The Budget Debate:Key Facts for Leaders
“The views expressed in this presentation/article are those of the authorand do not reflect the official policy or position of the National DefenseUniversity, the Department of Defense, or the U.S. Government.”
Ricardo AguileraDirector
Chief Financial Officer AcademyNational Defense University, iCollege
The Fiscal Future:Issues and Options
• Issue: Balance Budget Debt limit agreements to date do not balance the budget Current FY 14 President’s Budget plans for deficits into future Option: Start long-term revenue increases and/or spending cuts
• Issue: Pay Down National Debt Requires initial balanced budgets and long-term surpluses Option: Control growth in mandatory spending and/or raise revenue
• Issue: Ensure Long-Term Social Insurance Programs solvency Social Security will be able to pay out full benefits until 2036 After this point tax revenue will fund pay outs of 75% of full benefits Medicare will fund full benefits until 2024. Option: Reduce benefits and/or increase revenue
The Fiscal Future:Federal Leaders Watch List
• UnderstandPoliticsCalendar/ProcessBaselines
Federal Debt Held by the Public and Gross
Dolla
rs in T
rilli
ons
Source: OMB
2013 2014 20150
2
4
6
8
10
12
14
16
18
20
11.912.9 13.6
4.7
5.05.1
Government AccountPublic
0.7 0.6 0.6Deficit:
18.717.916.7
5
Congressional Issues
Democrats 200 Republicans 232 Vacant 3
Democrats 53 (including 2 independents) Republicans 45
Issues:• May 18, 2013• October 1, 2013• October 17, 2013• December 13, 2013• January 15-18, 2014• February 7, 2014• March 4, 2014• October 1, 2014• November 4, 2014
Debt Reduction Remaining
• All budget-related legislation to date brings annual deficits to “historic norm” of about 4% of GDP
• Most economists agree $4T in savings/revenue increases over 10 years needed to balance the budget and initially pay down the debt
• Debt Reduction Required: ___ ($T)
Required 4.0 Achieved to date 2.7 Difference 1.3
• $1.3T additional still needed to a achieve $4T in savings/revenue
Source: Bi-Partisan Policy Center
Sequestration’s Effect on Debt
In current (as-spent) dollars, both Federal receipts and outlays have grown rapidly and are expected to continue growth.
Federal Budget Trends: 1948-2016
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
Fiscal Year (w/o TQ)
Curr
ent Dollars
in B
illions
Receipts Outlays
Source: Office of Management and Budget
Federal Budget Trends
One measure of fiscal stress is the additional borrowing required by a government relative to the size of its economy. This slide from OECD indicates that, for the FY 2006-9 period, the US and UK were in the middle of a group – seemingly worse off that Germany, Japan or France, but less stressed than Ireland, Spain or Greece.
Budget Deficits Around the World
10
Fiscal Year 2015The President’s Budget
Receipts
FY 2015 Deficit = $564B
Average Annual Deficit FY 16-24 ~ $485B
$3,337B
Outlays$3,901B
Source: OMB
FY 12/13 DoD Requests vs. Appropriation(Budget Authority in $ Billions)
142
Source: OMB
142 135
Does not include $26B from Initiative Fund in FY 15 or $79B OCO
FY 2013 FY 2014 FY 20150
100
200
300
400
500
600
135.4 135.9 135.2
194 192.8 198.7
91.1 92.4 90.4
63.3 62.8 63.5Revolving Funds
Family Housing
Military Construction
Research, Development, Test and Evaluation
Procurement
Operation and Maintenance
Military Personnel
11.8
495.5
12.0
496.0 495.6
7.8
Defense16%
Other Discre-tionary
15%
Social Security23%Medicare
13%
Medicaid9%
Other Mandatory18%
Net Interest6%
Immigration Reform**0%
12
Fiscal Year 2015 President’s Budget(Outlays)
Mandatory $2,709B(69% of total)
Discretionary $1,192B(31% of total)
TOTAL $3,901B
* Includes $6B in disaster costs** About $8B in Implementation costs
Source: OMB
Baby Boom Births by Year
19431944
19451946
19471948
19491950
19511952
19531954
19551956
19571958
19591960
19611962
19631964
19651966
19672.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
Mill
ions
of B
irths
= Baby Start/End Year Source: Statistical Abstract of the United States
October 14, 2010
Howard G. Borgstrom
14
All unlisted agencies – NASA, Education, Energy, Interior, Commerce, State and Foreign Aid, Justice, Homeland Security, SBA, EPA, Judicial Branch, Legislative Branch, etc. – compete for less than 10% of the spending.
