in the off-cycle year. Whether this
is a realistic expectation is unclear;
however, several states that have tried
biennial procedures have returned to
annual budgeting due to the failure of
expected benefits to materialize, as
well as the timing disconnect with the
annual revenue cycle.16
The U.S. House of Representatives leadership has proposed disaggregating
the customary 12 annual appropriation
bills into votes for individual line items
within appropriation bills:
House Republicans are considering a plan that would allow
“separate votes but not separate
legislation for some of the appropriations bills,” said a senior
GOP aide, although details on
how that will work are not yet
available.17
ƒƒ
The Digital Accountability and Transparency Act of 201118 proposes a Federal
Accountability and Spending Transparency Board with authority to:
…issue subpoenas to compel the
testimony of persons who are not
federal officers or employees and
may enforce such subpoenas in
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Contract Management | September 2011
the same manner as provided for
inspector general subpoenas under
section 6 of the Inspector General
Act of 1978 (524 U.S.C. App.).19
Such authority is felt necessary to compel
testimony from recalcitrant contractors and
grant recipients over a proposed expansion
of reporting requirements first experimented with in the American Recovery and
Reinvestment Act of 2009.20
Effects on Agencies
For fiscal year 2010, largely as a result of
agency financial systems in a state of disarray, using obsolete legacy IT systems that
cannot produce consistent and verifiable
results, “the Government Accountability Office…issued a disclaimer of audit opinion on
the accrual-based governmentwide financial
statements for the fourteenth consecutive
year.”21 In such an operating environment,
annual policy reminders to contracting
officers of their obligations under the
Anti-Deficiency Act22 become routine. With
both administrative and penal sanctions for
violation by an officer or employee of the
U.S. government, this law also serves as the
basis for the “Limitation of Cost” clause23
and the “Limitations of Funds” clause24 of
the Federal Acquisition Regulation (FAR),
which are applicable to cost-reimbursement
contracts. Whether the contract is either
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
fully or incrementally funded, these clauses
are intended to relieve the contractor of
performance risk if funds are exhausted,25
and will certainly come into play in times of
unstable budgeting and programming.
As well, agencies can expect ad hoc, reactive policy guidance from the Office of Management and Budget regarding continuing
resolutions and other budget matters.26
Effects on
Contractors
While a quasi-default may be regarded
as the “soft landing,” the rating agencies
(Fitch Ratings, Moody’s Investors Service,
Standard & Poor’s) will not want to get
caught flat-footed, as they were by the 2008
collapse of the mortgage securitization
market.31 In such an event, the higher interest rates required by the market to fund U.S.
government debt will increase the crowdingout felt by nonfederal borrowers in competition for working capital in the same markets,
with indirect effects on the capital structure
of such borrowers.
Conclusion—Kick The
Can Down The Road?
In 1993, Leon Panetta testified before
Congress as the director of the Office of
Management and Budget to advocate the
budget process goals of stability, rationality,
oversight, predictability, and reduced opportunities for “special projects” (i.e., “pork”).32
The institutional culture that he opposed,
and which will hopefully pass away, is represented by the unattributed quote from a
cynical member of Congress in 1977: “That’s
the beauty of the budget process. You can
In the coming environment of discretionary budget declines and programmatic
uncertainty, contractors will contend with
increased data calls from customer agencies,
as well as a renewed emphasis on eliminating improper payments27 and contentious
efforts to achieve savings through “will-cost”
and “should-cost” estimates.28 As Leon
Panetta has testified at his confirmation
hearings as U.S. Secretary of Defense:
I think…we are dealing with a culture that
has developed that somehow we have got
to change. And I know during the period
from September 11, there has been an
awful lot of money that has been put into
the defense budget, a lot of equipment that
has been developed during that period. And
I think at the same time, a lot of it has certainly been worthwhile, been important to
our national defense. But a lot of bad habits
have developed during that period.29
Speaking of bad habits, the U.S. government has defaulted on its obligations before.
In 1979, due to debt ceiling delays and a
computer failure, the U.S. Treasury failed
to make timely payment on $122 million
in Treasury bills.30 In that instance, the
most charitable thing would be to call it
an “accident.” While Section 4 of the 14th
Amendment requires that: “The validity of
the public debt of the United States, authorized by law…shall not be questioned,” the
current prospect of selective, partial default
by the U.S. government must be considered
to be analogous to a tactical bankruptcy,
with senior debt holders to be paid first, the
U.S. Civil Service next, and contractors last
in line as unsecured creditors.
Contract Management | September 2011
49
Hitting the Wall: How the Breakdown of the Federal Budget Process Affects Government Procurement
vote for all of your favorite programs, and
then vote against the deficit.”33
There are now ongoing efforts to rebuild
incrementally a disciplined budget process
for the current era of resource constraints.
Authorization committee chairmen are
reasserting the importance of oversight in
the budget process, while the Statutory
Pay-As-You-Go Act of 201034 restores the payas-you-go procedures of the BEA of 1990. As
well, the GPRA Modernization Act of 201035
seeks to improve the Government Performance and Results Act of 1993 (GPRA)36
through improved performance assessment
and communication between agencies and
Congress. More will be required, but these
efforts are a good start. CM
About the Author
4.
Bill Heniff Jr. and Justin Murray, “Congressional
Budget Resolutions: Historical Information,”
Congressional Research Service Report 7-5700
(April 4, 2011): 2, available at www.fas.org/
sgp/crs/misc/RL30297.pdf.
5.
