Budget Analyst - Federal Agency Money Matters


Biennial Budgeting's Implications


  • In February 2000, both the Senate and the House leadership seem intent on adopting a budget for two years.  The underlying reason is to provide more time for oversight of agency operations and to give greater lead time for budget and appropriations decisions.  Whether or not the Congressional desires will be met is open to question.   Regardless of how the biennial budget addresses Congressional problems, it leaves program managers and budget and program analysts with a long list of things to do.   First, a word about likely success of the biennial budget in meeting its stated objectives:


    • There will always be a time constraint and the only reason anything gets done is that there is an absolute deadline.  Behavior in this respect will not change.  Look at what happened when the Federal fiscal year was moved by three months in 1975, going from a July to June fiscal year to the current October to September one - it simply made more time available for evading the issues.  And there were subcommittee chairs who did manage to get all their work done on time.  So it is humanly possible to stick to a schedule if you in fact want to.  I suspect that the biennial budget will give Congress one year and eight months to avoid budget issues as opposed to the current eight months.


    • Oversight is not likely to get any better.  The problem with oversight is that little or nothing is done as a result.  The record is replete with documentation of things gone wrong - look at the long list of GAO reports which repeat the same things over and over again.  What is lacking is a steady, consistent management purpose in the Federal government, both in Congress and the Executive.  All want to lead the latest wave in management thinking, without stopping to figure out that the latest may in fact be late, or old, or entirely irrelevant.  The Federal government is full of solutions seeking a problem - any prior solution stands a good chance of being adopted, even if it does not fit the circumstances.


  • Congress will have to sort its way out of its own problems, and some new process may be imposed.  After all, it only has been seven years since GPRA, and the first performance reports are due this year.  Definitely a good time to change the whole process!  (Evidently there is a rush for action on the biennial budget. S.92, HR 493, and HR 3586 would establish a biennial budget starting with FY 2002.  H Res 396, with a large number of co-sponsors, states the sense   of the House that a biennial budget is to be established this year.  So much for measured and careful change in management tools.)  Now on to the chores involved for managers and analysts.


  • The first task is to figure out what the process will really be.  If Congress takes action, it will be by passing a law, which will be in the form of amendments to existing statutes.  At first it will probably be difficult to follow exactly what is being done.  If GPRA is a guide, some agencies will take years to understand what is required.  Additionally, OMB will have to decide what guidance to issue.  It is highly likely that OMB's guidance will be late for the first year to which the new process is applicable, so special vigilance is in order for those working agency budget matters.


  • After understanding what is required, or guessing it, next will come the formulation of the first biennial budget.  Budget formulation will be more difficult.  Data will have to be presented for two budget years rather than one.  GPRA performance measures and commitments will have to be extended further.  The second year will be fully one year in the future beyond what current practice is, so estimates will be based on even more assumptions.  The process will most likely include some provision for dealing with this uncertainty, but it cannot be a full review of the out year every year - this would defeat the purpose of the biennial budget.  Lack of care in making the second year budget estimates will most likely result in severe consequences for the affected programs and organizations.  Areas that require special attention on the part of managers and analysts should be:


    • In the technical calculation area, most elements of cost will be based on assumptions with an increasing level of uncertainty associated with them.  Personnel compensation and benefits (PC&B), or payroll, and travel costs are especially sensitive to assumptions.  The costs incurred are difficult to change, yet estimating the costs of a workforce that is almost three years away is not an easy task.  Many assumptions about difficult to control cost elements will have to be built into the estimate.


    • A wild card in the PC&B calculations would be the annual pay raises.  Will the pay raise process be changed to match the budget cycles, or will there be pay raises announced in the middle of the new two year fiscal period?  Since politicians love to announce pay raises, it is not likely that they will forgo the opportunity to have annual pay raises.  Doing so has the potential for creating problems for payroll budgets, or force budgets to include generous contingency funds for such events.  Likewise, the escalators for inflation built into contracts will play a role in contingency planning and budgeting; although more foreseeable than pay raises, few agencies have information systems in place that would allow accounting for these costs.


