The Benefits of Biennial Budgets

The federal government had a substantial problem with its budgeting process over the past several years, with funding being provided by a series of continuing resolutions outside the annual process for more than three years. With bipartisan frustration over this process growing, a group of centrist Senators, led by Jeanne Shaheen (D-NH) and Johnny Isakson (R-GA), have proposed a switch from annual to biennial budgets. This proposal was introduced in the past Congress and was not seriously discussed, but is likely to be considered this time around with the interest of Senate Majority Leader Harry Reid (D-NV).

Biennial budgets are not uncommon at the state level. A 2011 report from the National Conference of State Legislatures shows that 19 states have biennial budgets, including Ohio, Texas, and Wisconsin. Only four of these states have legislatures that only meet every two years, meaning that 15 states have actively chosen the biennial path.

Biennial budgeting allows for more time for debate and discussion of tricky matters, but the budgets often have to be adjusted because of the balanced budget requirements. (Budget repair bills are well-known here in Wisconsin.) The lack of such a requirement at the federal level makes biennial budgeting even more feasible. While I am a staunch supporter of a balanced budget, I recognize that a small error in economic growth or demographic assumptions can result in a slightly unbalanced budget over a two-year period. As long as the assumptions are reasonable, I’m fine with a small error which can be addressed in the future.

Requiring a budget every two years instead of one can help provide more stability to federal education funding, particularly regarding policies and levels of student financial aid and education research. This stability has the potential to have positive impacts which are independent of the actual funding levels. For example, if the exact dollar amount for the maximum Pell Grant is known, a push should be made to communicate that level to students who are likely to qualify upon entering college. Providing earlier information of financial aid could induce the marginal student to enroll in college and perhaps even take an additional high school course which would lower the likelihood of remediation. This push toward earlier notification of financial aid is consistent with other parts of my research agenda, and would have the added benefit (in my view) of allowing Pell Grant funding to be flexible as needed in the future.

A biennial budget process could also have the benefit of making student loan interest rates more predictable. Under current law, undergraduate subsidized Stafford interest rates are currently set to double (from 3.4% to 6.8%) on July 1. (This is a budgetary matter because the interest rate does determine the level of profit or loss for the federal government.) While I am a strong supporter of plans to tie student loan interest rates to market conditionssuch as the rate paid on Treasury bills plus 3%—biennial budgeting would at least allow interest rates to not face a cliff every single year.

Biennial budgeting has the potential to result in more stability in education funding, as well as result in budgets which are well-discussed and passed under regular order. For those reasons, I am supportive of moving from annual to biennial budgets. I would love to hear your thoughts on this proposal in the comments!

Author: Robert

I am an a professor at the University of Tennessee, Knoxville who studies higher education finance, accountability policies and practices, and student financial aid. All opinions expressed here are my own.

%d bloggers like this: