Page 1
HOW TO READ HIGHLIGHTS OF THE FEDERAL BUDGET (WITH SELF-TEST)
This treasure hunt challenges us to find and make political sense of key pieces of information
We discover on the way how the democratic process awkwardly working its way through many
institutions and cumbersome procedures generates the choices reflected in the information The
information often is not packaged the way we want for political analysis or political action
Federal budget documents are designed primarily to account for and monitor financial resources
as federal law dictates The documents are the products of many institutions (see Appendix A in
the text) whose ways of doing the publicrsquos business evolved over many years These documents
their perspectives and their categories do not necessarily make sense outside of an historical and
institutional context And so we hunt
Few people ever plow through all of the numerous documents that together are the federal
budget The Office of Management and Budget (OMB the presidentrsquos central budget staff in the
Executive Office of the President) lists as budget documents lengthy items plus additional
supplemental and supporting material running to thousands of pages and many gigabytes
Records of legislative action and testimony add even more documents to the list This means we
are not the first to detour around details and technical obstacles whenever possible in order to
concentrate on political meanings and effects
Fortunately there are shortcuts One shortcut is the many analyses available from government
offices think tanks and advocacy and lobbying groups that offer alternatives (see the Web site
resource Internet Resources ) The problem here is that although numbers donrsquot lie they are
selected and displayed to make a political point So it is crucial to understand the political
agenda of the office producing the analysis A second shortcut is to seek information from your
representative or senator but their officersquos schedule and staffrsquos technical knowledge affects the
2
responsersquos usefulness The third is to focus on the highlights important to the political story that
is told in four parts the executive proposal congressional action execution and audit Here we
focus exclusively on the documents in the executive proposal and congressional action (see
Appendix A in the text)
It turns out that learning how to read the federal budget takes some expertise time grit and
selectivity But this treasure hunt is worth the effort The prize is money and power that affects
almost every institution and person in the country (see box 1) A careful reading is a powerful
political tool Given the number of zeroes in $36 trillion (FY 2010 proposed budget) the payoff
is enormous It is best to (a) use the documents as roadmaps to political power (b) not let the
details overwhelm you and (c) keep your eyes on the main issues
Box 1 The Payoff Affects Institutions and People
How does federal budgeting affect educational and nonprofit institutions See examples at
httpwwwwhitehousegovombcircularsindex-educationhtml
How does federal budgeting affect state and local governments See examples at
httpwwwwhitehousegovombcircularsindexhtml
Part I Executive Proposal
Starting at the beginning of the process with the presidentrsquos proposal Part I provides ten keys to
reading the federal budget The document formally entitled Budget of the United States
Government Fiscal Year 20XX (substitute the current fiscal year here and explore
httpwwwwhitehousegovomb) is the presidentrsquos yearly budget recommendation to Congress
required by the Constitution on or before the first Monday in February Developed by OMB the
3
presidentrsquos proposal ismdashand is supposed to bemdashdecidedly political and partisan (see figure 1) It
contains four core sets of information
summaries of the presidentrsquos policy and management priorities (see table 1)
budget overviews of individual agencies
proposals for changes in discretionary spending that have to go through the
appropriations process and proposals for mandatory spending that mostly go through
congressional authorizing committees for reconciliation with the congressional budget
resolution
and the presidentrsquos preferred fiscal policy shown in recommended levels of spending and
revenues and how large a deficit or surplus the president favors
The summary tables at the end of the document provide useful totals on deficit surplus
employment and more
Source Photo by Pete Souza 2009 White House January 26 httpwwwwhitehousegovomb
accessed February 22 2009
Figure 1 President Obama and OMB Director Peter Orszag 2009
4
Table 1 Homeland Security Funding in Presidentrsquos Proposed Budget for FY 2009
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Homeland Security
Funding by Agency Table Sndash4 p 142
httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf accessed February 18 2009
function fiscal
year Budget
Authority
legal
status
agencies
5
To simplify matters let us begin by thinking of the federal budget as three bundles of political
information First there is the world through the presidentrsquos eyes the presidentrsquos proposals
discussion of the issues as the president sees them how the presidentrsquos administration wants to
translate these into financial specifics (what the president wants to increase and decrease and to
create and eliminate) and the management improvements the president plans to make
The second bundle recognizes that budget players the media and citizens look at the presidents
proposal as a political indicator a benchmark against which to assess the political questions that
follow How much of what the president wants does the president actually get How close does
Congress stick to the presidentrsquos proposal and what changes does Congress make and why
The third bundle is about sound finances Is the proposal financially sound How does it deal
with long-term financial problems Does the proposal include all estimated costs including
defense and national intelligence or are these being excluded and the proposal unrealistic (see
table 1 and figure 2) Does the proposed budget balance and use realistic projections
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 2
2
responsersquos usefulness The third is to focus on the highlights important to the political story that
is told in four parts the executive proposal congressional action execution and audit Here we
focus exclusively on the documents in the executive proposal and congressional action (see
Appendix A in the text)
It turns out that learning how to read the federal budget takes some expertise time grit and
selectivity But this treasure hunt is worth the effort The prize is money and power that affects
almost every institution and person in the country (see box 1) A careful reading is a powerful
political tool Given the number of zeroes in $36 trillion (FY 2010 proposed budget) the payoff
