HMP Governance Lab: Introduction to Health Policy

1.15 The Budgetary Process: Federal Level

• Holly Jarman, PhD and Scott L. Greer, PhD • Season 1 • Episode 15

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What does the Federal government spend money on and who decides how this works? Profs Greer and Jarman take you through the perils and pitfalls of the Federal budgetary process. 

Scott Greer:

This is an HMP governance lab podcast. And I'm Scott Greer. And today I'll be asking Holly Jarman questions about the budgetary process.

Holly Jarman:

Yeah, hold on to your hats, this is going to be a thrill ride. So what are your question, Scott?

Scott Greer:

Well, first, I thought we might start with the federal budget process, because rightly or wrongly, a lot of people spend think that that's the main budget that matters.

Holly Jarman:

That is true. So there's a couple of things we have to think about when we're talking about budgets in the federal government. The first big question we need to ask ourselves is who actually within the federal government has the authority to pass the budget and figure out what we spend on which policy areas? So where does authority lie? Now, here, there's a bit of a split. Congress is the branch of government which has the power to collect taxes, borrow money, and authorize expenditure. Whereas the President has a responsibility to prepare a comprehensive budget each year, which gives the executive branch some agenda setting influence. So quite often, a president will try and write a budget, which is signaling to Congress, the kinds of things you'd like to see. But the kicker is, Congress is not bound by the President's recommendations. So your mileage may vary here, under the Trump administration, we've seen that members of Congress have voted in ways that have supported transpositions, almost all of the time. So party identity and allegiance matter here.

Scott Greer:

In other words, if the leader of your party is the President in the White House, you give a lot more credence to the proposals from the White House. Whereas if a president of a different party sends you a budget proposal, you as a member of congress don't see why you should view it as anything more than a giant work of fiction. Given that, what does the federal government spend the money on?

Holly Jarman:

Okay, so, yeah, good question. We spend money on a huge range of things, really, the scope of government is quite interesting and extensive. And for our purposes, we kind of have to also understand the different types of spending. So sometimes we talk about discretionary spending, versus mandatory spending. And understanding the difference between those two things is the key to becoming knowledgeable about the budget process and be able to talk about this at parties. So discretionary spending is approximately 30% of the total spend. And this gets controlled through 12 annual appropriations bills. So when I, if you ever hear us talk about the appropriations process, that's the process of Congress appropriating money, which is discretionary spending. And so these bills cover things like border security, a lot of defense issues, actually, the environment, education and training, that is distinct from some of the big programs that we cover a lot in in your course of study, which are mandatory or sometimes referred to as entitlement spending. This is about 60% of the total spend of the federal government. And that's the big guns, including Medicare, Medicaid, Social Security, snap, unemployment insurance, military retirement benefits and Veterans Disability benefits, then we spend a lot of money on the national debt. So interest on the national debt is also is its own category, when we're trying to understand federal government spending. And the limitation here on what Congress can actually do, and on what the US Treasury can do in terms of borrowing money, there's actually a debt ceiling, which is something that has to be raised through legislation. So it is essentially an arbitrary figure that says above this amount, the US Treasury can't borrow money. And so Congress regularly has to raise the debt ceiling, which is always a controversial debate. So it's important here, like look at those three categories, discretionary, mandatory interest on the national debt. I haven't really mentioned health related spending, if you are interested in health, you have to look all over the budget. So, for example, the healthcare and health research category makes up about 21% of non defense discretionary spending, so it's kind of tucked away in there. So if you're going to read reports on the federal spending and the national budget, and understand the national conversation around these issues, you have to be aware that you're looking in lots of different places. So some other non defense discretionary spending categories are also really important for The things we care about, like spending to tackle the global spread of HIV and AIDS, food assistance, like the WIC program, housing education, the EPA budget says a bunch of these things where we need to specifically be aware and pay attention to where that lies in the budget, and therefore which appropriations bills. As well as which other congressional discussions these conversations fall under.

Scott Greer:

And in two great examples of this medical residencies are funded by Medicare. So they're technically mandatory spending, and breast cancer research and only breast cancer research is in the defense budget, because that was a budgetary trick New York senator used in the 1990s to increase breast cancer expenditure by using repurposed military money, the debt ceiling, this is such a political gimmick. It was basically a trick invented by newt gingrich. Because what happens is Congress authorizes and then appropriates money, a certain amount of money to get spent, and then the debt ceiling is they have to come along and authorize actually paying the bills. So it's exactly as if you spent too much money on your credit card, then inform the credit card company you hadn't intended to spend that and you'll deal with it by not giving them the money. Failing to raise the debt ceiling would be a very efficient way to crash global financial markets. The reason that they adopted this charade is simply that it creates an opportunity to put members of Congress on the agenda as having voted for increasing national debt. It's pure gimmickry and very dangerous gimmickry.

