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A better way to budget

The federal budget process is piecemeal and fragmented. It considers issues in narrow categories, often reflecting the archaic division of labor among congressional committees. It gives intense scrutiny to marginal changes in spending, largely ignoring tax policies. Budgets are developed with little attention to major changes in the nation’s economy and social structure. The result is little change and inadequate focus on achieving national priorities efficiently.

Repairing the broken federal budget process will take many steps and considerable will. One big step in the right direction would be to reorganize the presentation of the budget to show the programs and resources devoted to particular objectives. That’s almost impossible to do today, making it very difficult to get a complete picture of what the government is doing in a particular area and to develop a coherent overall budget strategy.

For instance, what does the federal government spend on higher education? That is no simple question to answer. Through the U.S. Department of Education, of course, the federal government funds a wide array of grant programs for students and allocations to institutions. But there are also deductions and credits in the tax code, and both implicit and explicit subsidies in the student loan program. Meanwhile, the budget of the Department of Veterans Affairs includes funding for higher education for veterans, as does the budget of the Defense Department for serving military personnel. Not to be left out, the Medicare and Medicaid programs provide billions of dollars in funding to teaching hospitals for graduate medical education.

With money and tax benefits going to students and colleges from multiple departments and programs, and dozens of line items throughout the budget, it is almost impossible to get a complete picture of the government’s role in higher education and for there to be a coordinated approach. Moreover, these agencies, plus the departments of Treasury and Health and Human Services are just the major agencies responsible for divvying up the higher education pie, with little real coordination – there are other agencies who touch higher ed as well.

This diaspora of funding is not unique to higher education. We would face the same challenge in trying to determine how much is spent on “welfare” or many other areas of government.

A simple but valuable solution would be for an administration to publish, alongside the annual regular budget, a set of “portfolio budgets” for important functional areas. Each portfolio budget would put together in one place all the detailed spending items and tax preferences associated with a particular activity, such as higher education, children’s services, or employment training. In that way, Congress and the public could get a clearer impression of the total scope of government support for that activity.

Introducing portfolio budgets, say Paul Posner and Steve Redburn of George Mason University, would also help congresses and administrations to plan more effectively. It would be easier for members of Congress to view the various components of federal activity and to identify gaps and overlapping line items. With all spending items listed in one place, the total investment of taxpayer funds would be clearer. That would also make it easier to analyze the effectiveness of federal action in each major policy area, and allow a more well-informed debate about the return on that investment.

Introducing portfolio budgets could help trigger other improvements. Building on the more complete information provided by a portfolio budget, the executive branch could take more systematic steps to bring together officials from multiple agencies to better manage the range of programs within each major goal of government. Some states and counties are already doing this to a degree. For instance, most states now have some form of “children’s cabinet,” made up of the heads of government agencies with programs serving children and youth. Montgomery County, Maryland, has a special cabinet dealing with services for the elderly. The county has also created a “senior section” in the county budget – essentially a portfolio budget – to identify budget items from various departments that serve the elderly. In many instances, coming together like this in special cabinets is the first time officials from different agencies had ever worked together to plan for the same broad objective.

The federal government has rarely been a pacesetter in coordinating policy and budgets across departments. President Ronald Reagan did kick off his administration by setting up six “cabinet councils,” which brought together selected cabinet members and senior staff to develop and coordinate policy for broad areas, such as food and agriculture, and trade. But this type of budget and policy coordination is unusual – as we discovered in the case of intelligence after 9-11.

One area where a portfolio budget could be particularly helpful is in promoting health. Mounting research shows that achieving improved health in a community tends to come from tackling underlying conditions in such areas as housing and education rather than ramping up the application of medical care. Indeed, other developed countries devote proportionally more funding on social services than on medical treatment and achieve better health outcomes than we do. That has led to modest steps by the departments of Health and Human Services and Housing and Urban Development to explore ways of blending together healthcare, housing, transportation, and social service funds to improve community health. Amending the budget process to present all relevant line items in one place for a goal like this could help scale up these efforts.

Completely fixing our broken budget process is such a daunting task that it is easy to give up even trying. But experience shows that taking one modest step builds the platform for taking the next step towards a solution. Introducing portfolio budgeting is a good first step.

Editor’s note: This piece originally appeared in Real Clear Markets.

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