EXPERIENCES WITH LEGISLATIVE BUDGET OFFICES

1. EXPERIENCES WITHLEGISLATIVE BUDGETOFFICES 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

2. 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

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

4. 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

5. Legislature Involvement in Budgeting • Preliminary information from OECD’s 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

6. 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]

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

8. 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.

9. 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

10. 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.

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

12. VALUE CAN CHANGE • Value At Creation • More Information for Legislature relative to Executive • Value After Creation • More Information for Minority Parties relative to Majority

13. CORE FUNCTIONS • Economic Forecasts • Baseline Estimates • Analysis of Executive’s Budget Proposals • Medium Term Analysis

14. 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

15. 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

16. III: ANALYSIS OF EXECUTIVE’S 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

17. 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

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

19. 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)

20. 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

21. US Examples: Distribution of CBO Staff

22. Staffing by Core Function

23. 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.