DISCREPANCIES BETWEEN THE EXECUTED AND THE ESTIMATED BUDGET.
The responsibility of the law-making body for financial legislation does not cease with the vote of the formal budget. Discrepancies are sure to arise between estimates and results when the budget is placed in execution. These discrepancies commonly become apparent to the administration before the close of the year for which the laws are voted, and it is impera tive that some regular and orderly means should be provided by which errors in estimate may be rectified as speedily as pos sible, and with as little embarrassment as possible to the in terests involved. To consider the most appropriate method of covering discrepancies between the executed and estimated budget is the purpose of this chapter.
Although estimates may err on the side of income as well as on the side of expenditure, it is not generally regarded as neces sary on this account to change the orderly course of revenue laws until the matter comes up in connection with the next regular annual budget. The question of aggregate income and aggregate expenditures is not commonly made the subject of corrective or supplemental legislation. Should general re ceipts for any reason fall below the estimate, so that a deficit stares the administration in the face, the legislature might, it is true, recall appropriations for relatively unimportant ser vices and assign the money thus saved to the support of ser vices regarded as relatively more important; but this would give rise to such confusion, if undertaken by the legislative body, that the practice is not commonly resorted to. It is generally acknowledged that some temporary provision should be made for a general deficit in order that the situation may receive adequate consideration when making provision for the succeeding fiscal year. This contingency of a general deficit through shrinkage in revenues is too important a matter to be dealt with under the pressure for quick decision usually at tending supplemental legislation. It will therefore not be considered in this connection.
The same conclusion follows should the source of income be unusually prolific, so that it becomes evident in the middle of the fiscal year that a surplus will result from the continued operation of existing fiscal laws. A general surplus, like a general deficit, is not commonly made the occasion for cor rective legislation. It would be adequate, in the absence of other considerations, to urge against such a procedure that arbitrary changes in 'the rate of taxation, or unadvertised changes in revenue laws, or changes made at unusual times, are not approved by financial principles. The importance of stability in matters of taxation confines the revision of rates to the orderly annual budget.
The errors in estimates which are the occasion of such em barrassment as to warrant revision during the course of the year to which the estimates apply pertain to inadequate appropria tions for specific services, or they arise on account of some unusual or unforeseen demand. The assumption is that the service itself was approved when the general appropriation bills were passed, or that the demand, being of the nature of an exigency, will command immediate approval upon presenta tion. The difficulty to which the legislature must address itself is found in the fact that the administration has not been granted sufficient money to carry on approved service until the close of the current fiscal year, when a new appropriation for its support may be expected. How shall the period be covered for those months that remain after the old appropriation is exhausted and before the new appropriation is opened? Such is the question presented for discussion.
30. The Three Interests Involved. Before considering this question in detail it may be well to call attention to the three interests involved. These are the financial interest, the administrative interest, and the constitutional interest.
First. The financial interest demands that the expense for services should be kept at the lowest possible point consistent with efficiency, and that an equilibrium should be maintained, so far as possible, between the aggregate of income and the aggregate of expenditure. It has already been pointed out that looseness in estimates on the part of the legislature would not be conducive 'to good budgetary results; it is equally true that any looseness on the part of the administration, such as would be sure to follow if executive officers were granted any considerable degree of liberty in the expenditure of money, would tend to destroy clearness and certainty in the accounts of the government. The financial interest, then, demands that the administration should observe in every particular the letter of the law.
Second. The administrative interest claims that a work once undertaken, or a service once entered upon, should not be checked for want of supplies before brought to completion. It would be highly injurious should a diplomatic service, for example, which, on account of some exigency in foreign re lations, proves to be more expensive than was contemplated in the bill of appropriations, be arrested for lack of funds be fore the service is brought to completion. Cases have arisen in which important prosecutions by government have been caused to fail as a result of inadequate appropriations. Ref erence has already been made to the unnecessary expense re sulting from the interruption of services like public works due to inadequate appropriations. Such considerations as these make it apparent that some orderly and regular means should be provided by which the administration may be placed in pos session of funds with which to continue an approved service in case the moneys appropriated shall have been expended before the new appropriations become available.
Third. The constitutional interest, which is the third of the interests to be considered in providing for the orderly covering of casual deficits, stands opposed to looseness in fiscal affairs, whether on the part of the administration or of the legislative body; but especially is it opposed to the exercise of any au thority by the administration in the expenditure of money be yond what is definitely stated in the law. This thought need not be expanded. It is fundamental in the theory of the budget, and has found frequent expression in the foregoing discussion.
