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June 03, 2011

PFM Lessons from the U.S. Congressional Budget Office

Posted by Phil Joyce[1]

Arguments in government occur as often over assumptions as they do over priorities. At a time when partisanship in the US seems at an all-time high, institutions that produce credible facts are particularly valuable. In this context, I have spent a lot of time thinking about a particularly influential and important national government institution—the U.S. Congressional Budget Office (CBO), an agency that is now 36 years old. Just last month, Georgetown University Press published my book on CBO, which is the first ever institutional history of this agency (The Congressional Budget Office: Honest Numbers, Power, and Policymaking).

CBO’s importance in US national debates, obvious to many observers for a long time, became apparent once again during the debates on the Obama health reform bill in 2009 and 2010. The President, who had insisted that any bill could “not add one dime to the deficit,” put CBO, as the official Congressional cost estimator, in the position of heavily influencing the content of the eventual health reform legislation. This was not the first time that CBO had been in such a position. History is chock full of instances where key initiatives of a majority party—the Carter energy policy in the 1970s, the Reagan program of the 1980s, the Clinton health reform of the 1990s—were called into question by CBO. It is nothing short of amazing that the United States Congress—as partisan an institution as it is possible to imagine—actually tolerates (and in fact, supports) such and inconvenient nonpartisan institution staffed by its own employees. 

What are the lessons for CBO that might be relevant for other countries that might consider such institutions?

  1. Organizations such as the CBO cannot be successful without a clear vision, sustained leadership, and ample political support.  In the case of CBO, this vision was initially articulated by Alice Rivlin, the first CBO director. The statute that established CBO was relatively vague about what the organization would do, so she set out to establish a vision and culture to guide the organization. This was reinforced by the second director, Rudy Penner, and subsequent agency heads. It was also supported by key members of Congress, particularly the chairs and ranking members of the budget committees.
  2. Transparency and accountability are crucial to establishing reputation and influence.  In CBO’s case, some of this was calculated and some was luck. The lucky part was being involved in some high-profile debates, such as the Reagan economic program and the Clinton and Obama health plans. The calculated part was its slavish attention to the timeliness, transparency, and accessibility of its products. In short, it is hard to develop a reputation for excellence if no one knows about you.
  3. Two design features have been most important to CBO’s development.  First, it is independent, in the sense that CBO was not only a legislative branch agency (and thus not controlled by the President) but also did not report directly to any Congressional committee.  Second, it is nonpartisan, which was explicit in terms of the director, and implicit in terms of other CBO staff, who served at the pleasure of the director.   
  4. CBO’s greatest influence has come through its cost estimating function. By all accounts, there is much greater attention to the cost of legislation since the creation of CBO. Many bills are changed in response to—or in anticipation of—CBO scoring.
  5. The agency plays a much greater role in public education than was originally anticipated—both directly (all CBO estimates and studies are available free of charge on the CBO web site) and through the media, which relies on CBO as the main source of credible information on the budget.
  6. The existence of CBO has had profound influence on the relationship between the President and the Congress. It has tended to moderate tendencies on the part of the executive to “game” the budget by (for example) painting a rosy scenario of future economic growth. Further, because in the US system, the President tends to initiate policy, CBO’s most high-profile analyses have involved responding to Presidential proposals. 
  7. Despite its influence at the level of individual policies, it has had little effect on constraining deficits, which are now at record post-World War II levels. Its efforts to remain nonpartisan have led to reluctance to prod policymakers into action, even in the face of large budget deficits.  While it has not typically been hesitant to opine about the dangers of deficits, it has little direct or persuasive power to make politicians act to rein them in.

Two of the factors that are most important to CBO’s success—its size and expertise—would be difficult to replicate in many other countries. CBO currently has about 250 employees.  Resources might prevent an organization of similar size in another country (even adjusting for the size of the country),  and establishment of forecasting expertise within the legislature might have the effect of taking this expertise away from the Ministry of Finance. This could lead to a weakening of the Ministry of Finance and diminish any improvements at the macroeconomic or microeconomic level. In addition, the U.S. Congress exercises very strong independent budgetary powers. In countries with weaker legislatures, such an agency would not be expected to be as influential.

[1] Philip G. Joyce, Professor of Management, Finance and Leadership, Maryland School of Public Policy.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.


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