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The Budget Debate: Key Facts for Leaders

The Budget Debate: Key Facts for Leaders. Ricardo Aguilera Director Chief Financial Officer Academy National Defense University, iCollege. “The views expressed in this presentation/article are those of the author and do not reflect the official policy or position of the National Defense

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The Budget Debate: Key Facts for Leaders

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  1. The Budget Debate:Key Facts for Leaders Ricardo Aguilera Director Chief Financial Officer Academy National Defense University, iCollege “The views expressed in this presentation/article are those of the author and do not reflect the official policy or position of the National Defense University, the Department of Defense, or the U.S. Government.”

  2. The Fiscal Future:Issues and Options • Issue: Balance Budget • Debt limit agreements to date do not balance the budget • Current FY 14 President’s Budget plans for deficits into future • Option: Start long-term revenue increases and/or spending cuts • Issue: Pay Down National Debt • Requires initial balanced budgets and long-term surpluses • Option: Control growth in mandatory spending and/or raise revenue • Issue: Ensure Long-Term Social Insurance Programs solvency • Social Security will be able to pay out full benefits until 2036 • After this point tax revenue will fund pay outs of 75% of full benefits • Medicare will fund full benefits until 2024. • Option: Reduce benefits and/or increase revenue

  3. The Fiscal Future:Federal Leaders Watch List • Understand • Politics • Calendar/Process • Baselines

  4. Federal Debt Held by the Public and Gross 18.7 17.9 16.7 Dollars in Trillions Deficit: 0.6 0.7 0.6 Source: OMB

  5. Congressional Issues • Issues: • May 18, 2013 • October 1, 2013 • October 17, 2013 • December 13, 2013 • January 15-18, 2014 • February 7, 2014 • March 4, 2014 • October 1, 2014 • November 4, 2014 • Democrats 200 • Republicans 232 • Vacant 3 • Democrats 53 • (including 2 independents) • Republicans 45

  6. Debt Reduction Remaining • All budget-related legislation to date brings annual deficits to “historic norm” of about 4% of GDP • Most economists agree $4T in savings/revenue increases over 10 years needed to balance the budget and initially pay down the debt • Debt Reduction Required: ___ ($T) • Required 4.0 • Achieved to date 2.7 • Difference 1.3 • $1.3T additional still needed to a achieve $4T in savings/revenue Source: Bi-Partisan Policy Center

  7. Sequestration’s Effect on Debt

  8. Federal Budget Trends In current (as-spent) dollars, both Federal receipts and outlays have grown rapidly and are expected to continue growth. Source: Office of Management and Budget

  9. Budget Deficits Around the World One measure of fiscal stress is the additional borrowing required by a government relative to the size of its economy. This slide from OECD indicates that, for the FY 2006-9 period, the US and UK were in the middle of a group – seemingly worse off that Germany, Japan or France, but less stressed than Ireland, Spain or Greece.

  10. Fiscal Year 2015The President’s Budget Receipts $3,337B Outlays $3,901B FY 2015 Deficit = $564B Average Annual Deficit FY 16-24 ~ $485B Source: OMB

  11. FY 12/13 DoD Requests vs. Appropriation(Budget Authority in $ Billions) 495.5 496.0 495.6 7.8 12.0 11.8 142 142 135 Does not include $26B from Initiative Fund in FY 15 or $79B OCO Source: OMB

  12. Fiscal Year 2015 President’s Budget(Outlays) Mandatory $2,709B (69% of total) TOTAL $3,901B Discretionary $1,192B (31% of total) * Includes $6B in disaster costs ** About $8B in Implementation costs Source: OMB

  13. Baby Boom Births by Year Millions of Births = Baby Start/End Year Source: Statistical Abstract of the United States

  14. All unlisted agencies – NASA, Education, Energy, Interior, Commerce, State and Foreign Aid, Justice, Homeland Security, SBA, EPA, Judicial Branch, Legislative Branch, etc. – compete for less than 10% of the spending. Growth in Outlays by Agency Howard G. Borgstrom

  15. Fiscal Year 2015 President’s Budget(Revenue) TOTAL $3,337B * Source: OMB

  16. Much of what people see as a growing tax burden is through increased payments into Social Security and Medicare; the personal income tax per se has been very stable and corporate income taxes are proportionately decreased since WWII. Source: OMB

  17. Corporate Taxes Paid as a Percent of Taxable Income Asset Value of Corporation Percent of Taxable Income Source: Internal Revenue Service

  18. In 2008, the US had one of the lowest tax burdens among OECD nations, in terms of tax revenues as a percent of GDP. Source: OECD

  19. BudgetTotals in President’s FY2015 BudgetRequest DoD Topline,FY2001–FY2019 (CurrentDollarsinBillions) $750 691 687 666 666 1 645 614* 7 601 589 581 30* 581 162159 575 578 574 565 115 146 3 30* 187 535 30* 30* * 79 85 82 8 166 $500 479 468 3 116 438 76 91 73 345 316 6 17 559 551 544 23 535 528528530 $250 513 496496496 479 432 411 400 377 365 328 287 $0 FY05FY06FY07FY08FY09 BaseBudgetOCO FY11 Other FY16 FY18 FY01FY02FY03 FY04 FY10 FY12 FY13 FY14 FY15 FY17 FY19 • ReflectsFY13EnactedlevelexcludingSequestration • Placeholdersonly • FocusOnlyOnBaseBudgetForRemainderOfBriefing NoFY2015OCOBudgetYet Source: DoD

