Development of Modern Budgeting
EXECUTIVE SUMMARY
The budget is one of the most
significant policy documents of any administration, and BCPs are one of the
principal decision vehicles used in the development of the budget. Yet, the
current process used for assembling the Governor's Budget proposal is not
automatic or technical, nor was it always used. It was developed in this
century and built into the Constitution to achieve certain social objectives
and institutional relationships. California's intention in adopting the
specific budget process which it did reflects directly on the issue of whether
or not BCPs should be considered confidential documents.
California has adopted and
specified in its Constitution an executive budget process, which was proposed
by Progressive Era reformers in the early part of this century. This movement
was widespread and had well articulated objectives; and it included such
advocates as Woodrow Wilson, William Howard Taft, and the noted historian,
Charles Beard. It received extensive attention from political scientists, and
entire issues of the Annals of the
Both in
Central to
many of the reforms of this era was the concept of the responsible executive. This
can be seen in efforts to revise city charters substituting a strong mayor for
complex and confusing layers of independent boards and commissions with
overlapping or vague responsibilities. A hierarchy that worked, one that was
visible, had stated objectives, was democratically elected, could achieve
results, and be accountable for its actions was considered preferable to more
egalitarian forms which didn't work or left society prey to special interests.
These concepts were taken largely from ideas about business management
prevalent at the time, from the executive centered governments and budget
processes of
An executive budget is
characterized by: its unity encompassing all of the activities of government;
its comprehensiveness including all revenues and all expenditures for a defined
fiscal period; its use of a small number of standard expenditure categories to
provide control, yet allow the executive flexibility in administration; and, most
importantly, it is developed and proposed by a single executive, assisted by
staff experts, to accomplish clearly stated objectives. The integrity of the
executive branch further depends, according to the principals of this movement,
upon agency heads supporting the budget. The only alternative to this is for
them to leave the government. A divided executive would not be an effective
one.
THE DEVELOPMENT OF
MODERN BUDGETING
Governments have collected
taxes and utilized the resulting proceeds to support armies and civil
administration even before the advent of money (Webber and Wildavsky,
“A History of Taxation and Expenditure in the Western World”, 1986). However,
the roots of contemporary budgetary practices can be traced to the development
of the English Constitution. The Glorious Revolution of 1689 established the
supremacy of Parliament over the monarchy. Thereafter, at least in principal,
the King, and later the Prime Minister, could request certain taxes or various
expenditures, but only Parliament could authorize them.
Change, though, occurred
quite slowly, with marked disparities between principal and practice.
Parliamentary authority extended to what it felt essential to, and what it was
able to (given the fiscal machinery of the day) control. Budgetary control at
first extended only to the armed forces, to prevent the King from assembling a
force large enough to unseat Parliament. For example, Parliament controlled
appropriations for the army and for ships in port, but not for ships at sea
(Hill, “A History of England: Volume 5: A Century of Revolution”, 1961).
Moreover, complete budgets were not written, budgetary control was not
exercised annually, there were no controls on what was actually spent for these
purposes, record keeping was haphazard, and there was no reporting or auditing
(Balfour, "On the Budgets and Accounts of England and France,"
“Journal of the Royal Statistical Society of London”, 1866).
The expansion of budgetary
control over the rest of the military and into non-military areas during the
Eighteenth Century was slow and inconsistent. However, as Parliament became
more accustomed to allocating funds, some modern concepts and terminology began
to develop. At first, containers used for carrying came to shape our modern
vocabulary. The ancient Romans used a woven basket called a fiscus
to collect taxes. Later the name was specifically applied only to these
treasury baskets and then to the officials who used them. By the start of the
middle ages, the treasury of a kingdom was known as the fisc
(Webber and Wildavsky). Similarly, from the Latin bulga (to bulge) came bouge in Middle French, meaning a bag; or bougette, the diminutive. This term crossed the Channel
sometime between 1400 and 1450 and "bougett"
became a standard part of the late Middle English vocabulary, usually referring
to a leather bag or satchel “Oxford English Dictionary”, 1989, and Random
House, “Unabridged Dictionary”, 1987).
