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Postwar Financing And The Budget

( Originally Published Early 1900's )



THE NEED FOR A NEW PLAN

THE huge debt in which the nation found itself as a result of the Great War made it absolutely imperative that attention be given to reductions in the expense of running the Government. While the war was in progress, the great thought was "win the war" —expense had been less than even a secondary consideration. No one wanted cost to delay the war result for a single day. No one objected to meatless, heatless days or to daylight saving, and to have complained about tax rates would have sounded like a lack of patriotism.

But when the war was over and won and the nation was under the necessity of meeting the cost of the war, according to the terms on which the money had been borrowed to conduct it, everyone wanted the nation's burdens lightened, tax rates lowered, and Government costs reduced to the lowest practicable point.

There was a general cry for Government economy, and in that case, as in about all others, when the voters all want a particular thing to be done, it was but a short time until Congress sought an economy program and found a way to reduce costs. The fact is that a more economical and a more scientific way of providing for the Government expenses was much needed long be-fore the war debt confronted the country. But it required the great necessity of meeting the war costs to bring about a demand sufficient to produce an adequate remedy.

THE BUDGET AND ACCOUNTING ACT OF 1921

The first step toward the needed economy was the formulation of a plan that would force frugality on the executive departments. A plan was drafted, presented to Congress, and agreed to. It became law June 10, 1921, and is known as the Budget and Accounting Act. Practically the same plan had been presented to a previous Congress and passed, but had been vetoed by the President because of certain provisions in the bill that he had regarded as an invasion of the Executive's authority. Although the bill that passed in 1921 contained those same features, the then President saw fit to approve it and it became law on the date above mentioned.

As is indicated by its title, the act relates not only to the preparation of estimates by each of the executive departments but also to the audit of the accounts of the public expenditures.

The portion of the act that relates to the appropriation estimates is the all-important thing. There was definite necessity for improvement in that respect. There was a very small, if any, need for a change in the audit plan as mentioned in a previous chapter. Some small economy was possible as to the audit of the public accounts but there was not then, and there never has been, any waste of public money that could be attributed to an improper verification of the money accounts of expenditures. The portion of the act that relates to the regulation of expenditures—the scientific examination of the estimates—has been very well conceived and obviously has provided excellent means for reducing costs.

SCIENTIFIC ESTIMATES FOR APPROPRIATIONS

Before the provisions of that statute were put into operation, there was much waste of the public money through ill-advised expenditure authorizations. It was not attributable to a lack of integrity but to a lack of scientific management in the preparation of the estimates for expenditures and a lack of facilities for complete inquiry before framing the appropriation bills. A comparison of the old way of accomplishing the estimate review with the way that duty has been performed since the Budget Act passed will disclose why the second plan is so far superior and why many millions have been saved to the taxpayer as a result of the change.

Under the old plan, each bureau chief prepared a statement of what he thought it would be advisable for the department to request Congress to appropriate for the conduct of the establishment for which he was responsible. Each bureau chief, feeling a pride in his bureau that was but natural, wished not only to produce the best of results, but also to enlarge the scope of the activities of his establishment.

It was the practice for each chief to prepare his annual estimates and to confer with the head of the department in person. The necessities of each bureau were thus personally urged on the Secretary.

As each chief had immediate contact with the operations of his own office, he could show the most plausible reasons for the views he expressed, and being expert in his particular line of endeavor, the chief had the head of the department at a disadvantage when considering the necessity for new projects being authorized and for an increase in amounts in continuing activities that were being currently conducted.

It was not the practice, however, to allow everything proposed—the contrary was true; for estimates were almost always reduced as to some items by the head of the department. But the bureau would in one way or another prevail in some particulars and some increase was allowed almost every year for each bureau. It seemed unavoidable.

Increases were also and quite often made after the estimates reached Congress, to meet the urgings of local advocates—such as river and harbor improvement authorizations and the erection of public buildings, customs houses, post offices, etc.

Bureau chiefs very often argued before the committee that the estimate for their establishment carried in-adequate amounts for the conduct of their services; and in a great many instances they succeeded in procuring increases.

It is not a fair criticism of the department heads, who served under the former estimate system, to declare that the excess in every estimate should have been detected and the amount should have been reduced to a lower level. The fact is that it was not possible for a department secretary personally to accomplish a complete review. It would have required such technical knowledge along scores of different lines and also such an amount of investigation that no secretary could possibly devote the time that would have been required personally to learn all the facts necessary to reach assured conclusions. He had no alternative but to rely on the bureau chiefs for almost all the facts on which to base his decisions.

There was no requirement that the estimate of any of the great executive departments confine the sum requested to any particular limit. It was a case of each cabinet officer's submitting a statement of his department's needs regardless of the probable aggregate of the Federal revenue. It had, however, always been the practice to present the estimates supported by statements of the previous year's expenditures.

The appropriation bills were framed in the house committee, as the law required that the estimates be submitted to the House of Representatives. Those legislators were in a position similar to the Cabinet members and could not possibly get at all needed facts except from the bureau chief concerned.

The Budget Act established a bureau in the Treasury with a director in charge with the duty assigned to him of receiving all the departmental estimates and, by tabulation and comparison with the previous year's expenditures and the present year's estimated revenue, ascertaining what good management would seem to warrant the President in recommending to Congress as necessary and proper to be appropriated.

The act authorizes the budget chief, when so directed by the President, to make careful inquiry into each item in the estimates and, at the President's direction, to eliminate all or a part of a new project, to reduce or increase or otherwise change the sum requested, and to enlarge or confine the scope of the use of the funds proposed to be appropriated.