is enormous It is best to (a) use the documents as roadmaps to political power (b) not let the
details overwhelm you and (c) keep your eyes on the main issues
Box 1 The Payoff Affects Institutions and People
How does federal budgeting affect educational and nonprofit institutions See examples at
httpwwwwhitehousegovombcircularsindex-educationhtml
How does federal budgeting affect state and local governments See examples at
httpwwwwhitehousegovombcircularsindexhtml
Part I Executive Proposal
Starting at the beginning of the process with the presidentrsquos proposal Part I provides ten keys to
reading the federal budget The document formally entitled Budget of the United States
Government Fiscal Year 20XX (substitute the current fiscal year here and explore
httpwwwwhitehousegovomb) is the presidentrsquos yearly budget recommendation to Congress
required by the Constitution on or before the first Monday in February Developed by OMB the
3
presidentrsquos proposal ismdashand is supposed to bemdashdecidedly political and partisan (see figure 1) It
contains four core sets of information
summaries of the presidentrsquos policy and management priorities (see table 1)
budget overviews of individual agencies
proposals for changes in discretionary spending that have to go through the
appropriations process and proposals for mandatory spending that mostly go through
congressional authorizing committees for reconciliation with the congressional budget
resolution
and the presidentrsquos preferred fiscal policy shown in recommended levels of spending and
revenues and how large a deficit or surplus the president favors
The summary tables at the end of the document provide useful totals on deficit surplus
employment and more
Source Photo by Pete Souza 2009 White House January 26 httpwwwwhitehousegovomb
accessed February 22 2009
Figure 1 President Obama and OMB Director Peter Orszag 2009
4
Table 1 Homeland Security Funding in Presidentrsquos Proposed Budget for FY 2009
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Homeland Security
Funding by Agency Table Sndash4 p 142
httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf accessed February 18 2009
function fiscal
year Budget
Authority
legal
status
agencies
5
To simplify matters let us begin by thinking of the federal budget as three bundles of political
information First there is the world through the presidentrsquos eyes the presidentrsquos proposals
discussion of the issues as the president sees them how the presidentrsquos administration wants to
translate these into financial specifics (what the president wants to increase and decrease and to
create and eliminate) and the management improvements the president plans to make
The second bundle recognizes that budget players the media and citizens look at the presidents
proposal as a political indicator a benchmark against which to assess the political questions that
follow How much of what the president wants does the president actually get How close does
Congress stick to the presidentrsquos proposal and what changes does Congress make and why
The third bundle is about sound finances Is the proposal financially sound How does it deal
with long-term financial problems Does the proposal include all estimated costs including
defense and national intelligence or are these being excluded and the proposal unrealistic (see
table 1 and figure 2) Does the proposed budget balance and use realistic projections
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 3
3
presidentrsquos proposal ismdashand is supposed to bemdashdecidedly political and partisan (see figure 1) It
contains four core sets of information
summaries of the presidentrsquos policy and management priorities (see table 1)
budget overviews of individual agencies
proposals for changes in discretionary spending that have to go through the
appropriations process and proposals for mandatory spending that mostly go through
congressional authorizing committees for reconciliation with the congressional budget
resolution
and the presidentrsquos preferred fiscal policy shown in recommended levels of spending and
revenues and how large a deficit or surplus the president favors
The summary tables at the end of the document provide useful totals on deficit surplus
employment and more
Source Photo by Pete Souza 2009 White House January 26 httpwwwwhitehousegovomb
accessed February 22 2009
Figure 1 President Obama and OMB Director Peter Orszag 2009
4
Table 1 Homeland Security Funding in Presidentrsquos Proposed Budget for FY 2009
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Homeland Security
Funding by Agency Table Sndash4 p 142
httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf accessed February 18 2009
function fiscal
year Budget
Authority
legal
status
agencies
5
To simplify matters let us begin by thinking of the federal budget as three bundles of political
information First there is the world through the presidentrsquos eyes the presidentrsquos proposals
discussion of the issues as the president sees them how the presidentrsquos administration wants to
translate these into financial specifics (what the president wants to increase and decrease and to
create and eliminate) and the management improvements the president plans to make
The second bundle recognizes that budget players the media and citizens look at the presidents
proposal as a political indicator a benchmark against which to assess the political questions that
follow How much of what the president wants does the president actually get How close does
Congress stick to the presidentrsquos proposal and what changes does Congress make and why
The third bundle is about sound finances Is the proposal financially sound How does it deal
with long-term financial problems Does the proposal include all estimated costs including
defense and national intelligence or are these being excluded and the proposal unrealistic (see
table 1 and figure 2) Does the proposed budget balance and use realistic projections
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 4
4
Table 1 Homeland Security Funding in Presidentrsquos Proposed Budget for FY 2009
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Homeland Security
Funding by Agency Table Sndash4 p 142
httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf accessed February 18 2009
function fiscal
year Budget
Authority
legal
status
agencies
5
To simplify matters let us begin by thinking of the federal budget as three bundles of political
information First there is the world through the presidentrsquos eyes the presidentrsquos proposals
discussion of the issues as the president sees them how the presidentrsquos administration wants to
translate these into financial specifics (what the president wants to increase and decrease and to
create and eliminate) and the management improvements the president plans to make
The second bundle recognizes that budget players the media and citizens look at the presidents