In the early Eighteenth
Century, the plans of expenditure which the ministers of the Crown carried to
Parliament were called the statements or schedules of accounts. The large
leather bag in which they were carried was called the budget. In 1733 Robert
Walpole, Whig Prime Minister under George I, began referring to the
inauguration of the discussions on the Crown's proposed expenditures as the
"opening of the budget." This convention continued, and gradually the
term began to be used to refer to the contents of the bag, rather than the bag
itself. By 1800 this usage was universally accepted in
The
Nineteenth Century. Most
of the policies, procedures, and technical practices that we associate with
modern budgeting were developed during the Nineteenth Century. The first major
changes occurred in
As with the English, except
with different motives, Napoleon's first concern was with mastering the
military budget. To obtain better information on and control expenditures, he
established a Corps des Comptes. The general who
headed this corps became, in effect, the first auditor general. In 1803
By the 1860s France had
developed a uniform accounting system that applied to all departments and all
units within departments, a standard fiscal year, conventions on how long
encumbrances can be held open after the close of the fiscal year, a requirement
for departments to explain programmatically and account fiscally for all funds
which have been allocated to them, standard year-end closing procedures and
year end reports comparing appropriations and expenditures, a system of audits,
the reversion of unexpended funds, and record keeping by fiscal year. Moreover,
their budgets were written and considered all revenues and all expenditures for
the fiscal year. Consequently, the budget was considered to be one of the
government's major policy documents. The control of expenditures was further
assured through the scheduling of expenditures by different departments, and by
sub-categories within departments. Indeed, claims that exceeded any category
would not be honored for payment.
French budgetary procedures
encompassed steps which we would identify today as analytical. For example, in
calculating the amount required for provisions for soldiers, the budget
considered the number of soldiers to be rationed during the year, deducted the
number of soldiers projected to be sick or absent, the cost of each ration to
be used, and multiplied these all together to achieve the total funding
required.
In contrast, English
budgetary practices of the 1860s lacked not only many of the technical features
of the French system but also had not yet adopted the emphasis on consistency
and universality of application that was central to the French innovations. For
example, although most funds were now appropriated by Parliament, there was no
single document reflecting all governmental expenditures, no comparison of appropriations
and actual expenditures, lump sum appropriations were widely used, different
accounting methods were used by various departments--and within departments,
major sums were unexplained and unaccounted for, records were not kept on a
fiscal year basis, and surpluses were rolled into the next fiscal year.
Further,
During the middle of the
Nineteenth Century the Liberal Party began to become prominent and eventually
assumed power. Their Chancellor of the Exchequer, and later Prime Minister,
William E. Gladstone, was opposed to a large debt and large expenditures for an
empire and military forces, preferring instead to keep taxes low to unburden business,
and concentrate expenditures on domestic activities to stimulate commerce, such
as the infrastructure, and expand public education. He, and other reformers of
that era, viewed the French budgetary techniques as a promising way to control
English finances. In 1861
Thus, by the end of the
Nineteenth Century what Wildavsky calls the
"great norms that provide a framework for budgeting in modern
governments"--unity, annuality, balance,
comprehensiveness, and control--had emerged in
The
Early American Experience. Most American colonization occurred
after the Glorious Revolution of 1689, and the colonists carried the notion
that control of finances should be vested in the legislature with them. Closely
allied with this concept was the idea, expressed in Locke's Second Treatise on
Civil Government, that property rights existed prior to the formation of the
state, in the state of nature, and could not, therefore, be abridged by the
state. Thus, taxation was only legitimate to the extent that the people's
representatives had given their consent. Since the colonists wanted English
protection but not English rule, colonial legislatures were more zealous than
their English counterparts in controlling executive expenditures.
Wildavsky concludes that the extraordinary
efforts of yankee ingenuity
shown by colonial legislatures to control royal governors gives this period
"its peculiar stamp." (“The New Politics of the
Budgetary Process”, 1988). Salaries were made dependent upon annual
appropriation, most sources of revenue required reauthorization at stated
times, appropriations were specified by object and amount, special language
prescribed what could and could not be done, and for how much, and unexpended
balances were required to revert to the colonial treasury. In addition,
colonies elected independent treasurers and developed other ways to control the
actual allocation of funds. The English response of the Stamp Act, duties on
tea, and other measures was designed, among other things, to provide
independent sources of income for English officials in
This absolute insistence on
legislative direction of finance easily survived after the Revolution. Congress
specified line-items of expenditure in great detail, limited transfers from one
line-item to another, specified the number of employees in a department, their
exact remuneration, and sometimes their names. Congress even added language to
various appropriations, specifying how the money should be spent. Funds for the
army and navy, however, were appropriated as lump sums, based on their
insistence that they could not operate with restricted budgets. In addition,
Congress was not able to monitor transfers or the use of surpluses, much less
enforce the prohibitions or specifications it had established through budget
act language. Over time most departmental appropriations became regular and
customary.
