Lesson 1: Budget Formulation

Transcription

1 Lesson 1: Budget Formulation

2 Issue: Balance Budget The Fiscal Future: Issues and Options 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 Option: Reduce benefits and/or increase revenue

3 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 3

4 Current Dollars in Billions Federal Budget Trends Federal Budget Trends: $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $ est Fiscal Year (w/o TQ) Receipts Outlays Source: Office of Management and Budget

5 Dollars in Trillions Federal Debt Held by the Public and Gross Government Account 8 Public Deficit: Source: OMB

6 Entitlement Reform

7 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 US stress level

8 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

9 Sequestration s Effect on Debt

10 Fiscal Year 2015 The President s Budget $3,337B Receipts $3,901B Outlays FY 2015 Deficit = $564B Average Annual Deficit FY ~ $485B Source: OMB 10

11 Fiscal Year 2015 President s Budget (Outlays) TOTAL $3,901B Mandatory $2,709B (69% of total) Other Mandatory 18% Medicaid 9% Net Interest 6% Immigration Reform** 0% Defense 16% Other Discretionary 15% Discretionary $1,192B (31% of total) Medicare 13% Social Security 23% 0% * Includes $6B in disaster costs ** About $8B in Implementation costs

12 Millions of Births Baby Boom Births by Year = Baby Start/End Year Source: Statistical Abstract of the United States

13 Percent of Total 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 Distribution of Outlays by Agency estimate 2015 estimate Treasury (Int) Soc. Secur. HHS DOD (Military) VA/OPM/AG/DOT/DOL 13

14 Fiscal Year 2015 President s Budget (Revenue) Othe Social Insurance 2% Medicare 7% TOTAL $3,337B Excise, Estate, Customs 5% Other Receipts 4% Immigration Reform* 0% Corp Tax 13% Indiv Income Tax 46% Social Security 23% *about $2B in revenue Source: OMB 14

15 Percent of Total Revenue (As a percent of Total) Federal Revenue Sources Fiscal Year (w/o TQ) est 2016 est Ind Inc Tax Corporate Inc Tax Social Insurance All other Source: OMB

16 Percent of Taxable Income Corporate Taxes Paid as a Percent of Taxable Income 35% 30% 25% 20% 15% 10% Asset Value of Corporation $1-5M $5-50M M 500M+ 5% 0% Source: Internal Revenue Service

17 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 Taxes as Percent of GDP Source: OECD

18 Budget Totals in President s FY 2015 Budget Request DoD Topline, FY 2001 FY 2019 (Current Dollars in Billions) $750 $500 $ * * 30* 30* * 30* $0 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Base Budget * Reflects FY13 Enacted level excluding Sequestration * Placeholders only OCO Focus Only On Base Budget For Remainder Of Briefing No FY 2015 OCO Budget Yet Other 2

19 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 % 30% Operation and Maintenance (ex. DHP) % 40% Defense Health Program (DHP) * % 14% Procurement % 9% Research, Development, Test, and Evaluation % 7% Military Construction % 1% Family Housing % -3% Other % 1% TOTAL % 100% * The DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military Personnel funding. Source: OMB

20 ($B) 600 PB15 DoD Base-Budget Topline (Opportunity, Growth, and Security Initiative) 575 FY 2014 President s Budget (PB14) PB $26B Initiative 496 Sequester - Level Budgets 475 FY14 FY15 FY16 FY17 FY18 FY19 PB14 Sequester - Level Budgets PB15 13

21 ($B) 600 PB15 DoD Base-Budget Topline 575 FY 2014 President s Budget (PB14) PB Sequester - Level Budgets 475 FY14 FY15 FY16 FY17 FY18 FY19 PB14 Sequester - Level Budgets PB15 3

22 ($B) 600 PB15 DoD Base-Budget Topline (Effects Of Sequester-Level Budgets) 575 FY 2014 President s Budget (PB14) 550 PB $115B Cut 500 Sequester - Level Budgets 475 FY14 FY15 FY16 FY17 FY18 FY19 PB14 Sequester - Level Budgets PB15 15

23 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 14

24 Budget Lifecycle Main Players/Overall Process Field Activities/ Bureaus Department Headquarters THE U.S. CAPITOL WASHINGTON 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

