Biennial Budgeting on the Horizon?

If the Senate confirms Jack Lew, President Obama's nominee to lead the Office of Management and Budget (OMB), Lew is likely to revisit the idea of biennial budgeting. The allure of biennial budgeting at the federal level is that it theoretically frees up more time for both Congress and federal agencies to work on issues outside of the budget. But would a move to biennial budgeting actually change the budget process for the better?

Under the current budget cycle, federal agencies start creating budgets two years before they're enacted. The Fiscal Year 2011 budget was formulated by agencies starting in mid-2009 and presented by the president in early 2010. If the system was working properly, Congress would approve all agency budgets by Oct. 1, the beginning of the new fiscal year.

At any given time, Congress and the executive branch are wrestling with three budget cycles: oversight of the current fiscal year, including consideration of supplemental appropriations and rescissions; preparing for the upcoming fiscal year, which starts Oct. 1 of the current year; and planning for the following fiscal year, which starts Oct. 1 of the next year.

In the recent past, Congress has been unable to complete its budget-making responsibilities, mostly by being late on enacting its appropriations bills. In 2010, however, Congress did not even pass a budget resolution. Many have commented that the complexities of the budget process, combined with congressional partisanship, have caused the annual budgeting process to break down.

Under a biennial budgeting regime, instead of completing the entire budget process every year, Congress would only work on spending bills every two years. In the off year, Congress could focus on the oversight of programs and address tweaks to the spending process through supplemental appropriations or rescissions. By not worrying about yearly budgets, Congress could spend more time improving how the federal government works.

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Historically, biennial budgeting was the norm in the states. According to the National Conference of State Legislatures, 44 states employed biennial budgeting in 1940, but only 20 will by the end of 2010. One of the reasons states are moving away from biennial budgets is the difficulty of forecasting revenues as far in advance as biennial budgeting requires. Another is that in the 1940s, many state legislatures were part-time; some only had long sessions every two years. With the growth in power of state legislatures also came increased interest in controlling budgets.

Despite the trend away from biennial budgeting at the state level, there is increased interest at the federal level. While biennial budgeting has frequently received presidential support – Presidents Reagan, both Bushes, and Clinton all endorsed biennial budgeting – it has never been implemented at the federal level. Given that Lew oversaw the Clinton budgets that included recommendations to move to biennial budgeting, it was not surprising to hear Lew recommend it again at his recent Senate confirmation hearing. Sen. Kent Conrad (D-ND), the chair of the Budget Committee, echoed Lew in supporting biennial budgeting. In the past, key Republicans have also voiced support for the practice.

With Republicans expected to make gains in Congress in the November election, biennial budgeting is likely to pick up steam in 2011.

However, it isn't certain that the federal government would see any benefit from a biennial budget cycle. In a two-year budget cycle, federal agencies could use every second year to focus on implementing their programs, instead of working on the next year's budget. Agencies might also benefit from the added stability of biennial budgets, as program planners could set their sights on longer-term goals. But these advantages come at a cost. One of the hardest parts of preparing the federal budget is the technical aspect – preparing estimates of inflation, economic growth, revenue estimates, and more. Most elements of cost are based on assumptions. Out-year estimates have an increasing level of uncertainty associated with them, which are inherent in biennial budgeting. Many assumptions about difficult-to-control cost elements, such as payroll or travel costs, would have to be built into the estimates. The costs incurred are difficult to change, yet estimating the costs of a workforce almost three years ahead of time is not an easy task. The problem becomes even more pronounced when it comes to revenue estimates.

If Congress moved to a biennial budget system, it would need to rely on supplemental appropriations bills to make major corrections along the way. Overuse of the supplemental appropriations process would lead to a de facto annual appropriations bill, erasing any certainty agencies might gain from biennial budgets, while at the same time pushing more spending into extra-budgetary supplemental appropriations, undermining budget accountability.

The "budget certainty" argument also ignores the fact that the budget process already supports multi-year appropriations. Congress can, and routinely does, appropriate funding for a program over the course of several years, say for a new fighter plane that would require many years of sustained funding. Indeed, according to the Government Accountability Office (GAO), in 2000, about two-thirds of annual appropriations accounts had multi-year funding. Thus, agencies already receive the benefits of biennial appropriations but with the added ability to change funding levels if circumstances require it.

Moving to a biennial budget could exacerbate, not reduce, the greatest problem currently facing the budget process: gridlock. Congress has not passed its annual budget resolution, nor has it passed a single appropriations bill, despite the fact that the current fiscal year ends on Sept. 30. Between now and then, Congress must pass a continuing resolution to fund government or face a crippling government shutdown. This current crisis has come about not because Congress is spending too much time on the budget process or does not have enough time; the problem is that the different factions of the Democratic Party cannot agree on spending levels, and they worry about Republicans tying them in knots politically.

As a result, the normal budget process is now far, far behind schedule and will most likely require multiple continuing resolutions before Congress passes one giant omnibus appropriations bill sometime after the election. Under biennial appropriations, the current political environment might mean Congress could chew through that second legislative year with more budget debates, since there isn't another budget cycle they're bumping up against. With today's political gridlock, biennial budgeting could lead to seemingly unending budget battles and two years worth of agency budgets held in limbo.

While biennial budgeting may bring some positive attributes to a budget process in need of reform, it is not a panacea or a full solution to the problems Congress currently faces. As budget expert Stan Collender asserts in a commentary in Roll Call, “The only thing biennial budgeting would absolutely cut is the number of politically difficult votes that Members of Congress have to take on the deficit.”

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