The
Norm of Balance.
During the
period spanning the presidencies of Washington and Jackson, American politics
was dominated by the conflict between two principal coalitions. The Federalists
(and later the Whigs) supported an active government to promote commerce, build
the infrastructure necessary for economic activity, and develop the financial
institutions necessary to support economic growth. Opposing them were the
Republicans (later the Democratic Republicans, and then the Democrats) who
believed that taxes should be kept low and government activity kept to a
minimum so that small farmers and tradesmen could pursue their independent
lives free from the burdens of government, which, they believed, inevitably
uses its authority mainly to benefit the wealthy and privileged classes.
One of the ways this conflict
came to be resolved over time was through the norm of the balanced budget. The Jeffersonians were essentially small businessmen, and,
therefore, not opposed to the idea of internal improvements designed to
stimulate commerce. Their strong opposition was to the possibility of high
taxes or a large debt. Thus, historic compromises were developed during this
period, where it was gradually accepted that taxes would be kept low and debt
substantially avoided, while the small government could use the proceeds it had
to build an internal infrastructure and otherwise stimulate business. The norm
of a balanced budget gradually solidified into a practical limitation on
governmental activity that lasted, for the most part, from the early 1800's
until the 1960's.
It is noteworthy that this
result was achieved in the context of a small pre-industrial nation, with a
small government and budget. Rather than developing the technical capabilities
to control spending, as was occurring in Europe at this time, the
The
Civil War and Its Aftermath. The norm, and later the ethic, of
balance not only achieved an accommodation among disparate social forces in the
young nation, but helped to form its institutional relationships as well. The
period before the Civil War is marked by a relative balance of Congressional
and Presidential power. Congress was able to limit the size and scope of
government by controlling taxes and authorizing its major programs and
activities. The President and the executive branch assumed increasing control
over the day to day activities of government, proposed and initiated new ones,
and started to become a focal point, at least during some periods, for the
expression of national ideals and goals. This delicate balance of institutional
power was subject to a series of major disruptions starting with the Civil War,
which would last into the next century.
The
This great expansion of
executive power was dramatically reversed after the Civil War. The impeachment of
Andrew Johnson--and his narrow survival by one vote in the Senate--created,
inaugurated, and was the symbol of an upheaval of existing forces and a major
realignment of power in favor of Congress which would last for the remainder of
the century. (White, “The Republicans”). At first,
during the era of Reconstruction, our government resembled a modified
parliamentary system, with the radical Republicans functioning as the cabinet.
This imbalance in favor of
Congress worked as long as there was strong and effective leadership within
that body. However, after the compromise which resolved the disputed 1876
Tilden-Hayes election in favor of the Republican, Rutherford B. Hayes, and also
ended Reconstruction, power within Congress became increasingly fragmented.
This coincided with the reduction of political competition in Congressional
districts, as political machines (such as the Tweed Ring in
In 1885 the House of
Representatives began to strip the Appropriations Committee of its authority to
review and report out bills falling into the domain of other committees. The
prior arrangement threatened, in Wildavsky's words,
"the smooth flow of patronage" (Wildavsky,
The New Politics of the Budgetary Process). At first constituency oriented
legislation was given to other committees composed of spending advocates,
including items such as spending for rivers and harbors and agriculture. This
trend soon advanced into other areas--army, navy, diplomacy, and Indian
affairs. Ultimately, more than half of all appropriations, including the most
controversial, were effectively removed from Appropriations Committee
jurisdiction. (Ibid). These changes became "a
symbol of dysfunctional fragmentation in Congress and of waste and
mismanagement, and would serve as a rallying point in the creation of an
executive budget focused around presidential leadership." (Stewart, “The Politics of Structural Reform”, 1985, in Wildavsky).