A review of the practice of nations in covering deficiencies in orderly appropriations, or in providing for relatively un important exigencies, discloses three lines of possible pro cedure : i. A supplementary budget may be voted, designed to cor rect the errors that have been discovered.
2. Deficiency bills may be passed, or some provision made by which a deficient appropriation may be increased.
3. The administration may be authorized to make provi sion for orderly mid-year deficits.
Each of these methods will be made the subject of separate consideration.
31. The Supplemental Budget. A supplemental or cor rective budget is one introduced as supplemental to or correc tive of fiscal laws already in course of execution. It is, how ever, an independent budget, and not an amendment to the regular appropriation bills. It is a second or mid-year budget, and as such opens up the same field of discussion that was traversed when the original budget was presented for con sideration and vote. It is intended by those who advocate this procedure that the supplemental budget shall supersede the original bill, and it is quite in order for it to modify the con ditions upon which moneys have been expended by executive officers during the first few months of the fiscal year. This general statement presents the character of the supplemental budget much more clearly than could be done by a formal definition, and it has the added advantage of bringing into prominence the consideration upon which this method of covering a deficit must be approved or disapproved.
The principal argument urged in favour of supplemental budgets is that by means of them the conditions under which the annual budget was originally voted are again brought to the notice of the legislature, and that opportunity is thus afforded for correcting any errors of any sort that may have been discovered. To put the matter in another way, the sup plemental budget is defined as a means of bringing the effec tive estimates yet closer to the execution of the laws that legalize them. It is indeed difficult to see how they may be brought much closer, since the estimate underlying a sup plemental budget takes place within the fiscal year to which the appropriation applies. While admitting the general fact assumed by this argument, it may be doubted if the end which it holds in view commands unqualified approval. The general discussion upon the merits of a service, or upon the relative importance of the several services, which the legislature de signs to support should take place before they are assigned to executive officers for administration. The budget once voted, the administration should be granted as long a period as possible free from the interruptions of further legislation. The year contemplated by the original law is short enough— indeed, it is too short—for the best administrative results; and the convincing argument against the policy of supplemental budgets is that by means of them security against interrup tion cannot be guaranteed for more than five or six months. It must not be overlooked that sound financial administration is as important to good government as sound financial legisla tion, and it calls for no extended analysis to perceive that se rious mischiefs will follow a general feeling of insecurity on the part of executive officers, such as must result from opening up the general field of discussion 'by a mid-year budget. It is essential to the orderly conduct of public affairs that questions of administrative policy should not be open to constant dis cussion and possible revision, and it is largely on this account that nations have fallen into the practice of correcting errors. of estimate in such a manner as to leave unimpaired the con ditions under which the original appropriation was voted.
Another consideration against supplemental budgets is found in the fact that they lead to an uneconomical use of the time of the legislative body. The chief embarrassment which arises in connection with popular government is due to the dis inclination of parliamentary bodies to arrive at final decisions. There comes a point in all public affairs when deliberation must be brought to a close. It not unfrequently occurs that an imperfect decision is better than no decision at all. This is a truth which small men never learn, and which men of a broader pattern are frequently slow in learning; and it is wise that the rules adopted by the parliamentary body for the con duct of its business should hold in mind the necessity of direct in debate to the questions that are in reality important. A supplemental budget is at best a budget that pertains to five or six mouths; and there is great danger, should the relative merits of the several services for which money is appropriated be brought into controversy, that the time necessary for making proper provision for the ensuing year, or of consider ing questions of enduring importance, will be consumed in a discussion of a relatively unimportant question. It is much better that the information derived from a presentation of the necessity of supplemental appropriations should be made a basis for the discussion of the next annual appropriation bill.
32. Deficiency Bills or Supplementary Credits. The pro cedure which comes into contrast with that of supplemental budgets, and which under one name or another finds general support in the practice of nations, is known in this country as the voting of " deficiency bills." The corresponding phrase in England is " supplemental credits," in France " credit ad ditionnel." The difference between the supplemental credit and the supplemental budget may be clearly stated. The latter is in reality a new law; the former, while it may have the ap pearance of a new law, goes no further than to increase an ap propriation for an approved service. The original law con tinues to be the authoritative act, and the supplemental credit does not in any way modify the terms of the original grant. The supplemental budget has the practical effect of establish ing a fiscal period of six months, while the supplemental credit recognises the year as the fiscal period, and aims only to sup plement appropriations that experience has shown to have been too small as provided for in the original law.
