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07404_03_ch03_p79-140.qxd 4/6/06 10:47 AM Page 1CHAPTER 3
Budget Structures and Institutions:
Federal and State-Local
Budgets perform the same functions for choice-making, management, and control,
regardless of the entity—government, business, nonprofit—that develops them.
The particular institutions and structures that the entity uses, however, are subject
to much individuality, sometimes because of real differences in the mission, size,
opportunities, and so on, of the entity, but sometimes only because of institutional
history (“That’s just the way we do it here because that’s the way we always
have.”). In this chapter, we examine the most important federal budget structures
and institutions, and then we make some comparisons with similar features of bud-
geting at the state-local level. We also discuss how each level spends its money.
The Federal Budget
As earlier described, a budget is a financial plan. A government budget, however,
reflects choices well beyond those of finance. A congressional agency report makes
the point: “Not only is the budget a financial accounting of the receipts and expen-
ditures of the federal government; it also sets forth a plan for allocating resources—
between the public and private sectors and within the public sector—to meet na-
tional objectives.”1 Budget preparation, discussion, and approval thus must be at
the heart of public decision-making. Even in a market economy, the budget repre-
sents the basic national economic plan—the chosen mix of public and private sec-
tor uses of national resources.
1
U.S. Congressional Budget Office, An Analysis of the Administration’s Health Proposal (Washington, D.C.:
GPO, 1994), 41.
79
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80 Part One: Budgeting, Budget Structures, and Budget Reform
Spending by the Federal Government
For what does the federal government spend our money? Table 3–1 provides those
data for selected years from 1960 through 2005. Most outlays, more than 60 per-
cent, are for human resources, including income maintenance, health, support for
the elderly and disabled, and education and training. The largest block in the cate-
gory, more than 20 percent of all outlays, is for the Social Security system. Much
of this human resource expenditure occurs through legal formulas that determine
who is eligible and to how much those entitled are eligible. Most elements in
this spending category have grown at rates greater than the overall average rate
since 1970, and most are expected (or feared) to continue this rapid growth in the
future.
National defense was once the predominant interest of the federal government.
However, 1961 was the last year in which defense amounted to half or more of
federal outlays; it had been over 70 percent for 1942 through 1946, with a maxi-
mum of 89.5 percent in 1945, no surprise in light of the expense (and importance)
of fighting World War II. The secular decline in the defense share of federal outlays
was interrupted for 1981 through 1987. Many believe that this increase, by forcing a
reaction from the Soviet Union that its inefficient socialist economy could not sup-
port, caused the collapse of the Soviet Union and an end to the Cold War. That de-
fense build-up essentially won a war without firing a shot, undoubtedly the best
way to fight battles. There is also an increase in the first years of the twenty-first
century, created by the cost of the wars in Iraq and Afghanistan. 2 This increased
share remains far below its level of the 1960s and 1970s and, with luck, will not ap-
proach those levels again.
Other functional outlays are much smaller parts of the federal total. A particu-
larly high growth rate appears for administration of justice (law enforcement and
corrections) but the current share is small. Growth in outlays for health and for
Medicare (the federal health program for older people) has been high, and their
shares of the total are much larger. Outlays for physical resources, including infra-
structure or the federal capital stock, are small in share and not growing as rapidly
as totals. Many believe increased public infrastructure investment to be critical for
improved standards of living, but the outlay patterns show physical resource
growth to be slow. Spending on other functions is both relatively small and slow
growing; the rates of increase often have not kept pace with the combined effects
of population increase and inflation.
Changing directions is not impossible but, as the incrementalists remind us,
diffi- cult to accomplish. The great counterexample of how spending directions can
dra- matically change, however, is national defense through the past 35 years.
Spending shares can change substantially when operating conditions change, no
matter what the incremental inertia is. In no way are spending shares replicated
year after year, regardless of the external environment.
2
The costs of the Department of Homeland Security are not included as part of National Defense in Fed-
eral budget classification. Its spending is in transportation, disaster relief and insurance, and law enforce-
ment functions.