Holly Jarman:

Right. You know, I'm, I'm with Hamilton on this one in the context that the ability of a government to actually go into debt and to borrow is really an integral feature of its overall financial planning and the government not adding acting as the lender of last resort, for example, and a backstop for the economy. I think it's really important.

Scott Greer:

Should one of us talk about authorization versus appropriation?

Holly Jarman:

Yeah, I think you should.

Scott Greer:

So this is a really important distinction to authorize is essentially to set up a framework for money to be spent. So if you authorize money to build a road, or you authorize a block grant program for community development, you haven't spent a cent, you've created a vehicle through which the money can be spent with objectives and administrative rules and so forth. appropriating is different appropriation is where you make an explicit decision to put some money into there. So on one hand, we have appropriations based on decades old authorization legislation. So it might not be fit for purpose. And on the other hand, we also have really complex ways to try to appropriate money when there's no really good authorization vehicle in existence. And there's a lot of slipping and sliding, because sometimes politicians want to start or end programs through authorization. And sometimes they're actually trying to spend more or less money through appropriations.

Holly Jarman:

Right. And that's why it's kind of important from an advocacy and maybe lobbying perspective, you've got to pay attention to, obviously the authorization process. But that's where the public eye normally is. That's where media attention, if any, is. But quite often, the appropriations process is not followed by the general public. And so you as an advocate, or as someone who is monitoring the situation on behalf of your organization, in the healthcare sector, you got to pay attention to appropriations, because you might end up with unfunded mandates of various kinds and situations where the money and the money flows do not match the actual policy on the books. And so that's a difficult situation. And it's a bit it's a favorite of political parties and party leadership who want to be seemed to be doing a thing, but then or not even be seem to be doing a thing undermine something without attracting a lot of visibility or allow something to be authorized but then undermined the the appropriations process so that it's actually underfunded over time.

Scott Greer:

The Affordable Care Act is full of nice things that were authorized and gotten minimal or no appropriations afterward. So the federal government, if you look at it, it's basically an insurance company with an army and a Navy. The entitlement spending is overwhelmingly social insurance, such as social security and medicare. And the discretionary spending is in large part military spending. What's the process that creates this budget?

Holly Jarman:

Okay, you are you already so this kicks off in February. The President makes his or her hopefully one day budget request by the first Monday in February. After that, the House and Senate Budget committees hold hearings. And ideally, this leads to a congressional budget resolution by tax day, which is April the fifth If these resolutions then go to the floors of the House and the Senate, where they can be amended if there's a majority vote. After that, the House and Senate get together in conference to hash things out. That results in a conference report which has to be passed by both houses. As a concurrent resolution, that bill does not go to the President for approval. So it's a little bit different than the legislative process. The Concurrent Resolution does not enact changes in taxes or spending. But what it does do is provide targets for the appropriations committees. And appropriations committees are very important bodies in Congress. What's more, the other thing to know about the budget resolution is it can't be filibustered in the Senate. So we've got a situation here where this the rules for the budget process is slightly different than they are for normal legislation. And it's important to know those things, the Appropriations Committee in each chamber. And then underneath that you've got subject specific subcommittees, they use the budget resolution to form annual legislation. So it's actually a really important part of the process.

Scott Greer:

And if they can't get this right, then you have two different techniques, which are being used increasingly often as the whole legislative machine breaks down in the United States. One is a continuing resolution, which is what it sounds like, they resolve to keep on appropriating money exactly the way they did in the last budget. The other is an omnibus, where instead of a variety of different appropriations bills thought through by a committee and costed out by the Congressional Budget Office, they write one gigantic spending bill for essentially the entire federal government and pass it usually with no oversight written by the leadership, highly centralized process, lots of sloppiness, there's at least two cases where one of these Omnibus bills passed into law, somebody's phone number, because somebody wrote down a mobile phone number in the margins of a text. And then some typist incorporated a random telephone number, as part of an omnibus budget bill. In the absolute nightmare of the late Obama years. Of course, Congress got so dysfunctional, that they invented the nightmare of a CR Omnibus, in which they basically passed an omnibus piece of legislation as a heavily amended continuing resolution. The word is as ugly as the process. This, of course, though, leads us to the extent to which the budget is a backdoor way to make policy once again. And it is something called reconciliation, which is one of the many ways Americans get around the crazy, super majority rules of the Senate. What is it?

