EXPERIENCES WITH LEGISLATIVE BUDGET OFFICES Barry Anderson OECD

EXPERIENCES WITH LEGISLATIVE BUDGET OFFICES Barry Anderson OECD Study Visit to the OECD by Members of the Jordanian Parliament Organized by SUNY/Jordan’s Legislative Strengthening Program/ Parliamentary Budget Office Paris, September 5, 2007 1 1

Outline n n A Note About Me Budgetary Information Needs of the Legislature Involvement in Budgeting A Nonpartisan, Independent, Objective Analytic Unit – – – Potential Value Core Functions Fundamental Characteristics US Examples Conclusions 2 2

A Note About Me: Experience in the US Congress & the White House, as well as IMF & OECD Congressional Budget Office General Accounting Office of Management & Budget 3 3

Budgetary Information Needs of the Legislature n Different from Executive; more emphasis on: – Simplicity – Transparency – Accountability n n Needed for both Majority and Minority Source need not necessarily be adversarial, but it must be independent 4 4

Legislature Involvement in Budgeting n Preliminary information from OECD’s soon-to-bereleased Survey of Budgeting Practices and Procedures – Formal powers of legislatures to amend proposed budgets – Listing of specialized budget research offices attached to the legislature n Summary of 2006 EC Survey on Fiscal Institutions 5 5

Formal powers of legislatures to amend proposed budgets n n 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] 6 6

Listing of specialized budget research offices attached to the legislature n 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 n 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 7 7

Summary of 2006 EC Survey on Fiscal Institutions n 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. n n 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/LMJAC/REP 52126/06 -EN. 8 8

A NONPARTISAN, INDEPENDENT, OBJECTIVE ANALYTIC UNIT n n Issues Not Addressed Potential Value – Value can change n Core Functions – Other functions n Fundamental Characteristics – Additional characteristics n n US Examples Conclusions 9 9

Issues Not Addressed n n 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. 1010

POTENTIAL VALUE Eliminate executive’s information monopoly n Simplifies complexity n Promotes transparency n Enhances credibility n Promotes accountability n Improves budget process n Serves both majority & minority n Provides rapid responses n 1111

VALUE CAN CHANGE n Value At Creation – More Information for Legislature relative to Executive n Value After Creation – More Information for Minority Parties relative to Majority 1212

CORE FUNCTIONS I. III. IV. Economic Forecasts Baseline Estimates Analysis of Executive’s Budget Proposals Medium Term Analysis 1313

I: ECONOMIC FORECASTS n 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 n n Conservative - allows for better-than-forecasted performance to reduce deficits/debt “Centrist”, based on: – Panel of experts – Private forecasters – Central Bank 1414

II: BASELINE ESTIMATES n n n Projections, not Predictions “Centrist” Economic Forecast Current Law Basis, including – “Spend Out” of Enacted Legislation – Termination of Expiring Legislation n n Medium Term Focus Replaces Previous Year & Executive Baselines 1515

III: ANALYSIS OF EXECUTIVE’S BUDGET PROPOSALS n An objective budgetary assessment – A technical review - not a programmatic evaluation n Enhances credibility – both of government as a whole and of executive forecasts 1616

IV: MEDIUM TERM ANALYSIS n n n Forces executive to look beyond one year Estimates medium term economic and fiscal impacts of policy proposals Important to take account of Fiscal Risks: – – n Guarantees Pension liabilities Contingent liabilities PPPs Provides basis for Long Term Analysis 1717

OTHER FUNCTIONS n n n n Analysis of proposals Options for spending cuts Analysis of mandates (regulatory analysis) Economic analyses Tax analyses Long term analysis Policy briefs 1818

FUNDAMENTAL CHARACTERISTICS n Nonpartisan (not Bipartisan) – Director should be more technical than political – Staff should be entirely technical – Develop an esprit de corps n n n Independent Objective Informed Serve Both Majority & Minority Transparent (Everything on the Internet) Understandable (Subway test) 1919

ADDITIONAL CHARACTERISTICS n n n n 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 2020

US Examples: Distribution of CBO Staff Function Core Other Total Executive Direction 5 5 10 Macroeconomic Analysis 5 15 20 Tax Analysis 5 15 20 Budget Analysis Baseline 80 20 Analysis of Proposals 45 Mandates 15 Program Divisions Technical & Administrative Total 75 75 10 20 30 45 190 235 2121

Staffing by Core Function Executive Direction CBO IBO (NYC) LAO (Calif) 5 6 3 Macroeconomic & Tax Analysis 10 4 5 Budget Analysis 20 12 36 Technical & Administrative 10 5 9 45 27 53 Total 2222

CONCLUSIONS n n n 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. 2323