The contrast between these two methods of harmonizing discrepancies is thus clear and distinct; and, assuming the necessity of some sort of corrective legislation, if we are right in withholding our approval from the supplemental budget because it disturbs unnecessarily the stability of conditions essential to the satisfactory administration of a public service, we are forced to approve supplemental credits, since by means of them provision can be made for a service that has run short of funds without embarrassment to the service itself. If it be urged as against this conclusion that the deficit which is the occasion of the supplemental credit is not due to an erroneous estimate, but to mismanagement on the part of the adminis tration, and that the legislature should, on this account, revise the conditions upon which the grant was originally made, two replies present themselves.
First. Responsibility for mismanagement on the part of the executive officers lies with the head of the executive depart ment, and not with the legislature. It is not reasonable to as sume that the entire administration is guilty of weak and in efficient management, or that such weakness and inefficiency as it shows has sprung up since the vote of the annual budget. The personnel of the administration is, in the main, the same as when, six months before, the appropriations were voted by the legislature, or when, twelve months before, the estimates were submitted by the administration. It may be that a de ficit in some few cases is due to the mismanagement of some particular officers, but this is a matter which properly comes under the jurisdiction of the head of the executive department in which the mismanagement has occurred.
Second. Questions of procedure in matters of government must be decided according to the relative advantage or disad vantage likely to follow from them; and should it be true that a mid-year examination of appropriations in process of execu tion should disclose some error in judgment, either in the policy underlying a service or in the conditions imposed by the law providing for the service, it is probable that less harm would be done by perpetuating the error for five or six months than by an attempt to correct it by new legislation. As an ex ception to a prescribed rule, and to meet an especially flagrant case, the legislature might perhaps change the conditions of the original grant; but to do this for any considerable num ber of services, or under circumstances likely to invite ex tended discussion or party controversy, would, for the reasons already stated, be the occasion of unnecessary embarrassment to the orderly execution of the laws. It is a rule that admits of few exceptions that mid-year fiscal legislation ought to be strictly confined to the voting of supplemental grants to es tablished services.
While approving in a general way the policy of deficiency bills or supplemental grants, it cannot be overlooked that their use has frequently been attended with serious mischiefs. They seem to present a temptation peculiarly their own. Thus the practice of deficiency bills tempts the administration to withhold a complete statement of its needs in the original estimate for fear its estimates may be cut down. The officers of the executive department may have greater confidence in the willingness of the legislature (or, what amounts to the same thing, in their ability to coerce the legislature) to grant supplemental credits than to vote the entire amount which they recognise as necessary in the original appropriation. This of course is an improper method of procedure and a perversion of the theory of deficiency bills, which should be strictly limited to the correction of legitimate or inevitable errors in the original estimates.
The legislature, also, or rather the party in power, finds itself exposed to a similar temptation. Suppose, for example, an important election between the voting of the original appro priation and the time when deficiency bills are presented. What is to hinder the legislature from curtailing the appro priations in the regular budget in order to make a show of economy before the public? Such a policy must of course be followed by unusual appropriations in the form of deficiency bills, but the election meantime has taken place and the party has been returned to power. This is both an undignified and a dishonest procedure. It is a falsification of accounts.. It is legislation designed to mislead the public. It is morally as culpable as erroneous charges in the accounts of a corpora tion. But, unfortunately, it is not so regarded in the moral code of practical politics. For a false estimate by the ad ministration the legislature has a quick remedy The adminis tration is dependent upon the legislature, and there are many ways by which disapproval of such a course may be expressed. For a false estimate by the legislature itself, however, there is .no redress except it lie in the vigilance of the party out of power. The true remedy is in a clear appreciation of what a deficiency bill is for and in prescribing such rules that supplemental appropriations will be confined to their legiti mate purpose.
33. Administrative Appropriations. The peculiar temp tations that accompany the use of deficiency bills have led to the suggestion that possibly the administration, acting for the legislature under conditions which would eventually bring its decisions to the legislature for approval and legalization, should be authorized to make provision for the covering of orderly mid-year deficits. This thought suggests three methods of procedure, each of which is practised to some ex tent by modern peoples.
First. The administration may be authorized to extend grants for approved services.
Second. The administration may be authorized to trans fer the surplus of one service to cover the deficit of another.
Third. The administration may have at its disposal a limited fund to be used at its discretion.
We shall consider, in a cursory manner, each of these sug gestions.