Title X of Public Law 105-33.
6.
Public Law 99-177 (a.k.a. the Gramm-RudmanHollings Act).
7.
Title XIII of Public Law 101-508.
8.
James V. Saturno, “The Congressional Budget
Process: A Brief Overview,” Congressional
Research Service Report RS20095 (January 28,
2004): CRS-3, available at www.fas.org/sgp/
crs/misc/RL30297.pdf.
9.
Principles of Federal Appropriations Law,
Volume I (The GAO Red Book, 2004). http://
www.gao.gov/htext/d04261sp.html
10.
http://thomas.loc.gov/home/thomas.php.
11.
Data derived from http://thomas.loc.gov/
home/approp/app12.html.
12.
Congress has failed to complete action on
budget resolutions for fiscal years 1999, 2003,
2005, 2007, and 2011; see Heniff and Murray,
note 4.
13.
Scott Lilly, “From Deliberation to Dysfunction:
It is Time for Procedural Reform in the U.S.
Senate,” Center for American Progress (March
2010): 3, available at www.americanprogress.
org/issues/2010/03/pdf/filibuster.pdf.
14.
Public Law 104-130.
15.
See Bob Cusack and Erik Wasson, “GOP Could
Push for Two-Year Budget as Price of Deal to
Raise Debt Ceiling,” The Hill (June 7, 2011),
available at http://thehill.com/homenews/
house/165035-gop-may-push-for-two-yearbudget-as-price-of-debt-deal.
CHRISTOPHER ROBEY, CPCM, NCMA
Fellow, is a member of the Washington DC
Chapter of NCMA and is a procurement analyst at the Department of Homeland Security,
U.S. Customs and Border Protection. He holds
an MBA from Long Island University, as well
as a masters in public policy from Georgetown
University.
Send comments about this article to
[email protected].
The views expressed in this article are those
of the author, and do not reflect the policy or
position of the U.S. Department of Homeland Security, U.S. Customs and Border
Protection, or the U.S. government.
16.
Meyers, see note 2, at 23.
17.
John Bresnahan, “GOP Softens Budget Timeline
Ambition,” The Hill (May 20, 2011): 13, available at www.politico.com/news/stories/0511/55351.html.
18.
H.R. 2146.
19.
www.gpo.gov/fdsys/pkg/BILLS-112hr2146ih/
pdf/BILLS-112hr2146ih.pdf.
20.
Public Law 111-5.
21.
U.S. Government Accountability Office, “A Citizen’s Guide to the 2010 Financial Report of the
U.S. Government,” available at
www.gao.gov/financial/
fy2010/10frusg.pdf.
22.
31 U.S.C. §1341.
23.
FAR 52.232-20.
Endnotes
1.
50
As quoted in Liz Capo McCormick and Daniel
Kruger, “Bond Vigilantes Confront Obama as
Housing Falters” (May 29, 2009), available at
www.bloomberg.com/apps/news?pid=newsar
chive&sid=a6eMpGVUDeeE&refer=home#.
2.
Roy T. Meyers, “Biennial Budgeting by the U.S.
Congress,” Public Budgeting & Finance (January
1, 1988): 22.
3.
Titles I–IX of Public Law 93-344, as amended; 2
U.S.C. 601­– 688.
Contract Management | September 2011
24.
FAR 52.232-22.
25.
See Ralph C. Nash Jr., Steven L.
Schooner, Karen R. O’Brien-DeBakery, and Vernon J. Edwards; Government Contracts Reference Book, third
ed. (Washington, DC: The George
Washington University, 2007): 356.
26.
See, e.g., Office of Federal Procurement Policy,
Administrator’s Memorandum for Chief Acquisition Officers and Senior Procurement Executives, “Conducting Acquisitions under a
Continuing Resolution” (February 6, 2007); and
Office of Management and Budget Circular No.
A-11, Section 123, “Apportionments under Continuing Resolutions.”
27.
See Improper Payments Elimination and Recovery Act of 2010 (Public Law 111–204), available
at www.whitehouse.gov/sites/default/files/
omb/financial/_improper/PL_111-204.pdf.
28.
See Office of the Secretary of Defense Memorandum, “Joint Memorandum on Savings
Related to “Should Cost” (April 22, 2011), available at www.dau.mil/homepage%20documents/USD_ATL_Memo.pdf.
29. “Hearing to Consider the Nomination of Hon.
Leon E. Panetta to be Secretary of Defense,”
Committee on Armed Services, U.S. Senate
(June 9, 2011), available at http://armed-services.senate.gov/Transcripts/2011/06%20
June/11-47%20-%206-9-11.pdf.
30. “America’s Debt Ceiling: The Mother of All Tail
Risks,” The Economist (June 25, 2011): 83.
31.
See Walter Brandimarte, “Exclusive: S&P to
deeply cut U.S. ratings if debt payment missed,”
Reuters (June 29, 2011), available at www.
reuters.com/article/2011/06/29/
us-usa-debt-sandp-idUSTRE75S5GV20110629.
32.
See “Statement of Leon E. Panetta, director,
Office of Management and Budget, before the
Subcommittee on Legislation and National
Security, Committee on Government Operations, U.S. House of Representatives” (October
7, 1993).
33.
As quoted in Aaron Wildavsky, “Ask Not What
Budgeting Does to Society But What Society
Does to Budgeting,” National Journal Reprints
(Washington, DC, 1977): 4.
34.
Public Law 111-139.
35.
Public Law 111-352.
36.
Public Law 103-62.