Distribution of Outlays by Agency
0
10
20
30
40
50
60
70
80
90
100
Perc
ent of Tota
l
Treasury (Int) Soc. Secur. HHS DOD (Military) VA/ OPM/ AG/ DOT/ DOL
Growth in Outlays by Agency
15
Fiscal Year 2015 President’s Budget(Revenue)
TOTAL $3,337B
*
Source: OMB
Indiv Income Tax46%
Social Se-curity23%
Corp Tax13%
Medicare7%
Othe Social Insurance
2%
Excise, Estate,
Customs5%
Other Receipts4%
Immigration Reform0%
Much of what people see as a growing tax burden is through increased payments into Social Security and Medicare; the personal income tax per se has been very stable and corporate income taxes are proportionately decreased since WWII.
Federal Revenue Sources 1948-2016
0
10
20
30
40
50
60
70
80
90
100
Fiscal Year (w/o TQ)
Per
cen
t o
f T
ota
l
Ind Inc Tax Corporate Inc Tax Social Insurance All other
Source: OMB
1994 1997 2000 2003 2006 20090%
5%
10%
15%
20%
25%
30%
35%
$1-5M$5-50M50-500M500M+
Corporate Taxes Paid as a Percent of Taxable Income
Source: Internal Revenue Service
Perc
ent o
f Tax
able
Inco
me
Asset Value of Corporation
In 2008, the US had one of the lowest tax burdens among OECD nations, in terms of tax revenues as a percent of GDP.
Comparative Tax Burden, 2008
0 10 20 30 40 50 60
MexicoChile
TurkeyUnited States
KoreaAustralia
JapanIreland
SwitzerlandSlovak
CanadaGreece
SpainNew Zealand
IsraelPoland
OECD - TotalPortugal
LuxembourgUnited
Czech RepublicIceland
GermanySlovenia
NetherlandsHungaryNorwayAustriaFinlandFrance
ItalyBelgiumSweden
Denmark
Taxes as Percent of GDP
Source: OECD
287 328 365 377 400 411 432479 513 528 528 530 496 496
496
535 544 551 559
91 763 116
8 166
187 146 162
159115
82 85 79
$0
$250
$500
$750
FY01 FY02 FY03
FY04
FY05 FY06 FY07 FY08 FY09
Base Budget OCO
FY10
FY11
Other
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
345
Budget Totals in President’s FY 2015 Budget RequestDoD Topline, FY 2001 – FY 2019
(Current Dollars in Billions)
575 565
438468 479
535
601
666 666691 687
645
574
316 6
23
3
71
17
589
30* 30* 30*
* Reflects FY13 Enacted level excluding Sequestration* Placeholders only
Focus Only On Base Budget For Remainder Of Briefing No FY 2015 OCO Budget Yet
*578 581
30*
2
614*581
73
Source: DoD
Since 2001, real growth has occurred in all major categories, but O&M has grown the most in dollar
terms
FY14$ in billions, base budget FY 2001Actual
FY 2014Enacted
Dollar Growth
Percent Change
Percent of Total Growth
Military Personnel 101.1 135.2 34.8 34% 30%
Operation and Maintenance(ex. DHP)
114.0 160.5 46.5 41% 40%
Defense Health Program (DHP)* 16.0 32.3 16.3 102% 14%
Procurement 81.6 92.4 10.9 13% 9%
Research, Development, Test, and Evaluation
54.4 62.8 8.4 15% 7%
Military Construction 7.1 8.4 1.3 18% 1%
Family Housing 4.8 1.4 -3.4 -70% -3%
Other 1.4 2.2 0.8 56% 1%
TOTAL 380.5 496.0 115.6 30% 100%
*The DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military Personnel funding.