(i) Extension of Grants. Like so many questions in finance, the decision of this one turns upon the extent to which constitutional checks other than those implied in the right of the representatives of the people to vote public moneys have been developed. Parliamentary adjustments are a means to an end, they are not themselves an end. And if no danger to political liberty lies in an extension of the functions of the ad ministration it will, as a rule, lead to increased efficiency in public affairs. Especially is this true when details rather than principles are the subject of consideration. Now it must be remembered that the development of budgets and of budget ary control resulted from a struggle of the people against the arbitrary exactions of an ambitious monarchy. That controversy, however, has been settled. The danger to which popular government is now exposed arises from deceptions practised by legislators rather than encroachments designed by administrators. Moreover, the weakness of popular government shows itself in the inefficiency of administration, due in large measure to the petty limitations under which executive services are performed. The policy of supplemental credits was preferred to that of the supplemental budget be cause the former grants freer play to administrative control. The same consideration now leads to the approval of the po licy of covering deficits in current appropriations by imposing this task upon the administration, provided this can be done without endangering the supremacy of the legislature in mat ters of general policy.
In no country has this question been so thoroughly dis cussed as in France, and it may be well on that account to inquire what decision the French have arrived at respecting it. Two important laws have been passed since 1870—that is to say, since the establishment of the present French Re public—for the purpose of harmonizing the conflicting in terests which arise on account of deficiencies in specific appro priations. The first of these laws was passed in 1871, the second in 1879. The law of 1871 is interesting in that it practically revived the method followed by the government of Louis Philippe and of the Republic of 1848. In order to understand this law it must be remembered that under the Restoration the French budget was almost embryonic, and it was customary to transfer a surplus from one appropriation to cover a deficit in another. Such a practice was, of course, destructive to clearness of accounts and to the efficacy of legislative control. It was for that reason abandoned. Ac cording to the law of 1871, the executive was empowered to extend an appropriation which had been specifically voted, but certain checks were established to prevent the extrava gant employment of this unusual power. Thus all moneys spent without the authority of specific grants must, in the first place, be for the support of a service which has already re ceived the approval of the Chambers; it must, in the second place, receive the unanimous approval of the cabinet; and it must, in the third place, be reported as a special item for legalization by the Chambers.
The law of 1879 differed from that of 1871 in that it estab lished yet more stringent checks upon executive appropria tions. According to this law, a distinction was made between supplemental and extraordinary expenditures, the first, or supplemental expenditures, being those required for the pur pose of completing any work already sanctioned by the Cham bers, while extraordinary expenditures are such as pertain to some service not yet authorized by law. They are extraor dinary in the sense that the service which they are designed to support has not yet been legalized. They have to do with the opening of a new service. Extraordinary expenditures upon the authority of the cabinet were interdicted, while supple mental expenditures were allowed. In addition to the three checks reenacted from the law of 1871 it was further provided that the exercise of this unusual authority by the cabinet should be strictly limited to the prorogation of the Chambers; no money could be expended upon the authority of the cabinet during their dissolution. Such seems to be the settled prac tice of the French people.
It must not be supposed that the French make no use of supplemental credits. Not only do they use them, but they abuse them to such an extent that the outside observer queries whether it might not be well should their admirably devised system of executive appropriations be extended so as to cover most, if not all, of the deficits in specific grants. It must be remembered that France is not well settled in the ways of re sponsible government, and possibly the adjustment that has been described but foreshadows the direction of future de velopment.
In England there is no formal provision for executive ap propriations, and it would perhaps be technically correct to say that they do not exist; still no ministry would hesitate to assume the responsibility of providing for an approved service should it become necessary to do so. This is a pet of the practical working of cabinet government under conditions of strict responsibility. In the United States, on the other hand, the executive not being a responsible body in the po litical sense of that phrase, no natural evolution of executive appropriations is possible. On several occasions an executive officer has made use of his personal credit for tiding over a service until such time as provision could be made for it by means of an urgency deficiency bill. This was done, for example, in the case of the Tenth Census, the superintendent assuming personal responsibility for the payment of debts con tracted for carrying on the work. Such a practice, however, has never proceeded far enough to result in a precedent in its favour.
It is perhaps unnecessary to discuss the merits of a plan so little likely to receive approval as that of the substitution of executive appropriations for supplemental credits. The legislature is in the saddle and is likely to stay there. The situation, however, is by no means satisfactory. Whether one 'contemplates the abuses of deficiency bills, or seeks to discover the cause of administrative weakness in popular government, he is forced by the logic of the situation to assert that a carefully expressed law by which the duty is imposed upon the administration of determining when an extension of an appropriation is necessary, and what amount of additional credit is needed in order to carry a service to the close of the fiscal year, does not lie without the field of reasonable dis cussion. It is probable that such a provision would be fol lowed by two results, both of which approve themselves to the Science of Finance. It would induce greater care in the expenditure of money; it would also induce 'greater care in the original estimates and in the original vote. The legisla ture is careless in the matter of appropriations because it knows corrective legislation is sure to follow; executive offi cers are extravagant (especially the heads of the minor bu reaus) because they too often measure their importance by the amount of money they are able to spend. The policy of executive appropriations would tend to change the test of suc cess in administration from extravagance to economy, since the necessity of a supplemental credit under the conditions as sumed would be a criticism rather than a commendation. But this suggestion has perhaps been sufficiently extended to make clear the tendencies which it involves.