proposal as a political indicator a benchmark against which to assess the political questions that
follow How much of what the president wants does the president actually get How close does
Congress stick to the presidentrsquos proposal and what changes does Congress make and why
The third bundle is about sound finances Is the proposal financially sound How does it deal
with long-term financial problems Does the proposal include all estimated costs including
defense and national intelligence or are these being excluded and the proposal unrealistic (see
table 1 and figure 2) Does the proposed budget balance and use realistic projections
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 5
5
To simplify matters let us begin by thinking of the federal budget as three bundles of political
information First there is the world through the presidentrsquos eyes the presidentrsquos proposals
discussion of the issues as the president sees them how the presidentrsquos administration wants to
translate these into financial specifics (what the president wants to increase and decrease and to
create and eliminate) and the management improvements the president plans to make
The second bundle recognizes that budget players the media and citizens look at the presidents
proposal as a political indicator a benchmark against which to assess the political questions that
follow How much of what the president wants does the president actually get How close does
Congress stick to the presidentrsquos proposal and what changes does Congress make and why
The third bundle is about sound finances Is the proposal financially sound How does it deal
with long-term financial problems Does the proposal include all estimated costs including
defense and national intelligence or are these being excluded and the proposal unrealistic (see
table 1 and figure 2) Does the proposed budget balance and use realistic projections
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 6
6
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 7
7
Source GAO 2008 The Nation by the Numbers A Citizenrsquos Guide A Summary of the FY 2007
Financial Report of the US Government p 8 httpwwwgaogovfinancialfy2007guidepdf
Source Government Accountability Office 2009 The Federal Governmentrsquos Financial Health
A Citizenrsquos Guide to the 2008 Financial Report of the US Government p 10
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Figure 2 US Governmentrsquos Financial Statements
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 8
8
We suggest ten general concerns with which to start They are identified in the following
documents starting with table 2 from the last budget proposal submitted by President George W
Bush Also work with Appendices A and B that define the key terms Then compare table 2 to
table 3 from the first budget proposal from President Barack Obama Which main features are
unchanged What is different about the information presented and how it is treated
Table 2 Budget Summary in Presidentrsquos Proposed Budget for FY 2009
unified vs
consolidated
budget 9
amount
1 fiscal
year 2
outlays
3
types of
spending
4
out-year
estimates
5
focus on
deficit 10 policy proposal not yet approved by Congress 10
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 9
9
Source OMB 2008 Budget of the United States FY 2009 Summary Tables Budget Summary
by Category Table Sndash8 p 162 httpwwwgpoaccessgovusbudgetfy09pdfbudgettablespdf
accessed February 18 2009
Table 3 Baseline Projection of Current Policy in Presidentrsquos Budget Proposal for FY 2010
Source OMB 2009 Budget of the United States FY 2010 Summary Tables Table Sndash3
Baseline Projection of Current Policy by Category
httpwwwwhitehousegovombassetsfy2010_new_eraSummary_Tables2pdf
How does table 3 compare to table 2 What information is different The same
includes
estimated
costs
of military
operations
and disaster
response
current services
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 10
10
1 Federal budgeting is the only subject we know that is like astronomymdashthe numbers run
up into the billions and trillions Different budget documents show dollars in different amounts
It is important to keep the amounts consistent
2 It is important to work with the appropriate fiscal year The federal fiscal year runs from
October 1 through September 30
3 Meaning for the most part the cash that actually is paid out (or disbursed) outlays is the
measure of actual government spending in a fiscal year Budget totals show all receipts
including taxes and other revenues The federal government keeps its books on a cash basis of
accounting meaning that receipts generally are counted in the fiscal year in which they are
received and spending is counted in the fiscal year in which payment is paid This method of
accounting does not meet accepted professional standards (see Web site resource Internet
Resources Financial Management Auditing and Accounting ) When a transaction is counted
matters timing affects many things such as the calculation of surplus or deficit for the fiscal year
(see figure 2)
4 There are two types of spending a distinction that is politically important because it tells
us who wields the decision-making power The first type is determined through the annual
appropriations process and these discretionary outlays represent only about 40 percent of total
outlays Appropriations fall under the jurisdiction of the House and Senate Appropriations
Committees and their subcommittees
House and Senate legislative committees control the second type of outlays mandatory spending
amounting to about 60 percent of outlays Mandatory spending includes spending for
entitlements such as Social Security and Medicare other programs such as food stamps and
interest on the public debt Because the Constitution (Article I Section 7) requires that revenue
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 11
11
bills start in the House and that means the Ways and Means Committee which also handles
many mandatory programs this committee and its chairman are very powerful in the national
political system
5 Future (or out-year) estimates are based on current law plus economic projections built
on assumptions about employment inflation people eligible for programs and more These
figures will change as circumstances and law change If future impacts are important to the
political issue then the reliability of the estimates and projectionsmdashrosy scenario or wishful
thinking smoke and mirrors politically useful tall talemdashare as important to understand as the
numbers themselves (see box 2) So too is the trajectory that shows the direction in which we
are heading The quality of the estimate matter some might define a hard estimate as an
informed guess and a soft estimate as a wild guess
Box 2 The Quality of Estimates Matter
―In political arithmetic two and two does not always equal four
Alexander Hamilton first Secretary of the US Treasury Department
