Baseline budgeting is a specific accounting method employed by the United States Federal Government to project future budgets. This system uses current spending levels as a foundational "baseline" for determining future funding needs. It operates on the assumption that future budgets will be equivalent to the current budget, adjusted by factors such as the inflation rate and the population growth rate. This method is not intended to be a forecast
of actual budget outcomes, but rather a benchmark against which potential policy changes can be evaluated. The Congressional Budget Office (CBO) typically prepares these baseline projections twice a year, usually in January and August, outlining federal revenues, outlays, and the projected surplus or deficit.
The Purpose and Definition of a Baseline
The primary purpose of baseline projections is to illustrate what would occur if existing budgetary policies were to continue without alteration. They serve as a crucial reference point for assessing the financial implications of proposed changes in policy. It's important to note that these projections do not represent what the CBO believes are appropriate or desirable levels of federal taxes and spending. Instead, they offer a neutral picture of the budget under current law, allowing policymakers to understand the financial trajectory if no new legislation is enacted.
The Government Accountability Office (GAO) provides a more detailed definition, describing a baseline as an estimate of spending, revenue, the deficit or surplus, and the public debt expected during a fiscal year under current laws and current policy. This benchmark is vital for measuring the budgetary effects of proposed changes in revenues and spending. It assumes that receipts and mandatory spending will either continue or expire in the future as mandated by law. For discretionary programs, the baseline assumes that future funding will match the most recently enacted appropriation, adjusted for inflation. Under the Budget Enforcement Act (BEA), which was set to expire at the end of fiscal year 2006, the baseline was defined as the projection of current-year levels of new budget authority, outlays, revenues, and the surplus or deficit into the budget year and out-years, based on laws enacted through the applicable date.
Historical Roots and Evolution of Baseline Budgeting
The concept of baseline budget projections originated with the Congressional Budget Act of 1974. This act mandated that the Office of Management and Budget (OMB) create projections of federal spending for the upcoming fiscal year, based on the continuation of existing governmental services. Concurrently, the newly established Congressional Budget Office was tasked with preparing five-year projections encompassing budget authority, outlays, revenues, and the surplus or deficit. OMB released its initial current-services budget projections in November 1974, with CBO's five-year projections following in January 1976. While today's baseline budget projections are quite similar to those from over two decades ago, they now extend over a 10-year period instead of five.
Initially, the Budget Act did not specify whether estimates for discretionary appropriations should be adjusted for anticipated inflation. Until 1980, OMB's projections did not include inflation adjustments for discretionary programs. However, CBO's projections did assume that appropriations would keep pace with inflation, although CBO also published projections without these discretionary inflation adjustments. The significance of CBO's budget projections grew considerably in 1980 and 1981, as they became the baseline for calculating spending reductions during the budget reconciliation process. For instance, the reconciliation instructions in the fiscal year 1982 budget resolution, known as the Gramm-Latta budget, required House and Senate committees to reduce outlays by a total of $36 billion below baseline levels, allowing each committee to decide how to achieve these savings. Since 1981, the CBO baseline has been consistently used for developing budget resolutions and ensuring compliance with reconciliation instructions.
Legal Definitions and Ongoing Debates
The Balanced Budget and Emergency Deficit Control Act of 1985 provided the first legal definition of the baseline, largely conforming to its previous usage. If appropriations for the upcoming fiscal year had not been enacted, the baseline was to assume the previous year's level without any inflation adjustment. However, in 1987, Congress amended this definition to include inflation adjustments for discretionary appropriations. Further technical changes to the baseline definition, including an annual increase of approximately 3% plus inflation, were enacted in 1990, 1993, and 1997. Currently, the automatic annual baseline budgeting increase is about 7%.
Despite its established role, baseline budget projections have increasingly become a subject of political debate and controversy, particularly during the late 1980s and early 1990s, and more recently during the 2011 debt limit debate. Critics argue that baseline projections inherently create a bias favoring increased spending. This bias stems from the assumption that federal spending will keep pace with inflation and other factors that drive the growth of entitlement programs. Consequently, changes that merely slow the growth rate of federal spending programs are often characterized as "cuts" in spending, even though they are, in reality, reductions in the rate at which spending increases. There have even been proposals to eliminate the baseline budget concept entirely and replace it with zero-based budgeting, which is fundamentally opposite to baseline budgeting. Zero-based budgeting demands that all spending be re-justified annually, or it will be eliminated from the budget, regardless of prior spending levels.
