EXPERIENCES WITH LEGISLATIVE BUDGET OFFICES

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EXPERIENCES WITHLEGISLATIVE BUDGETOFFICES

• Barry Anderson
• OECD
• Donor Consultation on
• Parliamentary Development and Financial
  Accountability
• Organized by DFID, UNDP, and the WBI
• Brussels, Belgium
• May 21-22, 2007

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Outline

• A Note About Me
• Budgetary Information Needs of the Legislature
• Legislature Involvement in Budgeting
• A Nonpartisan, Independent, Objective Analytic
  Unit
• Potential Value
• Core Functions
• Fundamental Characteristics
• US Examples
• Conclusions

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A Note About Me Experience in the US Congress
the White House, as well as IMF OECD

• Congressional Budget Office
• General Accounting Office

• Office of Management Budget

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Budgetary Information Needs of the Legislature

• Different from Executive more emphasis on
• Simplicity
• Transparency
• Accountability
• Needed for both Majority and Minority
• Source need not necessarily be adversarial, but
  it must be independent

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Legislature Involvement in Budgeting

• Preliminary information from OECDs
  soon-to-be-released Survey of Budgeting Practices
  and Procedures
• Formal powers of legislatures to amend proposed
  budgets
• Listing of specialized budget research offices
  attached to the legislature
• Summary of 2006 EC Survey on Fiscal Institutions

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Formal powers of legislatures to amend proposed
budgets

• Unrestricted 18
• The legislature may make amendments, but only if
  it does not change the total surplus/deficit
  proposed by the executive 5
• Other changes permitted 3
• Changes prohibited or very limited 4 Greece,
  Ireland, Japan, South Korea

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Listing of specialized budget research offices
attached to the legislature

• Specialized budget research office/unit to
  conduct analyses of the budget
• Italy N/A staff
• Japan 21 staff
• Mexico 20 staff
• Netherlands 20 staff
• Portugal 3 staff
• South Korea 96 staff
• UK 20 staff
• US 235 staff

• Other responses
• Belgium some work by the 608 staff in Court of
  Audit
• Canada to be established at the end of 2007
• Finland 4 staff in Finance Committee
• New Zealand 5 staff in Finance Select Committee
• Poland some staff in Bureau of Parliamentary
  Analysis

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Summary of 2006 EC Survey on Fiscal Institutions

• 22 independent fiscal institutions exist in 14 EU
  member states.
• Most of these have been in place a long time and
  there is no visible growth trend.
• The involvement of these institutions in the
  budgetary process mainly takes place through
  regular Parliamentary hearings.
• 16 institutions issue normative statements or
  recommendations.
• Source Survey on Fiscal Rules and Institutions
  Summary of First Results, EC, Directorate
  General, Economic Financial Affairs, Brussels,
  4/04/2006, ECFIN/LM-JAC/REP52126/06-EN.

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A NONPARTISAN, INDEPENDENT, OBJECTIVE ANALYTIC
UNIT

• Issues Not Addressed
• Potential Value
• Value can change
• Core Functions
• Other functions
• Fundamental Characteristics
• Additional characteristics
• US Examples
• Conclusions

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Issues Not Addressed

• Does an increased legislative role lead to bigger
  deficits?
• Does an increased legislative role lead to more
  pork barrel spending?
• Can an independent unit help either of the above?
• But I will address the benefits such a unit can
  have in reaching a better balance between the
  executive and the legislature.

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POTENTIAL VALUE

• Eliminate executives information monopoly
• Simplifies complexity
• Promotes transparency
• Enhances credibility
• Promotes accountability
• Improves budget process
• Serves both majority minority
• Provides rapid responses

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VALUE CAN CHANGE

• Value At Creation
• More Information for Legislature relative to
  Executive
• Value After Creation
• More Information for Minority Parties relative to
  Majority

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CORE FUNCTIONS

• Economic Forecasts
• Baseline Estimates
• Analysis of Executives Budget Proposals
• Medium Term Analysis

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I ECONOMIC FORECASTS

• Objective
• Not a function of policy proposals - not
  dynamic
• Not based on wishful thinking - no rosy scenario
• Not a means to an end - for example, interest
  rates, oil crop prices should be estimates,
  not targets
• Conservative - allows for better-than-forecasted
  performance to reduce deficits/debt
• Centrist, based on
• Panel of experts
• Private forecasters
• Central Bank

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II BASELINE ESTIMATES

• Projections, not Predictions
• Centrist Economic Forecast
• Current Law Basis, including
• Spend Out of Enacted Legislation
• Termination of Expiring Legislation
• Medium Term Focus
• Replaces Previous Year Executive Baselines

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III ANALYSIS OF EXECUTIVES BUDGET PROPOSALS

• An objective budgetary assessment
• A technical review - not a programmatic
  evaluation
• Enhances credibility both of government as a
  whole and of executive forecasts

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IV MEDIUM TERM ANALYSIS

• Forces executive to look beyond one year
• Estimates medium term economic and fiscal impacts
  of policy proposals
• Important to take account of Fiscal Risks
• Guarantees
• Pension liabilities
• Contingent liabilities
• PPPs
• Provides basis for Long Term Analysis

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OTHER FUNCTIONS

• Analysis of proposals
• Options for spending cuts
• Analysis of mandates (regulatory analysis)
• Economic analyses
• Tax analyses
• Long term analysis
• Policy briefs

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FUNDAMENTAL CHARACTERISTICS

• Nonpartisan (not Bipartisan)
• Director should be more technical than political
• Staff should be entirely technical
• Develop an esprit de corps
• Independent
• Objective
• Informed
• Serve Both Majority Minority
• Transparent (Everything on the Internet)
• Understandable (Subway test)

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ADDITIONAL CHARACTERISTICS

• Put core functions in law
• Do not make recommendations GAO audit, with
  recommendations CBO budget, without
• Brief Members first, especially if news is bad
• Serve Committees, not Members
• Meet with anyone, but be balanced
• Be physically separate from legislature
• Avoid limelight
• Be responsive and timely

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US Examples Distribution of CBO Staff
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Staffing by Core Function

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CONCLUSIONS

• Legislatures need an independent source of
  information and analysis to improve their
  participation in budget preparation.
• A nonpartisan, independent, objective analytic
  unit can provide transparent, clear, and accurate
  information without polarizing relations between
  executive and legislature.
• Successful creation of such a unit is not easy
  in particular, it demands balance in a political
  environment.