    • In the budget formulation political considerations, the two-four-six year election cycle becomes a larger factor - how can the politically appointed policy makers include their political policy calculations into a budget that may be for two years?  They either will have just missed the opportunity to make a point, or the point will have to be made very early, losing its effect.  Budget execution may have to bear the brunt of the political aspects of budgeting.


  • Budget execution will have to bear the bulk of the workload associated with changing to a biennial budget.  Given the extensive use of assumptions for two years, budget execution managers and analysts will have to keep the second year in mind as allocations are made for the first year, and continually adjust first year allocations to make sure that no problems are presented in the second year:


    • Some of the actual work will be determined by the specific reprogramming and adjustment authorities that may be provided with a two year budget process and appropriation, but there is no way in which a two year at a time budget can be implemented without keeping a keen eye on the potential effects of second year resource needs on the first year's use of resources.  (I am not addressing what may happen if the fiscal year is redefined as a "fiscal period" of two years, i.e., the end of the first 12 months would be the mid-point of the fiscal period.  However, having a 24 month fiscal period does not take care of any of the problems I list.)


    • The likely outcome for many organizations will be a parsimonious use of resources for the first year with a proportionately higher use the second year.   The situation will be akin to the "end of year" spending syndrome of Federal agencies, but now it will be a "second year" spending syndrome followed by "end of the second year" spending.  This will be especially true during the first years of implementation since there will be little experience on which to base decisions, and wild cards (such as pay raises or cost escalators built into contracts) may not be known.


  • The saving grace in all this is that the change, if it comes, will come in phases.   Even if Congress adopts legislation later this year changing to a two year system, most of the workload I discussed above will not come about until mid-2002, and peaking around early 2003:


    • First, the process will be changed by law, perhaps as early as July-August 2000.   Agency analysts will attempt to figure out requirements as the law is developed - in this regard, visiting the AABPA web site is recommended (see links).


    • Next, OMB will issue guidance.  This probably will be late for the first submission, so agency analysts and managers will have to hope for the best.


    • The first two year budget request will be sent to OMB, probably in September of 2001, for fiscal years 2003-04.  (The FY 2002 request will have been sent to OMB in September 2000.  There is not enough time for Congress to act and change the process starting with FY 2002-03.  Agencies started their FY 2002 work during the winter/spring 2000.)


      • Changes at this point are mostly related to displaying two years of budget information, with associated estimates.  OMB review may be more difficult and testy given budget examiners' desire to disallow poorly supported estimates - and there will be many given the need to guess three years into the future.


      • A significant change will be the display of GPRA outcomes and performance measures.  Having to guess three years into the future for resource estimates is not very good.  Doing so for reportable and tracked outcomes and performance measures is a nightmare.


    • On February 4, 2002, President submits first two year budget to Congress, for fiscal years 2003-04.


    • Congress reviews President's request, passes its own version.  Appropriations committees hold hearings; witnesses try to explain two year budgets.  It is likely that additional materials will have to be prepared, explaining how programs will be implemented over a two year period.  Appropriations are enacted by October 2002.


    • While hearings and conferences are being held in Congress, people in the agencies in charge of budget execution prepare their two year operating plans and put in place controls to make sure that funds last for two years.  Accounting shops try to figure out how to code documents to make sure that funds are properly tracked - some systems may have to be changed to provide for additional codes.


    • Operating officials get their first advice of allowance around October 2002, most likely for one year.  But they all understand how much money will be available for the next year as well.


    • During 2003, Congress holds extensive oversight hearings as to agency performance, based on the GPRA performance reports submitted in March 2003.  There are no budget or appropriations hearings contemplated for 2003.


  • My crystal ball at this point becomes cloudy.  There are many ways in which this system can fall apart, and many reasons why it may come later, or never happen.  I will not deal with these now.  Meanwhile, let's keep our eyes and ears open in case something dramatic happens.


Copyright 1998-2010 Laszlo Bockh and Mary Blakeslee