Alexander Hamilton started the US Treasury with nothing and that was the closest our country
has ever been to being even
Humorist Will Rogers (1879-1935)
6 Budget authority (BA) is the authorization by law for federal agencies to make legal
obligations (such as purchase orders or contracts) that result in current or future government
outlays BA is politically important because this is what is budget decisions are about outlays
are not the basis of decision making BA is permission to spend but the term outlays refers to the
spending itself (see Appendices A and B) The four types of BA include appropriations
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 12
12
borrowing authority contract authority and spending authority from offsetting collections New
BA for many programs may be provided through the annual appropriations acts but new BA for
more than one-half of all outlays is through permanent appropriations for trust funds debt
service and more For example BA for interest on the public debt is given automatically under a
permanent appropriation dating to 1847
BA is how much money a federal agency is allowed to commit to spend Outlays are how much
money in fact flows out of the federal treasury in a given year BA is recorded as the dollar
amount in the budget in the year in which it is first available but not all newly enacted BA (new
BA) is obligated or spent in this first year Some obligations may be made but not yet paid and
this obligated BA results in outlays in a future year Outstanding and unobligated BA (meaning
not yet legally committed) may be carried over to future years when legally permitted otherwise
the authority lapses or expires) When this old BA is obligated it results in federal outlays The
outflow of federal cashmdashoutlaysmdashin a fiscal year is the sum of new BA old obligated BA and
newly obligated BA from old unobligated BA
The effect of BA old and new on outlays means that no one decides directly on outlays in any
particular fiscal year In fact outlays are the unplanned product of many decisions taken now and
in the past and driven by the timing of billing contracts delivery dates and so on As the ratio of
outlays resulting from new BA to newly enacted BA the spendout rate is a measure of the
impact of current decisions on current outlays The ratio of outstanding old BA to new BA is a
measure of the impact of past commitments on current spending
Figure 3 shows the relationship between BA and outlays for FY 2011 The president proposed
that old BA account for 24 percent of outlays in FY 2011 (compared to 22 percent of outlays
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 13
13
proposed in FY 2009) and that 20 percent in FY 2006) and that 35 percent of proposed new BA
leads to outlays in future years (compared to 20 percent in FY 2009)
Source OMB 2009 Analytical Perspectives Budget of the United States Government Fiscal
Year 2010 Chart 111 p 126
httpwwwwhitehousegovombbudgetfy2011assetsconceptspdf
Figure 3 Relationship of Budget Authority to Outlays for FY 2011
BA and its relationship to outlays are important for two main reasons First budgetary decisions
are made in terms of BA and it is BA that results in outlays Second old BA and the increasing
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 14
14
part of the budget claimed by spending required by law already in place (such as entitlements
and interest on the debt) mean that a smaller proportion of the budget is decided during the
current decision cycle Current political accountability and responsiveness are reduced as past
decisions account for a large and increasing share of the current budget
7 Increases or decreases in outlays may be driven by changing economic or demographic
conditions or may result from policy changes Taking a job with a program enjoying increased
current outlays may not be a good career move if the increase reflects the costs of winding down
the operation or higher costs and less activity a check against new and unobligated old BA and
current services (see no 8) is needed to interpret the meaning of current outlays
8 Current services estimates (executive) or baseline projections (congressional) tell us what
it will cost in the future to do what is required now under existing law
An important first step in the annual budget cycle is the preparation of a budget baseline
The baseline is the projection of revenue spending and deficit or surplus levels into
future years based upon the status quo Projections rest upon technical assumptions
(eg changes in demographic patterns and program workloads) and economic
assumptions (eg changes in the growth of the economy inflation rates and
unemployment rates) They assume that policies consistent with existing law will be
maintained Thus the baseline is an important tool for assessing policy changes inherent
in budget proposals (Keith 1996 pp 4ndash5)
The current services estimate allows us to compare one year to the next for programs featuring
changes in legal requirements number of beneficiaries amount of benefits purchasing power of
the dollar and more It is best understood as a benchmark against which to measure the
magnitude of proposed policy changes or the future costs of inaction The current services
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 15
15
estimate does not predict future budgets because federal laws and programs change but it serves
as an early-warning system for overall fiscal policy or individual programs The current services
estimate for mandatory programs and receipts is based solely on laws already on the books for
discretionary programs it is also adjusted for inflation This is an estimate of what it would take
to continue current federal law into the future
9 The unified budget in use since 1969 shows all receipts and spending except those
specifically excluded by law and gives us a comprehensive picture of what is going on But
nothing in the federal budget process is this clear-cut Under current law Social Security and the
Postal Service funds are excluded from federal budget totals and from the calculation of the
surplus or deficit The budget does show on-budget and off-budget totals and adds them together
to present overall totals in a consolidated budget
10 Just as other public budgets turn the spotlight on concerns usually selected for political or
financial reasons (see chapter 9) so does the federal budget The information is presented to tell
a story and draw attention to particular facts or trends
Part 2 Congressional Action
Congressional budget documents are important to understanding the federal budget for at least
two reasons The first is that Congress has the power to increase or decrease the presidentrsquos
spending and revenue proposals in some years Congress starts by rejecting the presidentrsquos
financial blueprint which observers then pronounce DOA (dead on arrival) This is not true of all