  20. Since 2001, real growth has occurred in all major categories, but O&M has grown the most in dollar terms *The DOD Unified Medical Budget ($48 billion in FY 2015) includes both DHP and some additional Military Personnel funding. Source: OMB

  21. PB15DoDBase-BudgetTopline ($B) 600 FY2014President’sBudget(PB14) 577 575 559 551 550 541 535 537 PB15 525 500 500 Sequester-LevelBudgets 496 475 FY15 PB14 FY14 FY16 FY17 Sequester -LevelBudgets FY18 FY19 PB15 Source: DoD

  22. PB15DoDBase-BudgetTopline (EffectsOfSequester-LevelBudgets) ($B) 600 FY2014President’sBudget(PB14) 575 550 PB15 $115BCut 525 500 Sequester-LevelBudgets 475 FY15 PB14 FY14 FY16 FY17 Sequester -LevelBudgets FY18 FY19 PB15 Source: DoD

  23. PB15DoDBase-BudgetTopline (Opportunity,Growth,and SecurityInitiative) ($B) 600 FY2014President’sBudget(PB14) 575 550 541 PB15 525 $26B Initiative 500 Sequester-LevelBudgets 496 475 FY15 PB14 FY14 FY16 FY17 Sequester -LevelBudgets FY18 FY19 PB15 Source: DoD

  24. FY2015Opportunity,Growth,andSecurityInitiative • Total$26billionforDoD • Readinessenhancements • TrainingaddsinArmy • Sparesand logisticsinNavy • Unittrainingin USMC • Training inAir Force • Investmentincreases • Army Helicopters(56) • Navy P-8(8),E-2D Aircraft(1) • USMC LightArmoredVehicle • – Air ForceF-35(2),C-130J(10), • MQ-9Aircraft(12) • ScienceandTechnology ($335M) • Installationsupportincreases • All Servicesincreasebasesustainment • All ServicesaddMilConfunding Source: DoD

  25. Passback/ Appeals The OMB budget review schedule July Aug Sept Oct Nov Dec Jan Feb Mar Apr May June Program/Budget Review with Agency HQ • Director’s Review • Revised Economic • Assumptions July: OMB issueds revised A-1l guidance Budget Review Board Meetings State of the Union and BudgetSubmission MAX Database: Prior Years MAX Database: Budget Years Budget Chapter Writing Review Agency Budget Justifications Review Proposed Authorizations with Budget impact • Review of Congressional Testimony and Actions • Ongoing Budget Oversight • Mid-Session Corrections • Apportionments

  26. The Budget Calendar andthe PPBE Process FY 2014 – 2016 Budget Status Today FY 2014 Budget Execution Planning Prog/Budget Congressional Action Congressional Action Congressional Action??? FY 2015 Budget Execution Planning Prog/Budget Congressional Action Planning Prog/Budget FY 2016 Budget Execution FY11 FY12 FY13 FY14 FY15 FY16 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3

  27. PPBE Phases Strategic Planning ExecutionReview Planning (QDR, DPPG, GEF) Program Review BudgetReview Components submit estimates Program/Budget Estimates JCS Chairman’s Program Assessment JCS Chairman’s Joint Planning Document Final JCS risk assessment OUSD(C) performs an Execution review. Result: Omnibus Reprogramming Execution Review DoD Planning, Programming, Budgeting, and Execution (PPBE) System Overview Yearly PPBE Process and Milestones Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Program Objective Memorandum (POM) BudgetEstimate Submission (BES) Prog DecisionMemo 3-Star Small Group/Large Group Front End Asses Prog. Review?? PDMs Dep. Mgmt Act. Grp BudgetSubmission Small Group/Large Group 3-Star BudgetJustification BudgetReview Dep. Mgmt Act. Grp Resource Mgmt Decision PBDs PBD = Program Budget Decision; PDM = Program Decision Memorandum

  28. Appropriators Authorizers Hearings, briefings, questions Hearings, briefings, questions President’s Budget Senate Committee SAC, Subcommittee House Committee HAC, Subcommittee Congressional Process and Timeline Feb Congress: Budget Committees Mar Conference Conference Sep-Aug-July JR PL JR Bill Bill CR Omni President Signs President Signs

  29. What does it mean for us?Building Better Budgets • Future Budget Pressures • Decisions made within short deadlines at aggregated levels • Budget leaders are in the room when decisions are made • Do they have the facts that can sway a decision your way? • Get Better Numbers • Analysts ask: “What is the impact of $1 more/less on this program?” • Metrics need to link funding to agency outcomes/goals • Output measures are no good. • Self audit: Be honest • Self examine the programs - criteria, condition, cause, and effect • Tell Better Stories • Program officials must explain simply how previous funding brought gains • Program’s story for future funds needs to be compelling and well-reasoned • Tell your story consistently and often

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