When Warmer Weather Meets the Federal Budget

Posted March 19, 2012 at 4:36pm

With the temperature in the high 70s and even low 80s last week, what few wanted to admit out loud lest they tempt Mother Nature became just too obvious to ignore: Winter in and around Washington, D.C., is going to end this year without any significant snowfall. To say that we got one or two dustings overstates the amount we actually received.

It was, therefore, a terrible winter for the salt, sand and snowblower sellers.

But it’s really good news for the local and state governments that have primary responsibility for plowing because the full amount budgeted to clear the streets and highways wasn’t spent. Little snow-removal-related overtime was paid. No additional chemicals to pretreat the roads were needed. The plowing equipment barely broke down, so repair costs were limited. Payments to the contractors that would have supplemented government workers were kept to a minimum. As a result, governments’ surpluses were higher or deficits lower than would have been the case had we had just an average amount of snow.

In other words, compared with what had been assumed — the snow removal baseline — less was spent. This raises three not-so-easy budget-related questions.

First: Should the local and state governments that benefited from the lower-than-expected snow removal expenses get credit for cutting spending below what was spent the year before?

Second: Should those same governments be criticized next year if we get a normal snowfall and spending in 2013 is much higher than in 2012?

Third: Because 2012 is an election year in many jurisdictions, should whoever is elected mayor, county manager or governor be blamed for the very likely higher spending for snow removal in 2013?

The answers to all three of these questions are examples of the use, or misuse, of a budget baseline — the amount projected to be spent or revenues expected to be paid next year based on certain assumptions.

The federal budget equivalent of all three was on display yet again last week when the warm temperatures coincided with the Congressional Budget Office releasing its updated baseline and analysis of President Barack Obama’s 2013 budget.

As some rushed to say last week, the CBO’s analysis does indeed indicate that the Obama budget increases the federal deficit. But that conclusion relies on the use of a baseline that, while required by the Congressional Budget Act, is anything but a realistic assessment of what’s actually going to happen. For example, that baseline assumes that all of the Bush/Obama tax cuts will be allowed to expire at the end of 2012 and won’t be in effect starting January 2013.

That is roughly analogous to the CBO being required to assume that the very limited snow-removal-related spending in 2012 will continue every year thereafter and that anything more is a requested increase and growth in the size of government.

The more relevant baseline, the equivalent of assuming that snowfall will return to average levels next year, is the CBO’s “alternative fiscal scenario.” That’s based on the assumption that politically popular current policies will continue. When that’s taken into account, the Obama budget actually reduces the deficit.

The irony is that both conclusions are correct in some sense. The deficit would indeed be higher compared to the assumption that the tax cuts will continue. Compared to the assumption that they will expire, the deficit is lower.

So, for political purposes, you get to say what you want, use numbers that back up what you’re saying and ignore the comparison that says you’re absolutely wrong.

The annual misuse of the baseline has been a perennial feature of the federal budget debate at least since the Congressional Budget Act created the CBO and the baseline in 1974. In the 48 years since, there has been an almost yearly fight about whether spending and revenues should be compared to the actual amount that was spent or paid the previous year or to a projection of what will be spent under current law or policies. The first means that more spending will always look like an increase; the second means that increased spending can be characterized as a reduction, if it’s less than what was assumed.

The snow removal baseline is not as far removed from what the CBO does with the federal government as it might seem. Compared to what was spent treating the roads and plowing in 2012, almost anything spent in 2013 will appear to be an increase. Compared to the average amount from previous years, the amount spent in 2013 could be either a decrease or an increase. And compared to a baseline that assumes a larger-than-average snowfall because that has happened once every decade and it’s time, an increase in 2013 could still look like a decrease even though the amount spent is more than the previous year.

This is why what many said last week about the meaning of what the CBO analyses show about the Obama budget needs to be taken with more than just a grain of that salt that wasn’t needed for the roads around Washington this winter. Basically, it was all just the federal budget equivalent of a snow job.

Stan Collender is a partner at Qorvis Communications and founder of the blog Capital Gains and Games. He is also the author of “The Guide to the Federal Budget.”