legislatures which may be forbidden by law to raise or decrease taxes or spending without the
executiversquos prior recommendation The second reason congressional budget documents are
important is that congressional budget action is necessary for the budget to become law the
Constitution gives Congress the power to tax borrow and pay debts (Article I Section 8) and
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 16
16
Congress must pass an appropriation According to Article I Section 9 ―No money shall be
drawn from the Treasury but in consequence of Appropriations made by law By law federal
agencies may neither obligate nor spend more than Congress has allowed and they may use the
funds for only those purposes that the law states Of course the president must sign the bills for
them to become law and much of the federal budget process has developed as a struggle between
the president and Congress for budgetary dominance
First Step Budget Resolution
Congressional action on the budget starts with the concurrent budget resolution (see figure 4)
Drafted by the House and Senate Budget Committees it is not a bill and does not go to the
president for signature or veto The resolution shows levels of revenue spending and the deficit
acceptable to Congress each year for a multi-year period Among the provisions of the annual
budget resolutions are (1) totals of new BA and budget outlays given by functional category (2)
total federal revenues and the amount if any by which the overall level of federal revenues
should be increased or decreased the surplus or deficit in the budget and (3) the public debt The
budget resolution can also include changesmdashtemporary or permanentmdashto the process
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 17
17
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 18
18
Source Excerpt from US House of Representatives 2008 Concurrent Resolution on the
Budget At httpthomaslocgovcgi-bincpqueryRcp110FLD0101(hr659) accessed
September 12 2008
Figure 4 Concurrent Resolution on the Budget FY 2009
Easier reading of congressional documents is the reward for struggling through the executive
section You already are familiar with a lot of the technical language You know that (1) federal
budget decisions are made on budget authority (BA) (2) discretionary spending is treated
separately from mandatory spending and (3) comparisons with current services or the baseline
are important
Congress classifies federal programs into twenty broad categories National defense is one
example other examples are agriculture education and health These functions are organized as
policy priorities not by government agency or congressional committee (see figures 5 and 6)
Spending totals for all functions in the budget resolution are distributed to congressional
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 19
19
committees for action in a report called the 302(a) allocation that supports the budget resolution
Decision makers realize that the developing budget is a plan They use spending revenue and
debt targets and recognize that later budget action or supplementals are likely (See figure 4)
Source GAO 2004 Fiscal Year 2003 Spending Patterns by Agency and Function Federal
Budget Agency Obligations by Budget Function and Object Classification for FY 2003 GAO-
04-834 June Figure 1 p 3 httpwwwgaogovnewitemsd04834pdf accessed March 6 2009
June 2004
Figure 5 Agencies versus Functions
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 20
20
Source Office of the Federal Register National Archives and Records Administration June
2008 The United States Government Manual 20082009
httpwwwgpoaccessgovgmanualbrowse-gm-08html
Figure 6 Government of the United States
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 21
21
Second Step Reconciliation Directive
Instructions in the budget resolution direct congressional committees to change existing spending
and revenue laws by a set date so that the targets set in the budget resolution can be met The
instructions do not dictate to the committees the detailsmdashwhat programs which laws or how
(see figure 7) The dollar amounts computed from the congressional baseline (developed by the
Congressional Budget Office or CBO Congressrsquo nonpartisan professional staff office) are built
on anticipated budgetary impacts of existing policies and changes to them An important political
tool the reconciliation process was designed to help reduce the deficit but in 2001 and 2003 it
was used to pass tax-cutting legislation Remember that the congressional budget process takes
place in a partisan environment
Source US Senate 2005 At
httpwwwsenategov~budgetrepublicananalysis2005bblatestpdf
Figure 7 Reconciliation Instructions Are Powerful Political Tools
committees
partisan political
arena outlays
out years
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 22
22
Third Step Appropriation
An appropriation is a law passed by Congress and signed by the president that permits agencies
to make obligations or payments of government money and the Treasury Department to make
payments (see table 4) According to the US Constitution (Article I Section 9 Clause 7) ―No
Money shall be drawn from the Treasury but in Consequence of Appropriations made by Law
and each year Congress considers about twelve regular appropriations bills and additional
supplemental appropriations that provide budget authority for discretionary spending
The budget resolution gives the Appropriations Committee a total for all of its programs The
Appropriations Committee decides how to divide up this funding for the coming fiscal year
among its subcommittees The subcommittees are Agriculture Commerce Justice and Science
Defense Energy and Water Financial Services Homeland Security Interior and Environment
Labor Health and Human Services and Education Legislative Branch Military Construction
and Veterans Affairs State and Foreign Operations and Transportation and Housing and Urban
Development The subcommittee allocations are known as 302(b)s
The annual appropriation states the specific dollar amount provided the specified government
department or agency and the period during which the funds are available If the appropriation is
not used the authority to commit and spend money lapses (expires) With its power of the purse
Congress can and does require agencies to submit more budget documents including a detailed
congressional justification (see table 5)
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 23
23
legal status
Table 4 Economic Recovery Act of 2009
Note The American Recovery and Reinvestment Act signed into law on February 17 2009
weighs in at over 1000 pages and $787 billion It was passed as an ―emergency supplemental
but is ―on budget so that it is figured into the calculation of the deficit
BA vs
Outlays
3 6
receipts and
spending
on cash
basis 3
fiscal year 2
amount
1
mandatory or direct vs
discretionary spending 4 out-year estimates
5
legal status
