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House Minority Leader Nancy Pelosi of Calif., second from left, accompanied by, from left, House Speaker John Boehner of Ohio, Senate Minority Leader Mitch McConnell of Ky., and Senate Majority Leader Harry Reid of Nev., speaks to reporters outside the White House in Washington, Friday, Nov. 16, 2012, following their meeting with President Barack Obama to discuss the economy and the deficit. (Jacquelyn Martin/AP)

Though the dust from the election has barely settled — the nation has already moved on.

Consuming our attention now is the budget crisis du jour. The “fiscal cliff,” as we’ve come to call it, amounts to a $700 billion combination of expiring Bush tax cuts and congressionally mandated spending cuts that could, if fully enacted, tip the economy back into recession.

It’s the latest in a series of budget fiascos that are occurring with growing regularity. We narrowly averted a total government shutdown in May 2011. Four months later political hostilities resumed over raising the debt ceiling. This follows a decade in which Congress enacted more than 75 “continuing resolutions” (stop-gap budget extensions) because it couldn’t agree on a budget.

The national budget process has become highly dysfunctional.

Each year thousands of officials in government departments and agencies spend weeks preparing detailed estimates showing how much it will cost to run their organizations. Congress routinely ignores most of this effort and instead scotch-tapes together budgets based on the previous year’s spending, plus or minus some amount that is usually the result of political horse-trading.

Government agencies have an elaborate process to evaluate how well they are performing. But Congress provides money almost regardless. Any remaining scrutiny is avoided by the routine use of so-called “emergency” supplemental appropriations. These are supposed to be reserved for genuine emergencies, like Hurricane Sandy, where the goal is to get money out the door as quickly as possible. Instead emergency supplementals are exploited to pay for all kinds of foreseeable expenses. For example, more than a trillion dollars has been spent on operations in Iraq and Afghanistan through more than 30 such “emergency supplemental” bills over the past decade.

This breakdown in budget discipline is a major contributor to many of the problems we are struggling with today – high deficits, an absurdly complex tax code, over-payments to government contractors, duplication, waste and poor service. Budgeting is supposed to be a mechanism for allocating our scarce resources among competing priorities. Instead, the chaotic, crisis-driven budget process we have today makes it very hard to track where taxpayer money flows and how effectively it is spent.

It leaves government agencies operating in a fog of uncertainty, unsure how much money they will have for the next year — or even the next month. Long-term planning is impossible. Innovation is nearly impossible. Some agencies, such as the National Parks, are stuck perpetually trying to fathom how they will function in the event of a government shutdown. Will fires be allowed to rage? Will animal protection programs lapse and allow animals to die? Who knows?

At the Harvard Kennedy School where I teach, students from around the world are incredulous that our citizens tolerate such a dysfunctional budgeting process.

The absence of coherent budgets has increased the cost, and lowered the quality, of government services. A recent study by Philip Joyce of the University of Maryland documented the pernicious effects of funding delays, which include paying higher prices than necessary to hire contractors. Other problems include delayed maintenance (leading to higher costs in the future) and significant harm to employee morale, retention, hiring and training.

The country desperately needs to look not just at what is urgent (the fiscal cliff) but what is important — reform of the budgetary process. There are several concrete steps we could take to bring sanity to the budgeting system in Washington.

Extend the budget cycle

One of the simplest — and best — mechanisms to restore discipline to the budget process would be to do it less often. The U.S. should implement multi-year budgeting to lay out a set of spending priorities over three to five years. Multi-year budgeting would provide more continuity for government agencies and avoid some wasteful year-end spending.

A good start would be to convert most departments to biennial budgeting, which is already used in many state governments and in the Department of Veterans Affairs. The VA argued successfully that it was impossible to manage hospitals, pay doctors and care for the wounded amid constant uncertainty about funding. But there are thousands of programs in the same situation — from cancer and food safety research to weather forecasting. My colleague Jeff Liebman has studied the pattern of spending in federal agencies and found that it spikes in the 52nd week of the year, as programs spend money in a “use it or lose it” year-end rush. Not surprisingly, Liebman discovered that much of this spending goes to lower-quality items. By extending the budget cycle to at least two years, and allowing agencies more leeway to manage resources over time, the government would do better at grant and contract funding, as well as eliminate a lot of the wasted time and effort currently devoted to annual budgeting.

Program budgeting

Second, we need to adopt budgets that track the costs of government activities — for example, the costs associated with helping veterans find jobs, which are spread across multiple agencies. In the current system, most federal agency budgets are simply line-item lists of salaries and expenses. Private companies, as well as many top-performing local governments, routinely break down spending to look at each step of the process — so they can figure out how to minimize the cost at each stage or re-engineer the process to have fewer steps. This type of “program budgeting” would bring greater transparency over where money is spent and provide a basis for better decisions, for example, on what tasks should be done in-house versus contracted out.

Simplify

Third, the federal budget process should be simplified. Congress is organized into committees that are supposed to adopt 12 separate appropriations bills each year. Many of them are in unrelated subject areas (for example the “Commerce-State-Justice” bill). They should be consolidated into a smaller number of bills, and redesigned so that similar themes (e.g. “health care”) are bundled together. And the authorization committees (which govern non-discretionary spending, such as Social Security and Medicare) need to be better integrated into a multi-year budget and planning process. “Continuing resolutions” should be limited to once during a two-year cycle. And the use of “emergency supplemental” funding should be foresworn except in cases of true emergencies or brand new programs enacted during the fiscal year.

