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The CBO was established by the CBA (s. 201). Its primary duties are to prepare an annual economic forecast, formulate the budget baseline, review the President’s annual budget submission, score all spending legislation reported from committees and passed by Congress (CBO, 2004). The CBO provides various committees, including the Budget, Appropriations, Ways and Means, Finance, and the Joint Committee on Taxation with information on:

●The budget, appropriations bills, and other bills authorising or providing new budget authority or tax expenditures.

●Revenues, receipts, estimated future revenues and receipts, and changing revenue conditions.

●Other related information such as macroeconomic estimates, as requested by a committee.

3.2. Role and responsibilities of sub-national governments

The United States is governed by a federal government, 50 states, 39 000 general purpose local governments (counties, municipalities and townships), and 49 000 special purpose local governments, a fourth of which are school districts (as of 2004). The independent status of states is clearly defined and protected by the federal and state constitutions (Art. IV, s. 3, federal Constitution). The Constitution requires the Congress to obtain the states’ consent to divide or change the borders of states. The exact roles and responsibilities of the federal and state governments are not fully defined in the Constitution. Although some areas of responsibility are clearly given to the federal government (for example, defence), there is ambiguity in other areas. Whereas a limited federal role is suggested by the 10th Amendment to the Constitution (“powers not expressly granted to the federal government are reserved to the states or the citizens”), a broader federal role is suggested by the “general welfare” clause [“the Congress shall have power to provide for the common defence and general welfare of the United States” (Art. I, s. 8)].

The Constitution does not clearly identify local government as a separate level of government. In practice, local governments derive their powers from the 50 states. The relative responsibilities of the federal government versus state and local governments have evolved over time, with the federal government becoming increasingly involved in many areas that were once the sole responsibility of states and localities. State and local governments are heavily involved in service delivery, financed in part by grants, loans and tax subsidies from the federal government. Local governments operate virtually all elementary and secondary schools; build and maintain most local roads and public transportation systems (for example, airports). Since states provide some funding for these services, either from their own revenues or by forwarding

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federal funds, the design and operation of local services is highly regulated by state and federal governments (OECD, 1997).

Financial management systems are decentralised. States finance about three-quarters of their spending from their own sources. The states levy taxes, spend money according to state law, and have direct access to bond markets. Their budgets are not reviewed nor approved by the federal government. State Constitutions allow local governments to levy taxes, although states retain authority to place limits on local government finance, such as controls or limits on local government taxes, spending, debt and bonds. Local governments rely much more heavily on state aid than federal grants (Box 3).

By law, the Director of the OMB, in co-operation with the CBO, the Comptroller General, and appropriate representatives of state and local governments, provide to the extent possible, state and local governments with fiscal, budget, and programme information necessary for assessing the impact of federal government assistance on state and local governments’ budgets

Box 3. United States: Major transfers between different levels of government

●Equalisation schemes. Most states have adopted school finance equalisation measures as part of their subsidies to public schools. However, federal courts have found many states’ equalisation schemes to be unconstitutional.

●Global project grants and federal formula grants. Project grants are transfers based on competitive grant applications to the various federal entities (for example, the Department of Education or the Department of Transportation). Formula grants are transfers provided to states. With statutory formula grants, federal agencies can require states and localities to submit plans for the use of these funds, but there is little discretion in the amount of the grant. The largest formula grants are entitlement programmes operated by states. About 85% of federal grants to state and local governments is distributed by formula. In total, there are approximately 700 different grant programmes to state and local governments, although most are relatively small.

●Federal aid. Federal aid to state and local governments comprises grants, loans and tax subsidies. Major functional areas of federal aid include transportation, education, training and employment, social services and heath including medical care and medical aid, and income security.

●State aid. The largest form of state grants is aid to local schools. State aid is distributed among local units according to complex equalising formulae.

Source: OECD, 1997.