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The Federal Budget: A Primer
"The Federal Budget: A Primer" is intended as a quick introduction to
the federal budget. While detailed knowledge of the federal budget process
and associated terminology can only be gained from reading long monographs
or book-length treatments of the subject, this primer is intended to give
the interested citizen enough of a background to make sense of discussions
of the budget and related legislation found in the press.
The section entitled
"A Concise Introduction to the Federal Budget"
is intended to be a compact yet thorough introduction to common terminology
and legislative processes related to the federal budget and a topics closely
related to the budget. The section
"A More Detailed Discussion of the Federal Budget"
is a longer, less condensed presentation of the same material.
The last few sections include tables, figures, references, and footnotes.
After reading this document, you should
- be able to read and understand basic federal budget documents;
- have an understanding of the annual federal budget process.
- Federal government spending and taxation---basic terminology and
principles
- The Constitution grants congress the power to tax and spend by passing
legislation. Like all legislation, it can be vetoed by the president.
- Government action on spending typically occurs in this order: authorization,
appropriation, budget authority, obligation, outlay.
- An authorization is an act of congress establishing, changing, or
continuing a federal agency or program and delimiting its powers and structure.
- It is valid either indefinitely or for a specified period of time.
- It typically includes an authorization to congress to appropriate funds---which
is not itself an appropriation---often with a limit on the amount
of funds that can be appropriated.
- Some authorizations (e.g., those providing for entitlements)
do provide budget authority (see discussion below on mandatory
spending).
- Authorizations are enacted irregularly.
- Most congressional committees are authorizing committees.
- An appropriation is an act of congress providing an agency or program
with a specified amount of budget authority.
- Typically, funds are appropriated annually, for the upcoming fiscal year only.
- Funds must be obligated during the fiscal year addressed in the act, unless
otherwise specified.
- Appropriations are traditionally separate from substantive legislation (like
authorizations), and address only the amounts specified.
- Appropriations are traditionally grouped into 13 separate appropriations bills.
Each of these bills is the jurisdiction of a parallel pair of subcommittees
of the House and Senate Appropriations Committees. Congress attempts to pass
these bills before the fiscal year under consideration begins.
- Budget authority is the legal authority to incur financial
obligations that will result in immediate or future outlays of
federal government funds.
- Obligations are commitments to make payments, immediately or in the
future. Examples include contracts and purchase orders.
- An outlay is a payment (usually a check drawn on the Treasury, or in cash)
by the government in fulfillment of an obligation.
- Receipts
- Revenues are typically funds collected by the exercise of the
government's sovereign powers, such as taxes, duties, and fines.
- Offsetting receipts are collections recorded as negative budget
authority and outlays, rather than being listed as receipts. Usually they
come from businesslike activities but also include intragovernmental receipts
reflecting an agency's payments to its employees' retirement fund.
- Tax legislation, like authorizing legislation (and unlike appropriations) is
enacted irregularly.
- Debt
- Federal debt, or gross debt, is the value of outstanding
securities issued by the federal government (mainly the Treasury). It has two
components:
- Debt held by the public (nonfederal investors, plus the Federal Reserve
System), and
- Debt held by federal government accounts (e.g., trust funds).
- The debt subject to statutory limit consists of almost all gross debt.
The limit itself is the debt limit, or debt ceiling. By law,
the total value of this debt cannot exceed the limit.
- Money the Treasury collects from selling securities and disbursed by repayment
of principle is not counted as receipts or outlays.
- The federal government's fiscal year is a yearly accounting period
beginning October 1 and ending September 30. It is designated by the calendar
year in which it ends: for example, fiscal year 2002 began October 1, 2001 and
ended September 30, 2002.
- Scope of the budget
- The unified budget is the broadest measure of the federal budget.
- The unified budget consists of four types of funds: general funds,
trust funds, special funds, and revolving funds.
General funds, comprising about two-thirds of the budget, have no direct link
between how they are raised and spent. Trust funds are designated by statute,
receive earmarked collections, and are charged with particular outlays, but
are not trusts in that the government has no fiducial obligation towards the
beneficiaries. Special funds are similar to trust funds. Revolving funds
finance their operations through income derived from their activities.
- Federal funds are all funds except for trust funds.
- The unified budget totals are often divided into two parts, those from
off-budget and on-budget items. Currently, Social Security
and the Postal Service are off-budget. However, reports on the budget (both
official and in the mass media) often include both on- and off-budget items.
- If outlays exceed receipts in a given period (usually a fiscal year), the
difference is referred to as a deficit. Otherwise, the difference is
a surplus. Of course, the size of the reported deficit or surplus depends
on which items are included in the underlying budget.