25 Department of Defense s Planning, Programming, Budgeting and Execution (PPBE) Process

26 The Budget Calendar and the PPBE Process FY Budget Status Today FY 2014 Budget Planning Prog/Budget Congressional Action Execution FY 2015 Budget Planning Prog/Budget Congressional Action??? Execution FY 2016 Budget Planning Prog/Budget Congressional Action Execution FY11 Q2 Q3 Q4 FY12 Q2 Q3 Q4 FY13 Q2 Q3 Q4 FY14 Q2 Q3 Q4 FY15 Q3 FY16 Q2 Q4 Q2 Q3

27 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) Program/Budget Estimates Components submit estimates Strategic Planning Program Review Execution Review Budget Review JCS Chairman s Joint Planning Document Budget Estimate Submission (BES) Execution Review Program Objective Memorandum (POM) OUSD(C) performs an Execution review. Result: Omnibus Reprogramming Prog. Review JCS Chairman s Program Assessment Cost Assessment and Program Evaluation (CAPE) 3-Star Dep. Mgmt Act. Grp SecDef Group Budget 3-Star Review Dep. Mgmt Act. Grp Under Secretary of Defense (Comptroller :USD-C) Prog Decision Memo SecDef Group Final JCS risk assessment PDMs Resource PBDs Mgmt Decision Budget Justification Budget Submission

28 Processes/Products National Security Strategy National Military Strategy Quadrennial Defense Review (QDR) Chairman s Program Recommendations (CPR) Defense Planning and Programming Guidance (DPPG) Players Defense Department PPBE: Planning Phase National Security Council Under Secretary of Defense (Policy) Chairman of the Joint Staff 28

29 Processes/Products Integrated Priority Lists Program Objective Memorandum (POM) Chairman s Program Assessment (CPA) Program Decision Memorandum (PDM) Players Defense Department PPBE: Programming Phase Military Departments Combatant Commanders/Joint Staff Cost Assessment and Program Evaluation (CAPE) Office of Management and Budget (OMB) Three Star Programmers Group 29

30 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 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

31 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? 31

32 Processes/Products Budget Estimate Submission Resource Management Decision (RMD) Players Defense Department PPBE: Budgeting Phase 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) 32

33 The Office of Management and Budget

34 The OMB budget review schedule July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June Program/Budget Review with Agency HQ Director s Review Revised Economic Assumptions July: OMB issueds revised A-1l guidance Budget Review Board Meetings Passback/ Appeals MAX Database: Prior Years MAX Database: Budget Years Budget Chapter Writing State of the Union and Budget Submission Review Agency Budget Justifications Review Proposed Authorizations with Budget impact Review of Congressional Testimony and Actions Ongoing Budget Oversight Mid-Session Corrections Apportionments

35 Office of Management and Budget: What do they want from me??! OMB is very flat information moves up chain very quickly Ø Ø OMB leadership responsive to West Wing OMB leaders deal with macro issues Almost all budget issues have political/policy component Ø Ø Ø Examiners work in a fast-paced environment Program examiners want compelling/well-reasoned info Communication and integrity are key New OMB leadership experienced in budget and program issues Ø Ø Ø Director Vacant Deputy Brian Deese NSD PAD Steve Kosiak 35

36 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 36

37 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 Players i.e., Economic recovery, funding the overseas contingency operations, etc. OMB Director All ExOp Reps (NSC, OSTP, OFFM, OFPP, etc) OMB Division Staffs 37

38 The Congressional Budget Office

39 CBO: Divisional Organization

40 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 40

41 Questions, Comments, Concerns?

42 OMB Sources of Power/Influence The Top Line Passback Scoring Apportionments Legal/Regulatory Statements of Administration Policy

43 CBO Sources of Power/Influence 10 year baseline Scoring Research Reports

44 BACKUP SLIDES

45 FY 12/13 DoD Requests vs. Appropriation (Budget Authority in $ Billions) Revolving Funds Family Housing Military Construction Research, Development, Test and Evaluation Procurement Operation and Maintenance Military Personnel 0 FY 2013 FY 2014 FY 2015 Does not include $26B from Initiative Fund in FY 15 or $79B OCO Source: OMB

46 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.: 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

47 PPBE: Explain the Phases Processes Timing Products Players Interests

48 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?

49 Issues Defense Department PPBE: Budgeting Phase 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

50 Issues Defense Department PPBE: Execution Phase 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?

51 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