Partnership for Public Service, “From Decisions to Results: Building a More Effective Government Through a Transformed Office of Management and Budget,” October 2016, pp. 1–42, https://ourpublicservice.org/publications/from-decisions-to-results/.
PART I
OMB AND THE BUDGET PROCESS
TWO
OMB, the Presidency, and the Federal Budget
JAMES P. PFIFFNER
Since the creation of the executive budget in 1921, central control of executive branch spending has been at the core of presidential power, and the budget bureau has been the instrument of that power. From the Bureau of the Budget’s (BOB) focus on budget control in its early decades to the economic mobilization for World War II to its response to the 1960s government activism, BOB was at the center of budget control.
After BOB’s reincarnation as the Office of Management and Budget (OMB) in 1970, it has played an increasingly important role in defending the president’s budget and policy priorities in Congress. Increased partisan polarization and the focus on deficits changed budgetary policymaking from a bottom-up process to top-down control, in which the politics of fiscal policy eclipsed the budget bureau’s impact on federal budget outcomes.
For its first fifty years, when most of the federal budget comprised discretionary spending, BOB’s influence over the federal budget was at its zenith. But as deficit spending grew out of control and the national debt approached 80 percent of GDP, OMB’s impact on budget totals decreased. OMB could analyze the consequences of large entitlement programs but could not, by itself, force bipartisan agreement in Congress on a coherent fiscal policy.
Nevertheless, OMB’s career professionals continued to be masters of the details of the programs and agencies of the executive branch. With OMB’s political leadership paying more attention to contentious issues affecting fiscal policies, budget examiners have had as much or more influence over executive branch agencies as had those of BOB.
This chapter will present an overview of BOB’s first half-century and the establishment of the executive budget; it will then turn to its second half-century, with the transformation from bottom-up budgeting to imperative control from the top, driven by increasing deficits. Finally, it will analyze the trends that have led to an unsustainable fiscal future: the disintegration of the regular budgetary order, continuing resolutions and government shutdowns, and the rise of mandatory spending.
THE FIRST FIFTY YEARS: PRESIDENTIAL CONTROL AND THE BUDGETARY PROCESS
From its humble creation in the Budget and Accounting Act of 1921, BOB grew to become the major staff arm of the presidency, with control over executive branch budgeting. During most of this period, there was a broad political consensus that balancing the federal budget was a priority. The major exception was financing World War II, but President Eisenhower returned to the focus on budget balance. Despite Kennedy and Johnson’s Keynesian perspectives, the budget was balanced in fiscal year 1969. Whether it was the tight spending control of the 1920s and 1950s or the more expansive periods of the New Deal or the Great Society, BOB was central to presidential priorities.
1920s: Creating the Executive Budget and Spending Restraint
In the nineteenth century, the executive budget process consisted of a Book of Estimates collected in the Treasury Department and forwarded to Congress with no coordination or prioritization among the separate requests by the president. The lack of coordination was mirrored in Congress, where taxing and spending authority were distributed among a number of committees. The result was increased deficit spending, with the proliferation of rivers and harbors projects (pork barrel), which created stress on the federal budget. In the executive branch, funds were increasingly transferred among different accounts, and agencies often practiced “coercive deficiencies,” presenting Congress with faits accomplis by spending more funds than were appropriated and forcing Congress to pay the bills.1
To remedy these problems, Congress passed the Budget and Accounting Act of 1921, which created the Bureau of the Budget in the Treasury Department (as well as the General Accounting Office).2 The newly created BOB was empowered to “assemble, correlate, revise, reduce, or increase the estimates of the several departments or establishments.”3 Charles Dawes, its first director, promised that BOB would be “nonpartisan, nonpolitical, and impartial.”4 Dawes’s immediate successors in the 1920s continued his emphasis on budget control, including imposing budget saving restrictions on BOB itself, down to the allocation of pencils and paper clips.5 This self-imposed narrow perspective of BOB’s role fit with its number of personnel of fewer than thirty, precluding it from taking a more expansive view of its role.6
1930–1950: Depression, WWII, and Budget Expansion
During the 1920s, when presidents wanted to constrain agency spending, BOB carried out its duties as an “agent of spending control,” and initially President Franklin Roosevelt used BOB for reducing expenditures.7 But with the deepening of the Great Depression, expenditures had to expand to finance New Deal agencies and their programs. FDR’s shift to increased spending so alarmed his fiscally conservative BOB director Lewis Douglas that Douglas resigned in 1934.8 During FDR’s presidency, BOB gained more influence over the executive branch with central legislative clearance, which was expanded from merely budgetary issues to all legislative proposals to determine if they were “in accord with” the president’s program.9 The BOB also acquired apportionment control and was active in broader aspects of administrative management.10
The growth of government activities during the New Deal made it obvious that the presidency needed more administrative capacity to coordinate and lead the executive branch. In 1937, the President’s Committee on Administrative Management (the Brownlow Committee) recommended the expansion of central executive resources, both personal and institutional. The committee declared, “The president needs help,” and argued that the budget bureau was the right staff agency to provide institutional support.
In response to the recommendations of the Committee on Administrative Management, Congress passed the Reorganization Act of 1939, giving the president limited reorganization authority. With this flexibility, Roosevelt issued Executive Order 8248, establishing the Executive Office of the President, and he transferred BOB from Treasury to the new Executive Office of the President (EOP). Directors Harold Smith and James Webb led BOB during the 1940s, the only era of the budget bureau in which the management function was highly valued and powerful.11 By 1945, BOB comprised 80 percent of total EOP staff.12
The impetus provided by the government’s response to the Great Depression and World War II greatly expanded the role of BOB and increased its personnel from 156 in 1940 to 567 in 1945.13 During World War II, BOB was the primary staff support for the president; in addition to its budget portfolio, it focused on the managerial dimensions of the war effort.
1950s and 1960s: Establishing the “Regular Order” of the Budgetary Process
After World War II, President Truman proposed an active policy agenda, and BOB had a monopoly on the data, expertise, and analysis of the operation of the executive branch. With a relatively small White