- Discretionary and mandatory spending
- Currently, less than half of federal spending is truly controlled by appropriations
acts.
- Conceptually, mandatory (or direct) spending refers to
budget authority and outlays provided for in authorizing legislation, whereas
discretionary spending is that provided for in appropriations acts.
Thus, "mandatory" and "discretionary" refer to legislative processes,
not the relative merits or importance of the programs being funded.
More precisely:
- Mandatory spending is budget authority and outlays provided in authorizing
legislation, rather than appropriations acts; by entitlement
authority, even if nominally funded through an appropriations act; and by the
Food Stamp program.
- Discretionary spending is budget authority and outlays provided for by
appropriations acts, other than mandatory spending.
- Generally, mandatory spending is under the jurisdiction of authorizing committees;
discretionary spending, the appropriations committees.
- Mandatory spending is usually obligated by permanent authorizing law, even if it
nominally requires an annual appropriation (as with Medicaid).
- Discretionary spending is currently about one-third of the total budget.
- Entitlements, a common form of mandatory spending, are legal obligations to
make payments to beneficiaries meeting eligibility requirements defined by law.
Because the total outlay for an entitlement is indirectly determined by eligibility
criteria and payment formulas, rather than a dollar figure set in an appropriations
act, the spending is called relatively uncontrollable.
- The budget process
- The need for an annual budget process stems from the conflict between demands of
stakeholders
in federal agencies, the executive branch, Congress, and the public, which leads to
bottom-up spending decisions, and the need to constrain and coordinate spending, which
requires a top-down decision process.
- The annual budget process is marked at its beginning by the president's submission to
Congress of the president's budget for the following fiscal year in early
February.
- The president's budget is just a recommendation.
- The presidential budget process was established by the Budget and Accounting
Act of 1921, which also established the Bureau of the Budget, now known as
the Office of Management and Budget (OMB).
- Congress has its own budget process, established by the Congressional Budget and
Impoundment Control Act of 1974, also known as the Congressional Budget
Act. The act detailed aspects of the Congressional budget process, including
the Congressional budget resolution, and also established the House and
Senate Budget Committees and the Congressional Budget Office.
- The Congressional budget resolution, also known as the concurrent budget
resolution, provides an outline of Congress' budget policy for the upcoming
fiscal year, as well as following years..
- It is a joint resolution of the House and Senate; as such, it needs no
presidential signature, and does not carry the force of law.
- It lists revenue, new budget authority, outlays, surplus or deficit, and the
level of public debt.
- It allocates spending among 20 spending categories known as
budget functions.
- Sometimes the resolution contains reconciliation instructions (see
below).
- Discretionary spending totals are allocated to the House and Senate Appropriations
Committees,
and from there to their subcommittees, by Section 302 allocations. Each subcommittee
attempts to draft a single appropriation bill. If annual appropriations acts are not
passed, nonessential federal government functions may be shut down. This may be
temporarily avoided if Congress passes a continuing resolutions which, when
signed into law by the president, allow government spending to continue at a specified
rate. Finally, supplemental appropriations may be enacted outside the 13
regular bills.
- Unlike the annual appropriations process, revenue and mandatory spending are typically
provided for by permanent law and often change little. Sometimes revenue or mandatory
spending must be adjusted to conform with the aggregates set in the budget resolution,
in which case the latter contains reconciliation instructions to the
authorizing committees, resulting in reconciliation bills.
- Additional features of the budget process include:
- a calendar of target dates for completing various parts of the process;
- incrementalism: annual changes are usually at the margin;
- a historical evolution of mechanisms designed to constrain spending; and,
- limits on debate on the floor of the House and Senate for budget-related bills.
- Budget control and enforcement beyond the Congressional Budget
Act
- Beginning in the 1980s, various additional mechanisms were developed in an attempt to
contain large federal budget deficits.
- Gramm-Rudman-Hollings Acts
- This legislation is also known as the Deficit Control Act.
- The formal names of the two acts are Balanced Budget and Emergency Deficit
Control Act of 1985 and Balanced Budget and Emergency Deficit Control
Reaffirmation Act of 1987.
- Gramm-Rudman Hollings attempted to control the deficit through deficit caps, to
be enforced by sequestration. A sequester is an
across-the-board cut in budgetary resources, typically across a broad section of
the budget (such as most discretionary funding).
- Budget Enforcement Act (BEA)
- The Budget Enforcement Act of 1990 was essentially in effect through
fiscal year 2002, after being extended through subsequent legislation.