Source: OMB
475
500
525
FY14 FY15
PB14
FY16 FY17
Sequester - Level Budgets
FY18 FY19
PB15
Sequester - Level Budgets
559551
550541
535
575
($B)
600
FY 2014 President’s Budget (PB14)
496500
537
577
PB15 DoD Base-Budget Topline
PB15
3
Source: DoD
500
Sequester - Level Budgets
475
525
550
575
FY14 FY15
PB14
FY16 FY17
Sequester - Level Budgets
FY18 FY19
PB15
$115B Cut
($B)
600
FY 2014 President’s Budget (PB14)
PB15 DoD Base-Budget Topline(Effects Of Sequester-Level Budgets)
PB15
15
Source: DoD
475
$26BInitiati
ve500
525
550541
575
($B)
600
FY 2014 President’s Budget (PB14)
FY14 FY15
PB14
FY16 FY17
Sequester - Level Budgets
FY18 FY19
PB15
PB15 DoD Base-Budget Topline(Opportunity, Growth, and Security Initiative)
Sequester - Level Budgets496
PB15
13
Source: DoD
FY 2015 Opportunity, Growth, and Security Initiative
• Total $26 billion for DoD• Readiness enhancements
– Training adds in Army– Spares and logistics in Navy– Unit training in USMC– Training in Air Force
• Investment increases– Army Helicopters (56)– Navy P-8 (8), E-2D Aircraft (1)– USMC Light Armored Vehicle
– Air Force F-35 (2), C-130J (10),MQ-9 Aircraft (12)
– Science and Technology ($335M)
• Installation support increases– All Services increase
base sustainment– All Services add
MilCon funding
14
Source: DoD
The OMB budget review schedule
July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June
Passback/Appeals
Program/Budget Review with Agency HQ
• Director’s Review• Revised Economic Assumptions
• Review of Congressional Testimony and Actions• Ongoing Budget Oversight• Mid-Session Corrections•Apportionments
• Review of Congressional Testimony and Actions• Ongoing Budget Oversight• Mid-Session Corrections•Apportionments
Review Proposed Authorizations with Budget impact
MAX Database: Prior YearsMAX Database: Prior YearsMAX Database: Budget YearsMAX Database: Budget Years
Budget Chapter Writing Budget Chapter Writing
Budget Review BoardMeetings
Review Agency Budget Justifications
July: OMB issuedsrevised A-1l guidance State of the
Union andBudgetSubmission
The Budget Calendar andthe PPBE Process
FY11 Q3 FY12 FY13 FY14 FY15 FY16Q2 Q4 Q3Q2 Q4 Q3Q2 Q4 Q3Q2 Q4 Q3Q2 Q4 Q3Q2
FY 2014Budget
FY 2015 Budget
FY 2016 Budget
Planning Prog/Budget Congressional Action Execution
Planning
Planning
Prog/Budget Execution
Execution
TodayFY 2014 – 2016 Budget Status
Congressional Action???
Congressional ActionProg/Budget
Congressional Action
Front End AssesProg. Review??
DoD Planning, Programming, Budgeting, and Execution (PPBE) System Overview
Yearly PPBE Process and MilestonesFeb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Planning (QDR, DPPG, GEF)
Program/Budget Estimates
Components submit estimates
PDMs3-Star3-Star
Final JCS risk assessment
Execution Review
OUSD(C) performs anExecution review. Result: Omnibus Reprogramming
PBD = Program Budget Decision; PDM = Program Decision Memorandum
Dep. Mgmt Act. GrpDep. Mgmt Act. Grp
PPBE PhasesPPBE Phases
Strategic Planning
Program Review
ExecutionReview
BudgetReview
PBDs
BudgetSubmission
BudgetReview
BudgetJustification BudgetJustification
3-Star3-Star
Small Group/Large Group
Small Group/Large Group
JCS Chairman’s Program Assessment
Dep. Mgmt Act. GrpDep. Mgmt Act. Grp
Prog DecisionMemo
Resource MgmtDecision
Small Group/Large Group
Small Group/Large Group
JCS Chairman’s Joint Planning Document Budget
Estimate Submission(BES)
Program Objective Memorandum(POM)
Authorizers
President’s Budget
Hearings, briefings, questions
Congressional Process and Timeline
Hearings, briefings, questions
Appropriators
House Committee Senate Committee
Conference
Bill
President Signs
HAC, Subcommittee SAC, Subcommittee
Conference
Bill
President Signs
Congress:Budget Committees
JRJR
CR
PL
Omni
Feb
Mar
Sep-
Aug-
July
What does it mean for us?Building Better Budgets
• Future Budget Pressures Decisions made within short deadlines at aggregated levels Budget leaders are in the room when decisions are made
Do they have the facts that can sway a decision your way?
• Get Better Numbers Analysts ask: “What is the impact of $1 more/less on this program?” Metrics need to link funding to agency outcomes/goals
Output measures are no good. Self audit: Be honest
Self examine the programs - criteria, condition, cause, and effect
• Tell Better Stories Program officials must explain simply how previous funding brought gains Program’s story for future funds needs to be compelling and well-reasoned Tell your story consistently and often