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 24
24
Source Elmendorf Douglas W 2009 Cost estimate for the conference agreement for HR 1
American Recovery and Reinvestment Act of 2009 Congressional Budget Office February 13
httpwwwcbogovftpdocs99xxdoc9989hr1conferencepdf accessed February 23 2009
Table 5 Congressional Justification
Source Department of the Treasury Congressional Justification FY 2009 Departmental
Summary p 1 httpwwwtreasurygovofficesmanagementbudgetbudget-
documentscj09CJ20FY09pdf accessed February 18 2009
historical
data
focus on
change
president frames the budget discussion
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 25
25
References
Keith Robert 1996 A Brief Introduction to the Federal Budget Process Congressional
Research Service Report 96-912 GOV httpcountingcaliforniacdliborgcgi-binnph_search
accessed September 11 2007
Further Resources on the Federal Budget Process and Documents
Coven Martha and Richard Kogan (2004) Introduction to the Federal Budget Process rev Dec
29 2004 Center on Budget and Policy Priorities httpwwwcbpporg3-7-03budhtm
Keith Robert 2008 Introduction to the Federal Budget Process Congressional Research
Service Report 98-721 updated httpbudgethousegovcrs-reports98-721pdf accessed
September 12 2008
OMB (2001) Budget of the United States Government Citizens Guide to the Federal Budget
FY 2002 Washington DC httpwwwgpoaccessgovusbudgetfy02pdfguidepdf
OMB (annual) The Budget System and Concepts Washington DC
httpwwwwhitehousegovombbudgetfy2006pdfconceptspdf
OMB Circular A-11 Preparation Submission and Execution of the Budget
httpwwwwhitehousegovombcircularsa11current_yeara11_tochtml
US House of Representatives 109th
Congress The Legislative Process At
httpwwwhousegovhouseTying_it_allshtml
Johnson Charles W 2003 Congressional Budget Process in How our Laws Are Made Chapter
12 US House of Representatives
httpthomaslocgovhomelawsmadebysecbudgetprocesshtml accessed September 12 2008
For budget implementation in federal agencies see httpwwwbudgetanalystcomProcesshtm
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 26
26
Streeter Sandy September 2006 The Congressional Appropriations Process An Introduction
97-684 GOV httpappropriationshousegov accessed September 11 2007
Congressional Research Service Reports Budget Process At
httpwwwruleshousegovarchivescrs_reportshtm accessed September 11 2007
Government Accountability Office 2009 The Federal Governmentrsquos Financial Health A
Citizenrsquos Guide to the 2008 Financial Report of the US Government At
httpwwwgaogovfinancialfy2008citizensguide2008pdf
Government Accountability Office 2005 Understanding the Primary Components of the Annual
Financial Report of the United States Government At
httpwwwgaogovnewitemsd05958sppdf
The federal budget process
httpwwwedgovaboutoverviewbudgetprocesshtmlsrc=rt
httpwwwedgovaboutoverviewbudgetbudget09justificationsn-sfapdf
httpwwwedgovaboutoverviewbudgetbudget0909actionpdf
Sample budget calendar httpwwwedgovaboutoverviewbudgetedlite-calendarhtml
Congressional Quarterly wwwcqcom
Web Sites
a US governmentrsquos official web portal httpwwwusagov
b Recovery Act Website httpwwwrecoverygov
c Annual Financial Report of the US Government and summary
httpwwwfmstreasgov
d Earmarks details httpwwwearmarksombgov
e Federal Program Results httpwwwexpectmoregov
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 27
27
f Where Taxpayer Dollars are Spent httpwwwUSAspendinggov
g Federal Agency Internet Sites httpwwwgpoaccessgovagencieshtml
h See the Web site recourse Internet Resources
Federal governmentrsquos organization
a US Government Manual 2008 official handbook of the federal government
published as a special edition of the Federal Register
httpwwwgpoaccessgovgmanualindexhtml
b US government organization chart 2008 httpfrwebgateaccessgpogovcgi-
bingetdoccgidbname=2008_government_manualampdocid=214669tx_xxx-3pdf
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 28
28
Self-Test Questions [see Appendix C for the answers]
1 In federal budgeting the term outlays refers to
a) the elimination of federalism to fund the national debt
b) planning costs for future programs
c) nothingmdashthis is a trick question
d) monies withdrawn from the US Treasury
2 Budget authority affects federal outlays by
a) providing a 5 percent plus or minus window within which spending must fall
b) setting the maximum amount that agencies may commit or obligate
c) eliminating separation of powers
d) authorizing the military to spend more than it earns in wartime
3 An example of a mandatory outlay is
a) military spending
b) the presidentrsquos salary
c) food stamp programs
d) spending on infrastructure
4 It is important to assess the reliability of estimates and projections when looking at the
presidentrsquos budget proposal because
a) presidents are elected officials not trained experts and they are prone to making
mistakes when handling highly technical budgetary issues
b) the presidentrsquos budget proposal is a political document and there may be political
incentives to paint an excessively rosy or grim scenario
c) the presidentrsquos budget proposal is nonpartisan and therefore does not take into
account economic factors such as assumptions about employment and inflation
d) reliability must be assessed in order to prevent government corruption
5 Budget authority (BA) that carries over from previous years reduces accountability
because
a) programs with old BA tend to cost more than originally estimated
b) it is impossible to identify the amount of money spent as a result of old BA and
hold political officials accountable for the outlays
c) it is difficult to hold current political leaders accountable for budget decisions
made in made in the past often by previous political leaders
d) outstanding BA mirrors the past partisan agenda and is irrelevant to the current
presidentrsquos budget
6 Current service estimates and baseline budget projections are useful because
a) they help us predict future budgets
b) they help us identify how future outlays differ from existing budget authority
c) they help us make projections about what it will cost in the future to do what is
required now under existing law
d) they help us predict what the deficit will be in the future
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 29
29
7 The Constitution gives the power to tax borrow and pay debts to
a) the president
b) Congress
c) the Senate
d) the people
8 What does it mean for a presidentrsquos budget proposal to be considered ―dead on arrival
(DOA)
a) Congress rejects the presidentrsquos financial blueprint and constructs its own
b) the presidentrsquos budget projection results in a deficit because proposed spending
exceeds expected revenue
c) the presidentrsquos budget proposal is considered to be inaccurate because it relies on
excessively rosy revenue projections and excessively conservative spending estimates
d) there is little chance that the presidentrsquos budget proposal will be passed without