- BEA deemphasized deficit targets and instead attempted to control spending
through spending caps and to ensure revenues were not cut without offsetting
spending cuts.
- BEA had three main components:
- Adjustable deficit/surplus targets (though this was not of prime importance).
- Discretionary spending caps, enforced with the threat of a sequester.
- Pay-as-you-go (or PAYGO) rules for revenues and mandatory
spending, also enforced with the threat of a sequester.
- Under PAYGO, new legislation that increased mandatory spending or
decreased revenues was to be offset by other newly legislated changes
that either decreased other mandatory spending or increased other
revenues.
- Violation of PAYGO rules was to lead to a sequester on mandatory
spending; however, the funds vulnerable to sequestration were limited
(e.g., Social Security was immune from sequestration).
- Because mandatory spending and revenues vary with economic and
demographic conditions, the impact of changes in law are compared to a
baseline, which is a projection of revenues or spending with
permanent law left unchanged. Such projections, used throughout the
budget process, depend on various economic and demographic assumptions
and are a common source of controversy.
- Budget implementation
- Impoundment occurs when the president delays or cancels budget resources
(these actions are termed deferrals and recissions, respectively).
Under procedures established by the Congressional Budget and Impoundment Control Act
of 1974, Congress regulates executive impoundment of funds that stem from policy
disagreements with Congress.
- Agencies may obligate funds only during the period specified in law. Agencies may
attempt to shift budgetary resources between accounts (a transfer) or
between purposes within an account (a reprogramming).
The sequence behind government spending
Government action on spending typically occurs in this order: authorization, appropriation,
budget authority, obligation, outlay.
Authorizations
Generally, funds cannot be budgeted until the agency or program that will receive those
funds is established. Substantive legislation establishing, changing, or continuing federal
agencies and programs, specifying their structure and powers, is referred to as
authorizations.
Authorizing law is often permanent law, meaning that the law is in force until preempted by
subsequent legislation (though authorizations can also be made for specified time periods).
Authorizations are enacted irregularly, not following an annual schedule (as appropriations do;
see below). Most congressional committees are authorizing committees.
Some authorizations (e.g., those providing for entitlements) do provide budget
authority (see discussion below on mandatory spending).
Confusingly, authorizations usually have language authorizing Congress to consider an
appropriation. This is usually formulated as "authorized to be appropriated," and, while
setting a limit on the amount of funds that may be appropriated, does not itself constitute an
appropriation.
Again, an authorization is passed before its corresponding appropriation.
The federal government can spend money only pursuant to legislation passed by Congress
and signed into law by the president. Article I, Section 9 of the Constitution states that "No
money shall be drawn from the treasury, but in consequence of appropriations made by law..."
Thus, legislation providing funds (more precisely, budget authority) to agencies and
programs is termed appropriations.
By tradition going back to the First Congress, authorizations and appropriations are usually
(but not always) kept separate, with appropriations specifying only the amount of budget authority. This principle is specified in House Rule XXI and Senate Rule XVI, adopted in the
1800s. Again, going
back to the First Congress, appropriations are traditionally enacted annually, for the upcoming
fiscal year only;
these are annual appropriations. There
are also multiyear appropriations.
Permanent appropriations, described by permanent, substantive law, usually do not
specify the amount appropriated and are in force until a new, superceding law is passed.
(Hence no annual action by Congress is needed.) The
amount appropriated is governed instead by eligibility criteria and payment formulas set in
authorizing law; see the discussion below on mandatory spending. Social Security, for example, has a permanent appropriation.
An appropriations bill typically begin with an enacting clause that specifies the
fiscal year, funds appropriated for each account, and other provisions such as limitations on
the use of funds.
Annual appropriations are traditionally split among 13 appropriations
bills. Each bill is
the province of a single pair of subcommittees of the House and Senate Appropriations
Committees. The two appropriations committees were founded in the wake of the Civil War, have
traditionally worked to constrain spending, and currently control roughly one-third of the
budget. These committees are usually active because of the annual nature of the appropriations
process and the fact that the government will be forced to shut down unessential operations if
appropriation bills are not passed on time.
Other classes of appropriations bills include
supplemental appropriations, which
are in addition to the regular appropriations bills noted above, and continuing
appropriations (often continuing resolutions). The latter function as a stopgap
measure when the appropriations process is delayed and usually provide budget authority at a
given rate for a specified people of time (perhaps as little as a week).
Changes in annual appropriations tend to be made at the margin; large changes in federal
programs are typically made by the authorization committees, not the appropriations committees.