Holly Jarman:

Right, so, as you may know, if you've been listening to our podcasts, the legislative process is governed by rules, which are quite flexible, actually, each chamber can make those rules. And so one of these rule governed sets of processes is budget reconciliation, which please stay awake for this because it's super important. So it's a special procedure. It's been in use since about 1980 or so. It breaks a lot of the normal congressional rules, it's a little bit different. And a budget reconciliation bill is a piece of legislation that combined compiles provisions developed by a number of congressional committees. So it's stapled them all together. And it's used to expedite changes to mandatory spending or taxes that would normally require politically difficult changes to existing law. That's why it's tantalizing. Because as Scott says, it's this backdoor way, if you are facing gridlock, and you don't think you can get changes to mandatory spending, for example. So those big programs we were talking about earlier, that we care so much about in health and public health. If we want to get those changes through, but we can't get it through the normal legislative process, well, here comes budget reconciliation. It's tantalizing. It's potentially if you know the rules well enough, you can get things through in this way that you would otherwise not be able to get through the normal legislative process. And it's kind of invisible. So you think we don't pay enough attention to the normal budgetary process. We also really don't pay enough attention to budget reconciliation because it's so flippin complicated. So the budget reconciliation bill also can't be filibustered in the Senate. That is very good news if you're trying to get something changed, and so you can pass it by a majority vote. So what happens is a reconciliation Active is included in a budget resolution that instructs committees to produce legislation that meet tax or spending targets by a certain date. So the budget committee in each chamber packages all these measures together into one bill, which goes to the floor for an up or down vote, so that's yes or no. Then the conference committee reconciles the bill. And then each house approves the reconciled bill, then the bill goes to the President for approval. So you can see, I think that it's very similar in some ways to the legislative process, but it avoids some of those things that often frustrate people trying to put legislation through both houses like the filibuster. And an important, specific nerdy thing here is the bird rule. Now, bird was a senator. And he created the the author of this rule. And this constrains reconciliation. So the bird rule was designed to really prevent reconciliation for purposes other than amending mandatory spending, or taxation. And it allows representatives to challenge extraneous, and I'm putting that in air quotes, extraneous provisions can get them stripped from the bill, unless 60 senators vote otherwise, if you have never heard of the bird rule, you are not alone. And this is absolutely illustrative of everything I'm saying here, this is a process with complex rules that are hard to understand and are not really publicly known, and may not even in normal times be necessarily focused on by people who do advocacy work, unless they're really into the legislative budget process. And so knowing how this works, puts experienced senators at an advantage in this process.

Scott Greer:

Now, I don't think you made it clear just how weird This is, because there's two other twists. One is that if you're going to use this process, you have to make a claim that reconciliation will be used to reduce the budget deficit over a 10 year window, not nine years, not 11 years. This is determined by the congressional congressional budget office who use rules that are very transparent and clear, to cost out the effects of different budget changes over a decade. They're transparent and clear. The price of that is that they're often completely bonkers. So for example, the Affordable Care Act, the CBO, assumed that every single managerial and payment system innovation would produce no efficiency gains whatsoever, because that's a nice clear, transparent rule that they wouldn't let anybody get by with claiming that anything could be done better and save money. The main effect, therefore, of CBO costing is that people play exactly to the rules of the CBO. And frequently, therefore will include things that produce revenue in the first 10 years and then cost a fortune from year 11 onward, for example. So the CBO score becomes really, really important in using reconciliation, because that total sum of money has to look like a reduction in the projected budget deficit of a decade as deemed by the CBO. Now as for what's extraneous, that's decided by the Senate parliamentarian and it takes 60 votes to override a decision of the senate parliamentarian, however, under George W. Bush, the Senate had a different idea, which is it only takes 50 volts to fire the parliamentarian, so they fired parliamentarians until they got a parliamentarian who would make rulings that they liked.

Holly Jarman:

That's exactly what I'm getting at. Right. Once you think you have a handle on how the procedures work, you mustn't let yourself get into the false idea that these procedures can't be changed. These are politicians working for political gain, not necessarily we, as we must remind ourselves working for the public health or for health systems or actors. And so we have to realize that they're going to follow the path at the path of least resistance to get political support. And that means changing rules. It means politicizing some what the CBO process, it means using these rules in creative ways. And mitch mcconnell is a genius at this really. And so, it was interesting to see how some of these minutiae well manjusha to us, became politically incredibly charged over the the period of time when the Senate was firing people and doing the other things that Scott was alluding to.

Scott Greer:

We have the beginner's guide to the federal budget process there. And the takeaways should be that there is a process it's a hybrid. Have two processes. One is in which committees do the hard work, and one is in which the leadership does it in a weird negotiation with the White House and the Congressional Budget Office and the other chamber. And the latter has become more and more common as the legislative process has become less and less functional in the United States. There's no really clear basis on which to say the American budgeting processes working well, because it's not forcing clear cost benefit accountable decisions. And at the same time, it doesn't have any nice technocratic rules that make for better public policy. But if you think the federal policy landscape is challenging, albeit promising, if you know what you're doing, wait till the next podcast when we talk about states.

Holly Jarman:

This has been an HMP governance podcast. If you're interested in our research, come and visit us at www dot HMP governance. org, or follow us on Twitter at HMP govlab.