(2) Transfer of Credits. The practice of transferring credits from one appropriation to another, or of borrowing from a fund that shows a surplus to supply a deficit in another, or of arresting the expenditure of money assigned to one ser yice to secure funds for carrying on another, need not claim an extended consideration. It is a practice that has been re sorted to more or less by all peoples when financially hard pressed; but the longer their experience in the school of practical financial administration the more decided is their opposition to it. The development of executive appropria tions in France, referred to above, was in large measure the result of a series of abuses arising from the practice of trans ferring credits; and it is only necessary to examine the finances of the municipalities in the United States to secure forcible illustrations of the mischiefs that follow the policy of special funds and the practice of debits and credits between them.
It should, perhaps, be sufficient to urge against this prac tice that a transfer from one credit to another undoes the work that it is designed a well-framed budget should perform. The law assigns a specific sum to a specific service, and should the administration be permitted to change the grant it might in an almost imperceptible manner change or radically modify the policy formally expressed in the appropriation bills. The advocacy of executive appropriations cannot extend beyond the correction of legitimate errors in estimates for an approved service; to go further than this would be to clothe the execu tive department with legislative authority.
Not only dOes the transfer of credits impair legislative con trol, but such a policy lends itself readily to deception and is sure to result in confusion. There would be no guarantee that the budget as voted reflects the true opinion of the legis lature. Even appropriation bills may be " doctored " for political purposes. In the case of deficiency bills, which, as already explained, invite to deception on the part of the legis lature, there is yet the safeguard of simplicity in accounts and of an undivided responsibility; but the practice permit ting the administration to transfer credits from one service to another would tend to conceal the issue by leading to con fusion of accounts, and to impair responsibility by assigning the same duty to two independent departments of government. Moreover, this practice implies the existence of separate funds which possess a sort of fiscal personality, since there could not otherwise be any debit and credit between them. For reasons that cannot be here presented, since the subject pertains to financial organization rather than financial legislation, the maintenance of any considerable number of independent funds cannot be approved. It is much better to pass all moneys to the consolidated fund from which moneys are paid to specific services on properly attested warrants. Our conclusion, then, is that of the policy of transferring credits, whether by legisla tive or administrative authority, cannot be seriously con sidered in the present stage of constitutional development and of financial organization.
(3) Indefinite Appropriations. The third suggestion for covering deficits in specific appropriations through the agency of the executive rather than the administrative authority con sists in placing at the disposal of the administration a limited amount of money that may be used at its discretion. This practice is properly regarded as a form of executive appropri tions. Its peculiar characteristic is made clear when it is observed that the extent to which moneys may be expended upon the authority of the government is limited by the amount which 'the legislature sees fit to place at its disposal for this purpose. The idea is well exemplified by the established prac tice of the English people.
Recognising the necessity of granting some discretion to a government in the expenditure of public moneys, three funds are placed at the disposal of the government, which may be drawn upon without specific authority, but under conditions of strict responsibility. These are the Treasury Chest fund, the Civil Contingency fund, and the Secret Service fund.
This is certainly a sensible and safe method of procedure, and commends itself as a simple means of doing away with the necessity of any very extended use of supplementary credits. As a safeguard against the abuse of indefinite appro priations the English Parliament has established a public com mittee on accounts. This committee guards carefully all spe cific appropriations, and one 'of its duties is to see that the government does not make an unwarranted use of moneys placed at its disposal. It is illegal for any expenditures to be made except 'they be charged to some specific appropriation, and the committee is responsible for balancing all accounts. With such a safeguard as this, and with a clearly defined sys tem of bookkeeping, it is difficult to see how serious abuses could arise from the practice of indefinite appropriations.
The final conclusion from this general discussion is that in the adjustment of discrepancies between estimated and executed budgets the best results may be expected from in creasing the responsibility of the executive department of government. Both the financial and the administrative in terests support this conclusion, and it is believed that in the condition in which constitutional governments find themselves at the present time the constitutional interest is not endan gered by limiting the consideration of the legislature to the regular annual budget.