Appropriations bills have traditionally originated in the House, but sometimes the Senate
initiates spending bills. There has historically been a tension between the authorization and
appropriations committees; authorization committees may include appropriations-forcing language
in their bills, and appropriations acts may contain substantive law. Both types of committees
earmark funds, often against the wishes of agencies.
Budget authority is the legal authority to incur financial obligations that will result in immediate or future outlays of federal government funds.
There are many potential sources of budget authority:
- appropriations (typically annual or permanent), by far the most common form;
- borrowing authority, usually for business-like activities, whereby agencies borrow funds
(usually from the Treasury) to make obligations;
- contract authority, usually for transportation programs, which allows obligations to be
incurred in advance of an appropriation or the collection of a receipt; and,
- spending authority from offsetting collections, in which payments are made from
collections.
Most outlays come from new budget authority, but some come from old (unused) budget
authority from a previous fiscal year. (Note that appropriations must be obligated during
the fiscal year(s) for which they are provided.) Conversely, not all new budget authority
is obligated in a given fiscal year; see Chart 19-1 on p. 398 of
The Budget of the
United States: Analytical Perspectives for a schematic example.
(In budget tables, budget authority is recorded in
that fiscal year for which it is first available, even if it is eventually carried over to
a future fiscal year. Budget authority stemming from permanent, indefinite appropriations,
as in the case of some entitlements, is recorded in the fiscal year during which it is
obligated.) The rate at which budget authority is spent is called the spendout rate
. For example, salaries will incur a high spendout rate; ship construction, a low
spendout rate.
Obligations are commitments to make payments, immediately or in the future. Examples
include contracts and purchase orders.
An outlay is a payment (usually a check drawn on the Treasury, or in cash) by the
government in fulfillment of an obligation. Note that Congress has direct control over the level of budget authority, not the level of outlays.
Direct loans (lent directly by the federal government) and loan guarantees
(loans made by nonfederal entities but insured by the federal government) received new
budgetary treatment by the Federal Credit Reform Act of 1990. The budgeted amounts now reflect
the estimated subsidy cost of loans or loan guarantees (see Shick or "Budget system
and concepts and glossary" for details), allowing a more direct comparison of the costs of
loans versus loan guarantees.
Receipts
Funds taken in by the government are called receipts. They include revenues and
offsetting receipts. Note that borrowed funds (e.g., those collected by the Treasury by
issuing debt) are not counted as receipts (nor is repayment of principle an outlay).
Revenues
Revenues are typically funds collected by the exercise of the government's sovereign powers,
such as taxes, duties, and fines. Specific examples include individual and corporate income
taxes, excise taxes, estate and gift taxes, Social Security and Medicare contributions,
customs duties, and Federal Reserve earnings. Some budget documents refer to revenues as
receipts or federal governmental receipts.
A tax can be instituted only by legislation: Article I, Section 8 of the Constitution
begins, "The Congress shall have power to lay and collect taxes..." Furthermore, the
legislation must originate in the House: Section 7 of the Constitution begins with the
statement that "All bills for raising revenue shall originate in the House of
Representatives..." Such bills typically begin in the House Ways and Means Committee.
Like authorizing legislation, and unlike the annual appropriations cycle, revenue
legislation is enacted irregularly.
Revenues, but not offsetting collections and receipts, were included in the PAYGO rules
(see below).
Tax expenditures are tax breaks and loopholes that reduce the tax liabilities of
targeted taxpayers. They include revenue losses from deductions, exemptions, credits, special
exclusions, preferential tax rates, or deferred tax liabilities, and other exceptions to the
tax code. Projected income tax expenditures may be found in Chapter 6 of
Analytical Perspectives,
Budget of the United States Government, Fiscal Year 2004.
Offsetting collections and receipts are recorded as negative budget authority and
outlays, rather than being listed as receipts. If they are authorized to be credited to the
account from which they will be spent, at the program or account level, they are termed
offsetting collections; examples include Postal Service stamp sales. If instead they are deducted at a higher level, that of a
receipt account (usually at an agency and subfunction level), they are termed offsetting
receipts. For example, National Park fees are deducted from the budget totals for the
Department of the Interior. Finally, undistributed offsetting receipts are deducted
at the government-wide level. These include, for example, outer continental shelf rents and
royalties.
Offsetting collections and receipts have two general sources: business-like activities of
government (such as asset sales, income of governmental enterprises, and some user fees), and
intragovernmental transactions (such as agency payments to employees' retirement account).
Specific examples of the former include Supplemental Medical Insurance (Medicare Part B)
premiums, receipts from timber and oil leases, and proceeds from the sale of electric power.