Congressional power was
diffused in policy arenas as well, culminating in the revolt against Speaker
Joseph Cannon after the turn of the century. Commentators of this era,
including (then) political scientist Woodrow Wilson, increasingly described
committee chairmen as exercising the powers of feudal lords. This power was
exercised not only over legislation, but over the day to day activities of
government agencies as well. Committee chairmen routinely directed bureaus in
their decision-making responsibilities regarding the award of patents, the scope
and scheduling of public works, and the implementation of laws. Public
employees in this era prior to civil service reform saw their allegiance
primarily to the party rather than to the public, and freely cooperated in
these actions. (White). In fact, their future
appropriations depended upon it.
Although the Appropriations
Committee tried to restrain spending, it was almost always overruled either in
the House or by the Senate. Consequently, spending increased substantially
during this period. As expenditures rose, Congress looked for additional
sources of revenue. The parochial interests of committee chairmen, governmental
bureau chiefs, and their clientele were at this time temporarily merged with
those of social reformers. In 1894 Congress passed and President Cleveland
signed the first income tax bill. The following year in Pollack v. Farmers Loan
and Trust Co. the United States Supreme Court declared the measure to be
unconstitutional. Between that time and the ratification of the Sixteenth
Amendment in 1913, the Federal Government was deficient approximately half the
time.
American government, as
viewed by Progressive era reformers, faced several problems--mounting debt, the
fragmentation of power, lack of leadership, unmet social needs and public services
in a rapidly growing and developing society, the absence of public
accountability and public control, the undue attention paid to special
interests at the expense of the larger national interest, and outright
corruption. To address these problems the Progressives proposed a striking
array of reforms including the secret ballot, the initiative, referendum, and
recall, civil service reform, direct election of senators, revisions to city
charters and state constitutions, competitive bidding for contracts, uniform
accounting and auditing practices, and a concept and series of practices for
financial planning and administration which came to be known as the executive
budget movement.
The
Executive Budget Movement. The problem wasn't that American
government at all levels lacked a budgetary process. It was that the process
was characterized by bureaucratic feudalism. No one knew exactly how much the
government was taking in or how much it was spending. There was no mechanism
for addressing goals or priorities. Important needs for public services in a
rapidly growing and industrializing society were not being met. Worse yet,
there was little accountability for what happened. Policy and budget making
were so fragmented that virtually no one seemed responsible for the overall
fiscal picture. Special interest groups and agency bureau
chiefs worked with committee chairmen and ranking members to draft
appropriation bills. These amounts or their intended uses were not
reviewed or even known by the chief executive. Almost every agency had a
separate appropriation bill, which was passed by the legislature at a different
time, sometimes authorizing funds for different periods. Agencies used
different accounting techniques, and an audit was an infrequent event. Conflicts
of interest were massive, and illegal activities were all too common.
Central to
many of the reforms of this era was the concept of the responsible executive.
This can be seen in efforts to revise city charters, substituting a
"strong mayor" for complex and confusing layers of boards and
commissions with overlapping or vague responsibilities. Essentially, the
reformers were adopting the business practices of the day, which may have been
why their ideas were so readily accepted. Responding to the rapid growth of
industry after the Civil War, and aided by technological achievements such as
the completion of the transcontinental railroad, businessmen began to grapple
with the problems of a national economy. Their principal organizational
solution was the introduction of more sophisticated formal hierarchies into
corporations, with identifiable executives who were both empowered to get the
job done and accountable for the results. These concepts were developed into a
systematic theory of organization known as scientific management (see
Taking the developing
American preference for executive authority and applying it to budgeting, the
reformers found their instinct readily reinforced by the executive driven
budgetary systems they looked into in
The first principal of this
movement, therefore, became that budgets should be developed and proposed by
the executive to accomplish clearly stated objectives for which he would later
be held accountable by the voters. These executives would be assisted by expert
staffs who would apply scientific principles to the development of each budget.
Further, for fiscal clarity, public visibility, and to make them policy
instruments, budgets would encompass not only all expenditures, but also all
revenues. Budgets were to be unified, comprehensive, balanced, and annual, as
they were found both in
In addition, they were to
provide firm controls without unduly restricting the executive. Budget
reformers objected strenuously to the excessive numbers of categories and
subcategories--none of which were standard--found in appropriation bills at
that time. Instead, they proposed the development of a smaller number of
standard categories which would provide limitations on discretionary activity,
as well as accountability, while leaving the executive areas of flexibility. This
would also aid analysis, and, through the use of comparative tables, summaries,
and budget messages, inform the public of the governments
policies and objectives. The development and implementation of the executive
budget was to be aided by a uniform accounting system, the establishment of a
comptroller, and protocols for both reporting and auditing.