Thus a scientific and businesslike plan for control-ling the estimates was devised. The estimate, when completed, is a mathematical statement of the past year's expenditures, supporting the proposed estimate of the funds needed to carry on the Government's operations during the coming year. When in final agreed form the estimate is approved by the President and is published in book form. It is called "The Budget."

One prohibition in the budget law that is of great force in accomplishing economy (the principal object of the act) is that every bureau chief as well as every employee of the departments is forbidden to urge Congress or any committee thereof to appropriate any funds other than as are set forth in the estimates.

ECONOMIES OF THE BUDGET PLAN

The above-described budget plan has resulted in the saving of many millions of dollars. It is interesting to observe how it has accomplished the desired results.

Immediately after the act passed, a director was appointed to undertake the organization and direction of the Budget. The President gave him wide authority and he proceeded vigorously. He gathered a staff of non-partisan, experienced employees from the various departments and caused each such establishment to designate a budget officer for that department. One of the assistant secretaries was, in most cases, selected as the budget officer for the head of the department under whom he served. Each of those selected officers, in turn, caused each bureau of his department to designate an assistant budget officer to take charge of the budget for that bureau.

A description of how the Treasury cooperated in preparing the estimates for the Treasury operating expenses will illustrate how beneficial the budget plan has been.

How THE TREASURY DEPARTMENT ESTIMATE IS PREPARED

The first year demonstrated that it would be wise to rearrange the plan so far as it related to accepting the bureau budget assistants' recommendations.

The Treasury budget officer promptly found that each assistant budget officer, being subordinate to the bureau chief, would simply reflect the views of his chief. Instead of urging reductions, it was but natural for him to do all he could to assist in getting all the funds the chief wanted for the establishment in which they both served. Each bureau budget officer was apparently enthusiastic about economy for all bureaus except the one to which he was attached.

The result was that the Under Secretary, who was the Treasury budget officer, found he personally had the whole task of reviewing and revising the Treasury estimates the first year the budget plan was in operation.

The following year he discontinued reliance on the bureau budget assistant. He appointed a committee of nine employees to do the estimate reviewing. The committeemen selected for that service were all employees who had served in the Treasury for many years and were, therefore, pretty well acquainted with the needs of each bureau.

The committee was accorded wide powers of investigation. It could summon any bureau employee from chief to messenger and inquire into any item in the estimate; it could observe methods, scrutinize records, and ascertain details of any operation. With that authority conferred on those experienced committeemen and with instructions given them to eliminate the unnecessary, a bureau chief stood small chance of procuring anything that was not reasonably necessary. When that committee got through with the estimates, there was little in them that could have been eliminated.

The Under Secretary made the final review. With the committeemen present, he held meetings and interrogated each bureau chief and required each to demonstrate justification for each item in his estimate.

The committee's work the first year produced a result that was surprising, for the amount agreed -upon, and which the Under Secretary recommended to the Director of the Budget, was about 11 per cent less than the aggregate of the original estimate.

OTHER ADVANTAGES OF THE BUDGET PLAN

In the investigation of a bureau estimate and in passing on the sums that should be allowed, the committee looked, for example, into the number of employees it reasonably would require to perform a given class of work; for example, how many doctors and how many hospital stewards it would require to conduct a hospital that had an average of a certain number of patients; how many bond or money counters it would require to redeem a known or anticipated number of items that would be presented for redemption ; how much it would require to clothe, feed, and pay, say, 10,000 enlisted men of the Coast Guard, etc.

Questions of policy, such as whether the Coast Guard should be recruited to full strength or operate at, say, 85 per cent of its full complement, were for the department to determine; whether the Public Health Service should investigate and report on a particular sort of ailment or whether such a task should be regarded as of local concern only and be left to that locality was a question of policy for the Under Secretary and the head of the department to consider. When the policy was determined to be a Federal matter, the committee men had the task of determining how much it was reasonable to ask Congress to authorize to be expended for the purpose in view.

The effect of that kind of review proved to be just what the President wanted. It eliminated millions of dollars in the estimate of the expenses of the Treasury Department alone.

It was not all revision downward, however. For example, in the expense of the customs collection operation, considerable increases were recommended and allowed, for the committee ascertained that an enlarged customs personnel meant greatly increased customs revenue. Several millions more were recommended and procured with which to employ additional clerks, inspectors, etc., better to assist that revenue-collecting service. The result was an increase in revenue of probably not less than $5 for each dollar of increased appropriation estimated and allowed.

After each department has made up its estimate, the Budget Director reviews them all. It is the Director's practice to summon each bureau chief in the same manner the Treasury committee and the Treasury budget officer do. When the Director completes his re-view and gets his findings in final form, the net result is published and is approved by the President and is sent to Congress. The Appropriations Committee members thus have a long start by having a wellboiled-down estimate before them and can reach well-based conclusions with much less personal investigation. With no executive or employee allowed to urge any increases, the appropriation bills usually follow the Budget closely and generally pass with very little in them that is not in the Budget.

The obligating and expending of the sums appropriated are also carefully superintended. By direction of the President, each department is required to conduct operations without avoidable expenditures; each is directed to save wherever possible. The result has been a vast reduction in Government costs.

The Under Secretary, who has the general management of the Treasury Department, and who is also the Treasury budget officer, personally looks into the reasons for the committee cuts in the estimates and personally decides whether the Budget should carry projects that are near the border line and whether they should or should not be recommended to Congress.



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