Debt
Federal debt, or gross debt, is the value of outstanding securities issued
by the federal government. Most federal debt is Treasury debt (also known as
public debt), issued by the US Treasury. Agency debt is the small amount of
debt issued directly by federal agencies (mainly the Postal Service and the Tennessee Valley
Authority).
Treasury debt can be broken down into two components:
- debt held by the public (not to be confused with public debt, above),
i.e., debt held by nonfederal entities (individuals,
corporations, state and local governments, foreign governments, and foreign central
banks) and the Federal Reserve System; and
- debt held by federal government accounts (mainly trust funds).
The debt subject to statutory limit consists of almost all gross debt. (In
particular, it includes almost all Treasury debt, but excludes most agency debt.) The limit
itself is the debt limit, or debt ceiling. By law, the total value of this debt cannot exceed the limit. The debt limit is periodically raised by legislation.
By law, trust fund surpluses must be invested in federal government securities.
Money the Treasury collects from selling securities and disbursed by repayment of principal
is viewed as financing and is not counted as receipts or outlays.
The federal government's fiscal year is a yearly accounting period beginning
October 1 and ending September 30. <1>
It is designated by the calendar year in which it ends:
for example, fiscal year 2002 began October 1, 2001 and ended September 30, 2002.
Unified budget
The unified budget is the broadest measure of the federal budget and consists of
four types of funds: general funds, trust funds, special funds, and
revolving funds. Federal funds are all funds except for trust funds. The
unified budget was adopted in 1968, when it was decided that trust funds should be included.
- General funds, comprising about two-thirds of the budget, have no direct link between how
they are raised and spent. General fund receipts include income and excise taxes;
general fund spending includes military spending, interest on the debt, and operating
expenses of government.
- Trust funds are designated by statute, receive earmarked collections, and are charged
with particular outlays, but are not trusts in that the government (not the
beneficiaries) owns the funds and has no fiducial obligations. There are more than 150
trust funds; examples include Social Security, Medicare, the Highway trust fund, and the
Airport and Airway trust fund. By law, trust funds must lend their surpluses to the
government.
- Special funds are similar to trust funds. Examples include the Land and Water
Conservation Fund and the National Wildlife Refuge Fund.
- Revolving funds finance their operations through income derived from their business-like
activities. Public enterprise funds have transactions with the public;
intragovernmental revolving funds conduct operations between or within
government agencies.
The unified budget totals are often divided into two parts, those from off-budget
and on-budget items. Currently, Social Security and the Postal Service are
off-budget. However, reports on the budget (both official and in the mass media) often include
both on- and off-budget items. This makes the current budget picture rosier, as Social
Security is running large surpluses. On the other hand, the budget does not reflect future
liabilities of Social Security, Medicare, or pension insurance; these potential liabilities,
together, are in the trillions of dollars.
The list of off-budget items is often not consistent. For example, the first $20 billion
assigned to the savings and loan bailout was on-budget, and the next $30 billion was
off-budget.
Government-sponsored entities are private entities established and implicitly backed by the
government, such as the Federal National Mortgate Association (FNMA, or Fannie Mae) and the
Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac); they are excluded from the
budget. The budget does, however, reflect liabilities of government-owned enterprises.
Finally, unlike some state and local governments, capital and operating expenses are not
segregated.
Deficits and surpluses
If outlays exceed receipts in a given period (usually a fiscal year), the difference is
referred to as a deficit. Otherwise, the difference is a surplus. Of
course, the size of the reported deficit or surplus depends on which items are included in the
underlying budget. Currently, the deficit reported is based on both on- and off-budget items;
if the Social Security surplus (which is nominally off-budget) is excluded, the deficit is
considerably larger.
Definitions
Conceptually, mandatory (or direct) spending refers to budget
authority and outlays provided for in authorizing legislation, whereas discretionary
spending is that provided for in appropriations acts. More precisely, mandatory spending
is budget authority and outlays provided in authorizing legislation, rather than appropriations
acts; by entitlement authority, even if nominally funded through an appropriations
act; and by the Food Stamp program. Discretionary spending is budget authority and outlays
provided for by appropriations acts, other than mandatory spending. "Mandatory" and
"discretionary" refer to legislative processes, not the relative merits or importance
of the programs being funded.
Entitlements, a common form of mandatory spending, are legal obligations to make
payments to beneficiaries meeting eligibility requirements defined by law. Because the total
outlay for an entitlement is indirectly determined by eligibility criteria and payment
formulas, rather than a dollar figure set in an appropriations act, the spending is called
relatively uncontrollable.
Mandatory spending
Mandatory spending is generally under the jurisdiction of authorizing committees. It is
usually obligated by permanent authorizing law, even though most entitlements (like Medicaid)
nominally require an annual appropriation. In this sense, it can be said that for mandatory
spending, obligation precedes appropriation.