being modified in some way by Congress
9 Federal budget documents are designed primarily to
a) describe how the presidentrsquos political program is financed
b) separate programs that are on and off the budget in order to hide their true costs
over time
c) account for and monitor financial resources as federal law dictates
d) track the impact of tax reductions on the deficit
10 The presidentrsquos central budget staff is
a) the Office of Management and Budget in the Executive Office of the President
b) the Government Accountability Office a nonpartisan congressional office
c) directly under the authority of the Federal Reserve
d) part of the Internal Revenue Service in the Treasury Department
11 A problem with using budget analyses from think tanks and advocacy and lobbying
groups is that
a) these groups regularly falsify information in order to advance their political
agenda
b) these groups provide too much general information but no in-depth analyses
c) their interpretations may contradict each other and so offer little guidance
d) the figures are selected and displayed to make a political argument
12 The federal budget
a) affects federal executive agencies only because of separation of powers
b) is not political but is nonpartisan
c) affects state and local governments because of mandatory outlays fall are shaped
by separation of powers
d) affects almost every institution and person in the country
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 30
30
13 The Budget of the United States Government Fiscal Year 20XX is
a) the presidentrsquos yearly budget recommendation to Congress
b) the title of an appropriation act once it is signed into law by the president
c) the budget resolution adopted by Congress
d) the result of outlays from the Treasury in a single fiscal year
14 Congressional action on the budget is important because
a) Congress has the power to raise revenue
b) Congress has the power to increase or decrease the presidentrsquos spending and
revenue proposals
c) congressional budget action is necessary for the budget to become law
d) all of the above
15 Much of the federal budget process has developed as a struggle
a) among the states for their fair share of federal aid
b) between Republicans and Democrats over earmarks and mandatory spending
c) between the president and Congress over who dominates budgeting
d) between reformers trying to reduce lobbyistsrsquo influence and advocates trying to
finance their programs
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 31
31
Appendix A Key Terms as Defined by the Congressional Budget Office
appropriation act A law or legislation under the jurisdiction of the House and Senate
Committees on Appropriations that provides authority for federal programs or agencies to incur
obligations and make payments from the Treasury Each year the Congress considers regular
appropriation acts which fund the operations of the federal government for the upcoming fiscal
year The Congress may also consider supplemental deficiency or continuing appropriation acts
(joint resolutions that provide budget authority for a fiscal year until the regular appropriation for
that year is enacted)
authorization act A law or legislation under the jurisdiction of a committee other than the
House and Senate Committees on Appropriations that establishes or continues the operation of a
federal program or agency either indefinitely or for a specified period An authorization act may
suggest a level of budget authority needed to fund the program or agency which is then provided
in a future appropriation act However for some programs the authorization itself may provide
the budget authority
budget authority Authority provided by law to incur financial obligations that will result in
immediate or future outlays of federal government funds Budget authority may be provided in
an appropriation act or authorization act and may take the form of borrowing authority contract
authority entitlement authority or authority to obligate and expend offsetting collections or
receipts Offsetting collections and receipts are classified as negative budget authority
budget resolution A concurrent resolution adopted by both Houses of Congress that sets forth
a Congressional budget plan for the budget year and at least four out-years The plan consists of
targets for spending and revenues subsequent appropriation acts and authorization acts that
affect revenues or direct spending are expected to comply with those targets The targets are
enforced in each House of Congress through procedural mechanisms set forth in law and in the
rules of each House
debt In the case of the federal government the total value of outstanding bills notes bonds and
other debt instruments issued by the Treasury and other federal agencies That debt is referred to
as federal debt or gross debt It has two components debt held by the public (federal debt held
by nonfederal investors including the Federal Reserve System) and debt held by government
accounts (federal debt held by federal government trust funds deposit insurance funds and other
federal accounts) Debt subject to limit is federal debt that is subject to a statutory limit on the
total amount issued The limit applies to gross federal debt except for a small portion of the debt
issued by the Treasury and all of the small amount of debt issued by other federal agencies
(primarily the Tennessee Valley Authority and the Postal Service)
deficit The amount by which the federal governmentrsquos total outlays exceed its total revenues in
a given period typically a fiscal year The primary deficit is that total deficit excluding net
interest
direct spending Synonymous with mandatory spending direct spending is the budget authority
provided by laws other than appropriation acts and the outlays that result from that budget
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 32
32
authority (As used in The Budget and Economic Outlook direct spending refers only to the
outlays that result from budget authority provided in laws other than appropriation acts
discretionary spending The budget authority that is provided and controlled by appropriation
acts and the outlays that result from that budget authority
entitlement A legal obligation of the federal government to make payments to a person group
of people business unit of government or similar entity that meets the eligibility criteria set in
law and for which the budget authority is not provided in advance in an appropriation act
Spending for entitlement programs is controlled through those programsrsquo eligibility criteria and
benefit or payment rules The best-known entitlements are the governmentrsquos major benefit
programs such as Social Security and Medicare
fiscal year A yearly accounting period The federal governmentrsquos fiscal year begins October 1
and ends September 30 Fiscal years are designated by the calendar years in which they endmdashfor