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Chapter 3: Budget Structures and Institutions: Federal and State-Local 81
Federal Outlays by Function, 1960–2005 ($ millions)
Table 3–1
, Annual
Growth
since
1960 % total 1970 % total 1980 % total 1990 % total 2000 % total 2005 % total 1960
National defense 48,130 52.2% 81,692 41.8% 133,995 22.7% 299,331 23.9% 294,495 16.5% 495,355 20.0% 5.3%
Human resources 26,184 28.4% 75,349 38.5% 313,374 53.0% 619,329 49.4% 1,115,481 62.3% 1,586,079 64.2% 9.5%
Education, training,
employment,
and social
services 968 1.0% 8,634 4.4% 31,843 5.4% 37,176 3.0% 53,754 3.0% 97,526 3.9% 10.8%
Health 795 0.9% 5,907 3.0% 23,169 3.9% 57,716 4.6% 154,533 8.6% 250,612 10.1% 13.6%
Medicare 6,213 3.2% 32,090 5.4% 98,102 7.8% 197,113 11.0% 298,638 12.1%
Income security 7,378 8.0% 15,655 8.0% 86,557 14.6% 148,655 11.9% 253,575 14.2% 345,847 14.0% 8.9%
Social security 11,602 12.6% 30,270 15.5% 118,547 20.1% 248,623 19.8% 409,423 22.9% 523,305 21.2% 8.8%
Veterans benefits
and services 5,441 5.9% 8,669 4.4% 21,169 3.6% 29,058 2.3% 47,083 2.6% 70,151 2.8% 5.8%
Physical resources 7,991 8.7% 15,574 8.0% 65,985 11.2% 126,037 10.1% 84,954 4.7% 130,184 5.3% 6.4%
Energy 464 0.5% 997 0.5% 10,156 1.7% 3,341 0.3% —761 —0.0% 429 0.0% —0.2%
Natural resources
and environment 1,559 1.7% 3,065 1.6% 13,858 2.3% 17,080 1.4% 25,031 1.4% 28,023 1.1% 6.6%
Commerce and
housing credit 1,618 1.8% 2,112 1.1% 9,390 1.6% 67,600 5.4% 3,208 0.2% 7,574 0.3% 3.5%
Transportation 4,126 4.5% 7,008 3.6% 21,329 3.6% 29,485 2.4% 46,853 2.6% 67,894 2.7% 6.4%
Community and
regional
development 224 0.2% 2,392 1.2% 11,252 1.9% 8,531 0.7% 10,623 0.6% 26,264 1.1% 11.2%
Net interest 6,947 7.5% 14,380 7.3% 52,533 8.9% 184,347 14.7% 222,949 12.5% 183,986 7.4% 7.6%
Other functions 7,760 8.4% 17,286 8.8% 44,996 7.6% 60,688 4.8% 113,769 6.4% 141,845 5.7% 6.7%
International
affairs 2,988 3.2% 4,330 2.2% 12,714 2.2% 13,764 1.1% 17,216 1.0% 34,592 1.4% 5.6%
General science,
space and
technology 599 0.6% 4,511 2.3% 5,831 1.0% 14,443 1.2% 18,633 1.0% 23,674 1.0% 8.5%
Agriculture 2,623 2.8% 5,166 2.6% 8,774 1.5% 11,806 0.9% 36,459 2.0% 26,566 1.1% 5.3%
Administration
of justice 366 0.4% 959 0.5% 4,702 0.8% 10,185 0.8% 28,501 1.6% 40,019 1.6% 11.0%
General
government 1,184 1.3% 2,320 1.2% 12,975 2.2% 10,490 0.8% 12,960 0.7% 16,994 0.7% 6.1%
Undistributed
offsetting receipts —4,820 —5.2% —8,632 —4.4% —19,942 —3.4% —36,615 —2.9% —42,581 —2.4% —65,224 —2.6% 6.0%
Total, Federal outlays 92,191 100.0% 195,649 100.0% 590,941 100.0% 1,253,116 100.0% 1,789,067 100.0% 2,472,205 100.0% 7.6%
SOURCE: Executive Office of the President, Office of Management and Budget, Budget of the United States Government. Historical Tables 2007.
(Washington, D.C.: U.S. Government Printing Office, 2006).
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