As Wildavsky
indicates, "agency personnel were to be completely subservient to the
decisions" of the executive (“The New Politics”). Replying to a charge that
it would be difficult for agency heads to support estimates changed by the
President, two of the leading reformers claimed:
This is no reason of substance whatever. The heads of departments are and should be loyal to the Administration, and should...support the view which the President has adopted...in respect to the budget. They will have no difficulty in so doing. If any head of a department does, then his place is not in the Cabinet. (Cleveland and Buck, "The Budget and Responsible Government," 1920).
The scope of this movement
was extensive, attracting the noted historian, Charles Beard, and receiving
frequent attention in Annals of the
The Executive Budget
Comes to
Many Progressive era reforms
were aimed directly at these machines--civil service, competitive bidding,
strong mayor forms of government, standardized accounting, reporting, and
auditing practices, and the executive budget. Later studies would show that in
places where an executive budget was used, expenditures would grow more slowly
than in other places and would be less oriented toward building construction,
leaving more funds for other purposes. (Cleveland, "Some
Results and Limitations of Central Financial Control," Municipal Research,
1917). The National Municipal League called for the adoption of
executive budgets by cities in 1899. Shortly thereafter,
The situation in California
at the time paralleled the fragmentation of the federal government. Although
the Governor possessed the veto power (and like many new states
To have their appropriation
bills passed, each department head was required to be present at the
Legislature every day for the four months it was in session. These
administrators were not usually told in advance when their particular bill
would be brought up for consideration at any stage of the legislative process.
This made them constantly available to the Members who could ask for favors.
Further, at this time each institution--prison and hospital--was treated as a
separate department. The heads of these institutions were frequently asked to
buy coal or supplies from a certain individual, or to make certain hires, and
they cooperated in order to keep their appropriation bills alive and moving
through this process (The Annals). Governor Young described the situation in
1909 later in a speech before the Commonwealth Club of San Francisco in 1926:
When I first entered the Legislature in 1909, there was little short of chaos as far as any orderly provisions for State expenditures were concerned. There had been no audit of state finances for over twenty years. The finance committees of the two houses were scenes of a blind scramble on the part of the various institutions and departments of the state in an endeavor to secure as large a portion as possible of whatever money might happen to be in the treasury. Heads of institutions encamped night after night in committee rooms, each alert for his own interest regardless of the interests of other institutions. Logrolling and trading of votes on appropriation bills was the common practice among members of the Legislature. (Buck, “Public Budgeting”, 1929).
In 1910 California elected
Hiram Johnson, a strong advocate and implementer of Progressive reforms, as
Governor. Upon receiving appropriation bills after his inauguration in 1911, he
supposedly asked for the justification for the amounts contained therein.
Finding more politics than analysis, he created the Board of Control that year
to advise him on the fiscal justification for appropriations before he would
approve them. He also announced his intention to support a more deliberate
calculation of amounts during the legislative process. This approach to
budgeting lasted for 10 years.
In 1921 Congress appeared
ready to accept the idea of the executive budget. This was due most likely to
the experience of trying to manage the expanding government during the First
World War, the mounting debt resulting from the War, the almost universal
acceptance of budgetary reform and the executive budget, the President's
willingness to establish an organization responsible to Congress to perform a
post-audit of executive departments, and the fact that the President and
Congress now once again belonged to the same political party (Wilson had
struggled with Congress over this issue, and may have vetoed a bill reforming
the budget process). Congress passed the Budget and Accounting Act that year,
creating the Bureau of the Budget in the Treasury Department (originally
staffed with 40 positions, it was moved to the Office of the President in 1939,
and later renamed the Office of Management and Budget), the General Accounting
Office as the Congressional audit agency, and establishing the requirement for
the President to submit an annual budget proposal to Congress, covering all
federal revenues and expenditures for the ensuing fiscal year.
This fully developed
executive budget process went far beyond what
The
By that time,
(February 24,
1998)