Interest on the federal debt is a form of mandatory spending.
Discretionary spending
Discretionary spending is under the jurisdiction of the two appropriations committees and
constitutes about one-third of the unified federal budget (including off-budget items).
Necessity
The need for an annual budget process stems from the conflict between demands of stakeholders in federal agencies, the executive branch, Congress, and the public, which leads to bottom-up spending decisions, and the need to constrain and coordinate spending, which requires a top-down decision process.
The presidential budget process
The presidential budget process was established by the Budget and Accounting Act of
1921. The main feature of this system is that the president creates a budget and submits
it to Congress, instead of agencies themselves directly petitioning Congress for funds. The
purpose of the presidential budget process was to increase budget coordination and restrain
spending; historically, it has given the president a greater influence over the budget.
The Budget and Accounting Act of 1921 also established the Bureau of the Budget,
now known as the Office of Management and Budget (OMB). OMB is in charge of much budget
compilation and analysis, and is expected to advocate the president's budget policies.
The presidential budget is only a recommendation to Congress. It is formed in consultation
with federal agencies and is submitted to Congress in early February of each year. The
presidential budget, like the Congressional budget, is made in regard to the upcoming fiscal
year.
The Congressional budget process
Congress has its own budget process, which interacts with but is independent of the
presidential budget process. It was established by the Congressional Budget and
Impoundment Control Act of 1974, also known as the Congressional Budget Act.
The act detailed aspects of the Congressional budget process, including the Congressional budget resolution, and also established the House and Senate Budget Committees and the Congressional Budget Office (CBO). The act's purpose was to give Congress an independent
position on the budget (as demonstrated by the fact that the budget resolution does not require
a presidential signature) and provide greater coordination and accountability. The greater
degree of coordination is important, and Congress itself is a large, decentralized institution;
as pointed out in Schick's
The Federal Budget: Politics,
Policy, Process,
CBA balanced budgetary integration and legislative fragmentation by layering the
budget resolution on top of existing authorizations, appropriations, and revenue processes.
The Congressional budget resolution, also known as the concurrent budget
resolution, provides an outline of Congress' budget policy for the upcoming fiscal year,
as well as a few following years and functions as a developmental framework. It is a joint
resolution of the House and Senate; as such, it needs no presidential signature, and does not
carry the force of law. The resolution is mandated to give figures for outlays and new budget
authority, revenues, surplus or deficit, and the level of public debt, but not aggregates for
Social Security. Additionally, budget authority and outlays are allocated among twenty
categories known as budget functions. Sometimes the
resolution also contains
reconciliation instructions (see below). The House and Senate Budget Committees are
in charge of the budget resolution and any reconciliation bill. The budget resolution is
intended to be adopted by April 15, but this date is often not met.
Discretionary spending
Appropriations committees begin with the presidential budget proposal, as well as testimony
from the OMB and federal agencies before the relevant subcommittees. Information from the
subcommittees flows back to the committee heads and the budget committees (partly through
formal views and estimates reports). After the budget resolution has passed,
discretionary spending totals are allocated to the House and Senate Appropriations Committees, and from there to their subcommittees, by Section 302 allocations. Each subcommittee attempts to draft a single appropriation bill. If annual appropriations acts are not passed, nonessential federal government functions may be shut down. This may be temporarily avoided if Congress passes a continuing resolution that the president signs into law.
Mandatory spending and revenues
Unlike the annual appropriations process, revenue and mandatory spending are typically provided for by permanent law and hence do not require annual action. Sometimes revenue or mandatory spending must be adjusted to conform with the aggregates set in the budget resolution, in which case the latter contains reconciliation instructions to the authorizing committees, resulting in reconciliation bills. The instructions deal with
aggregates, not program details, and use CBO baselines. Social Security is exempted from the
reconciliation process.
The reconciliation process was established by the Congressional Budget Act.
Other features of the Congressional budget process
The Congressional budget process includes a calendar of dates by which parts of the process
are to be completed; these targets are often not met, especially if the budget discussion is
particularly contentious.
Debate on certain budget items is restricted. The budget resolution itself cannot be
filibustered in the Senate. In the House, points of order can be used on the floor to attempt
to enforce appropropriations subcommittees' aggregate allocations (the Section 302(b)
allocations); the Senate has similar mechanisms. (Note that in the House, only a
majority is needed to waive the point of order, however. Many points of order concerning
the budget in the Senate need 60 votes to be waived.) Reconciliation bills cannot be
filibustered, and the Senate restricts provisions in and amendments to reconciliation bills
via the Byrd Rule and rules on germaneness, respectively.