At the Harvard Kennedy School where I teach, students from around the world are incredulous that our citizens tolerate such a dysfunctional budgeting process. And we should not. Our political leaders are focusing too narrowly on “cutting the deficit” for its own sake. If we want to make smart choices about allocating and spending taxpayer dollars, then we need a better process to help us do it.

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  • http://nancib.wordpress.com/ BostonPeng

    I really like your ideas, but I have to wonder if the folks on the Hill would take the time and energy to consider them. I’ve said for years that they need to do one thing for our federal budget: Dock the pay of the congressmen and senators if they don’t get a budget passed in time, with additional hits for every continuing resolution. If it takes them long enough to pass a budget (say April 1st) they should lose their pay completely. That may actually get them off their duffs and doing the job they were sent to the District to do in the first place.

    • jbkemble

      This makes a lot of sense. The most basic thing they are supposed to do is to manage the budget, and they can’t even get that done.

    • AmanaPlan

      The problem with this is that many of the Congressmen are independently wealthy and that would give them greater negotiating power.

      Politicians would be able to get more work done if they were not constantly having to spend most of their time raising campaign money. We should have some campaign finance reform, preferably including some public funding.

  • http://pulse.yahoo.com/_FDAMZDSYFW2WZ3SWC2WZKUKL5M Andrew Page

    How about this, we consitutionally limit the budget to a given percentage of LAST years GDP? Overruns are settled at the beginning of the year and that year budget proceeds at that level.

    First few years of this will be an absolute mess but once a level of discipline is achieved we’ll be better off.

    • massappeal

      Except when disaster strikes (e.g., the 2008 financial collapse and resulting Great Recession), it’s only massive deficit spending by the federal government that keeps things from getting worse, and helps the economy to recover.

      • http://read-write-blue.blogspot.com/ RWB

        If you believe in the Keynesian model the we should be having an economic boom right now. After years of federal deficit spend we are still suffering with record underemployment and anemic growth.

        • http://nancib.wordpress.com/ BostonPeng

          I think that may be less about the model and more about fat cats having DC pols in their pockets fighting anything that looks like a chance they may gain less profits.

        • massappeal

          Thanks for the reply. Actually, most Keynesian economists have argued for:

          1 – more stimulus (i.e., deficit spending) in the short term;
          2 – more deficit reduction in the medium to long-term;
          3 – perhaps linked by “triggers” like unemployment falling below 6% for four consecutive months.

          If you look at other industrialized economies around the world, the U.S. economy looks relatively good precisely because we haven’t “pivoted to austerity” the way some economies (e.g., Great Britain) have.

  • http://read-write-blue.blogspot.com/ RWB

    “At the Harvard Kennedy School where I teach, students from around the world are incredulous that our citizens tolerate such a dysfunctional budgeting process. And we should not.”

    The fact that our government has over spent and over taxed our economy is the primary reason for the birth of the Tea Party Movement. A movement that continues to inform and motivate many that do not tolerate this dysfunctional budgeting process.
    While much of the reporting on this important issue is sound bites and vitriol it is refreshing to see that there are some talking about the facts and figures of the mess we are in. The recommendations in this posting are fine, but they would mostly impact discretionary spending and it is non-discretionary spending that accounts for the largest part of our crisis.

    • massappeal

      If our government has “over taxed our economy”, then how is it that federal tax collections are only 15% of GDP—the lowest level in over 50 years?

  • Linda hakim

    Yeah we should stop lurching from one crisis to the next and get the whole system to work better — but how?

  • jbkemble

    Yeah we should stop lurching from one crisis to the next.

  • Humpy2075

    Most sensible thing I have read for a long time. I totally agree with you. Stop wasting everyone’s time and make a workable system like Canada.

  • owenh

    Link their pay to meeting targets for deficits and spending – the Congress can be paid a base salary but they dont get anything above that unless targets are met.

  • ePractical

    Great article focusing on a very important problem. Thank you

    I think it would help a lot to take a step back and address a more fundamental
    and perhaps illuminating problem. That is, language that obscures the real
    problems.

    We are in the habit of, for ex. using the word “deficit”. But this is not how much we have borrowed to cover expenses we can’t pay for – which I suggest the average person does not recognize. And, more importantly politicians ridiculously talk about reducing how much we are spending beyond our means when glibly uttering the words “reducing the deficit”!

    Further, this disingenuousness, obscures the more important — paying down the super-debt we have amassed very quickly which has very bad consequences for our economy is many ways. Another thing obscured – NO new revenue mentioned by ether party (how ridiculous both side arguing over a 4% tax (the money if “the Wealthy” are Taxed more as the Obama Administration suggests)) will touch these BIG problems. ONLY a robust economy can raise enough tax revenue (BTW without having to change any tax code) to begin to fix these huge problems (and begin to solve the problems with SS, Medicare and Medicaid which nobody is talking about now !!!!!). Wake up politicians and bureaucrats!

    Any person who looks at their check book (so to speak) and sees they don’t have enough money to pay upcoming bills KNOWS they have to immediately STOP SPENDING. Maybe they (a responsible person) would temporarily borrow until they can get past the crisis. But they take immediate action. How about our politicians start talking in plain language or new more revealing language (to better describe the problems) so the truth can come out and real solutions (including prudent budgeting) could start to be considered.

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