The budget process is marked by incrementalism, with most annual changes made at the margin.
Often, appropriations subcommittees use the previous year's budget as a minimal amount and the
president's request as a maximal amount.
Details of how funds are to be spent create tensions between members of Congress and between
different Congressional committees. Members often earmark funds, often against the
wishes of federal agencies, which prefer greater discretion on spending. Members try to gain
the appreciation of their constituents by "bringing pork home to their districts."
Finally, various mechanisms have evolved to constrain spending.
Federal deficits began to balloon in the 1980s, despite mechanisms in the Congressional
Budget Act designed to contain spending. This led to the development of various mechanisms
that attempted (with varying degrees of success) to contain the deficits.
Gramm-Rudman-Hollings Acts
The Gramm-Rudman-Hollings Act, also known as the Deficit Control Act,
consists of two acts formally known as the Balanced Budget and Emergency Deficit Control
Act of 1985 and the Balanced Budget and Emergency Deficit Control Reaffirmation Act of
1987. This legislation attempted to control the deficit through a series of deficit caps,
scheduled over many years. The caps were to be enforced by a novel process called
sequestration. A sequester is an across-the-board cut in budgetary resources, typically across a broad section of the budget (such as most discretionary funding). Sequestration could be suspended in the event of war or recession
by legislation.
The Gramm-Rudman-Hollings Act is generally regarded as having failed to achieve its goal of
deficit control.
Budget Enforcement Act
The Budget Enforcement Act of 1990 (BEA) formally amended the Budget and Accounting
Act of 1921, the Congressional Budget Act of 1974, and the two Gramm-Rudman-Hollings Acts. It
itself was subsequently amended, most notably by the Balanced Budget Act of 1997, which
extended the BEA through the end of fiscal year 2002.
BEA deemphasized direct deficit targets and instead attempted to control spending through
spending caps and to ensure revenues were not cut without offsetting spending cuts. BEA also
emphasized the distinction between discretionary and mandatory spending. The sequestration
mechanism introduced by Gramm-Rudman-Hollings was maintained in the BEA. Adjustable
deficit/surplus targets are continued with BEA, but are not of primary importance.
Discretionary spending, easier to project than mandatory spending and revenues, and under
the control of the appropriations committees, was to be controlled by spending caps, enforced by the threat of a sequester. The caps could be raised by legislation. The caps were
sometimes evaded through the use of emergency, advance or delayed appropriations, delayed
payouts, and raids on PAYGO accounts (see below).
Pay-as-you-go (or PAYGO) rules attempted to constrain mandatory spending
and cuts in revenues. New legislation increasing mandatory spending or decreasing revenues was to be offset by other newly legislated changes either decreasing other mandatory spending or increasing other revenues. Violation of PAYGO rules was to lead to a sequester on mandatory spending; however, the funds vulnerable to sequestration were limited (e.g., Social Security was immune from sequestration). PAYGO could be somewhat manipulated by manipulating baseline assumptions (see below) or backloading spending increases.
Baselines
Because mandatory spending and revenues vary with economic and demographic conditions, the impact of changes in law are usually compared to a baseline, a projection of revenues or spending with permanent law left unchanged. The purpose of a baseline is to allow a comparison between proposed spending levels and those needed to keep program services at a constant level.
Such projections, used throughout the budget process, depend on various economic and demographic assumptions and are a common source of controversy because of the complicated
interaction between spending and revenue legislation and the economy. (For example, more
optimistic economic projections leave room for the loosening of constraints on spending (or
tax cuts).) The assessment of the budgetary impacts of particular legislative measures is called scoring. Static scoring takes account of behavioral changes in the public induced by new legislation that
can be reliably estimated, and is contrasted with the more controversial dynamic
scoring.
Depending on the baseline used, the same legislative proposal could be seen as either a
spending increase or cut.
Impoundment
Impoundment occurs when the president delays or cancels budget resources
(particularly those provided by appropriations). A delay is called a deferral; a
cancellation, a recission.
While it is understood that the president should have some authority not to spend all the
funds that Congress has seen fit to appropriate (for example, for reasons of efficiency or
routine financial management),
the impoundment of funds owing to policy differences has been held to be an abrogation of the
intent of Congress. As such, Congress established procedures in the Congressional Budget and Impoundment Control Act of 1974 to secure its prerogatives by regulating executive impoundment of funds that stem from policy disagreements with Congress.
Allotment of funds
Agencies may not obligate more funds than were originally appropriated, may obligate funds only during the period specified in law, and only for purposes permitted by law. Agencies may attempt to shift budgetary resources between accounts (a transfer) or between purposes within an account (a reprogramming). Congress regulates transfers and
reprogrammings.
| late 1600s | principle of parliamentary control of taxes and spending
developed in England |
| US Constitution | | Congress given power to tax and
spend | | revenue bills must originate in House |
|
| First Congress | | tradition of separation of authorization
legislation and appropriations acts | | tradition of appropriations
originating in House |
|
| 1800s |
| public budget accounting developed in Europe |
| Congress adopts rules formalizing distinction between authorizations and appropriations
|
|
| post-Civil War | House, Senate Appropriations Committees created |
| 1921 | Budget and Accounting Act establishes presidential budget system
and the Bureau of the Budget (now OMB) |
| 1968 | unified budget accounting adopted |
| 1974 | Congressional Budget and Impoundment Control Act establishes
Congressional budget process, CBO |
| 1985 | Gramm-Rudman-Hollings act attempts to control deficits |
| 1990 | Budget Enforcement Act attempts to control spending |
| 2002 | last year Budget Enforcement Act (as amended) in effect |
- Agriculture, rural revelopment, Food and Drug Administration
- Commerce, Justice, State, Judiciary
- Defense
- District of Columbia
- Energy and water development
- Foreign operations, export financing
- Homeland Security
- Interior
- Labor, Health and Human Services, Education
- Legislative Branch
- Military construction
- Transportation, Treasury, General Government
- Veterans Affairs, Housing and Urban Development, Independent Agencies
Note: This list recently changed with the addition of the Homeland Security category.
| Function number | Budget function |
|---|
| 050 | National defense |
| 150 | International affairs |
| 250 | General science, space, and technology |
| 270 | Energy |
| 300 | Natural resources and environment |
| 350 | Agriculture |
| 370 | Commerce and housing credit |
| 400 | Transportation |
| 450 | Community and regional development |
| 500 | Education, training, employment, and social services |
| 550 | Health |
| 570 | Medicare |
| 600 | Income security |
| 650 | Social Security |
| 700 | Veterans benefits and services |
| 750 | Administration of justice |
| 800 | General government |
| 900 | Net interest |
| 920 | Allowances |
| 950 | Undistributed offsetting receipts |
Source: House Committee on the Budget,
"Basics of the budget
process: a briefing paper," February 2001
| First Monday in February | Deadline for submission of president's
budget |
| 6 weeks after president's budget submission | Deadline for committees to
submit their "views and estimates" to the Budget Committees |
| April 15 | Congress passes Congressional budget resolution |
| May 15 | House may consider annual appropriations bills, even if budget
resolution not yet adopted |
| June 10 | House Appropriations Committee reports the last of its annual
appropriations bills |
| June 15 | Congress completes actions on reconciliation bills (if
necessary) |
| June 30 | House completes action on House appropriations bills |
| July 1 - September 30 | Senate completes actions on Senate appropriations
bills; conference committee completes action on appropriations, reports to floors
of House and Senate; joint appropriations bills pass both chambers |
| October 1 | Fiscal year begins |
Note: Congress often fails to meet the deadlines in this schedule
Sources:
- Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2004
- Stanley E. Collender,
The Guide to the Federal
Budget: Fiscal 2000, The Century Foundation Press, New York, 1999
- House Committee on the Budget,
"Basics of the budget
process: a briefing paper," February 2001
The work most useful in compiling these notes was Schick's
The Federal Budget:
Politics, Policy, Process.
| <1> |
Before 1977, the fiscal year ran from July 1 to June 30. For example, fiscal
year 1976 began July 1, 1975 and ended June 30, 1976. The three month period,
July 1, 1976 to September 30, 1976, between fiscal years 1976 and 1977 is called
the transition quarter ("TQ"). |
- Analytical
Perspectives, Budget of the United States Government, Fiscal Year 2004
- "Budget system and
concepts and glossary," Budget of the United States Government: Fiscal Year
2004
- Stanley E. Collender, The Guide to the Federal Budget: Fiscal 2000, The
Century Foundation Press, New York, 1999
- Congressional Budget Office,
"Glossary of budget and
economic terms"
- House Committee on the Budget,
"Basics of the budget
process: a briefing paper," February 2001
- Allen Schick, The
Federal Budget: Politics, Policy, Process, Brookings Institution Press,
Washington, DC, 2000
- Section 9,
Statistical
Abstract of the United States: 2002.
- Sandy Streeter, "The Congressional
Appropriations Process: An Introduction," CRS Report for Congress,
August 3, 1999
|