example fiscal year 2009 will begin on October 1 2008 and end on September 30 2009 The
budget year is the fiscal year for which the budget is being considered in relation to a session of
Congress it is the fiscal year that starts on October 1 of the calendar year in which that session of
Congress began
mandatory spending See direct spending
obligation A legally binding commitment by the federal government that will result in outlays
immediately or in the future
off-budget Spending or revenues sometimes excluded from the budget totals by law The
revenues and outlays of the two Social Security trust funds (the Old-Age and Survivors
Insurance Trust Fund and the Disability Insurance Trust Fund) and the transactions of the Postal
Service are off-budget
outlays Spending to pay a federal obligation Outlays may pay for obligations incurred in a
prior fiscal year or in the current year hence they flow partly from unexpended balances of
prior-year budget authority and partly from budget authority provided for the current year
For most categories of spending outlays are recorded on a cash accounting basis However
outlays for interest on debt held by the public are recorded on an accrual accounting basis and
outlays for direct loans and loan guarantees (since credit reform) reflect estimated subsidy costs
instead of cash transactions
reconciliation A special Congressional procedure often used to implement the revenue and
spending targets established in the budget resolution The budget resolution may contain
reconciliation instructions which direct Congressional committees to make changes in laws
under their jurisdictions that affect revenues or direct spending to achieve a specified budgetary
result The legislation to implement those instructions is usually combined into a comprehensive
reconciliation bill which is considered under special rules Reconciliation affects revenues
direct spending and offsetting receipts but usually not discretionary spending
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 33
33
revenues Funds collected from the public that arise from the governmentrsquos exercise of its
sovereign or governmental powers Federal revenues come from a variety of sources including
individual and corporate income taxes excise taxes customs duties estate and gift taxes fees
and fines payroll taxes for social insurance programs and miscellaneous receipts (such as
earnings of the Federal Reserve System donations and bequests) Federal revenues are also
known as federal governmental receipts
surplus The amount by which the federal governmentrsquos total revenues exceed its total outlays in
a given period typically a fiscal year
unified budget The entire federal budget which consolidates all on-budget and off-budget
outlays and revenues
unobligated balances The portion of budget authority that has not yet been obligated When
budget authority is provided for one fiscal year any unobligated balances at the end of that year
expire and are no longer available for obligation When budget authority is provided for a
specific number of years any unobligated balances are carried forward and are available for
obligation during the years specified When budget authority is provided for an unspecified
number of years the unobligated balances are carried forward indefinitely until one of the
following occurs the balances are expended or rescinded the purpose for which they were
provided is accomplished or no disbursements have been made for two consecutive years
Source Excerpted from Congressional Budget Office undated Glossary of Budgetary and
Economic Terms httpwwwcbogovbudgetglossaryshtml accessed February 23 2009
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 34
34
Appendix B Basic Federal Budgeting Terminology
―In its most elemental form the federal budget is a comprehensive accounting of the
governmentrsquos spending revenues and borrowing This fact sheet provides a brief overview of
the basic terminology and concepts used in the federal budget process
ldquoSpending The key terms of federal spending are budget authority obligations outlays and
spendout rate Congress and the President enact budget authority in law Budget authority allows
federal agencies to incur obligations such as entering into contracts employing personnel and
submitting purchase orders Outlays represent the actual payment of these obligations usually in
the form of electronic transfers or checks issued by the Treasury Department The rate at which
budget authority becomes outlays in a fiscal year is called the spendout rate or the outlay rate
The spendout rate varies among agenciesrsquo accounts depending on the timing of activity in each
account
―Budget authority may be made available for obligation for a one-year multi-year or no-year
period One-year or annual budget authority is available for obligation only during a specific
fiscal year and any unobligated authority expires at the end of that fiscal year multi-year
authority is available for a period longer than one fiscal year and no-year budget authority is
available for an indefinite period
―Typically new budget authority is provided in the form of permanent appropriations or annual
appropriations Permanent appropriations provide new budget authority each year without any
annual legislative action Usually this type of new budget authority is provided in legislation
authorizing the program such as in the case of most entitlement programs (eg Social Security
benefits) Annual appropriations on the other hand generally provide new budget authority for
the particular fiscal year for which they were enacted In some cases new budget authority in
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 35
35
annual appropriations acts is made available for more than one year or for a future fiscal year
Annual appropriations are provided in the 13 regular appropriations bills enacted by Congress
and the President each year Annual appropriations also may be provided in continuing
resolutions and supplemental appropriations acts
―New budget authority also may be made available to agencies in the form of borrowing
authority contract authority and the authority to spend offsetting collections Borrowing
authority and contract authority allow agencies to borrow funds and enter into CRS-2 contracts
without advance appropriations However the 1974 Congressional Budget Act (PL 93-344) has
curbed this practice since its enactment Spending authority from offsetting collections such as
fees for certain market-oriented activities may be provided to allow agencies to obligate and
spend these funds Offsetting collections are deducted from gross budget authority and outlays at
the account or higher level
ldquoRevenues Revenues also known as receipts are the funds collected from the public primarily
as a result of the federal governmentrsquos exercise of its sovereign powers Most of the federal
governmentrsquos revenues consist of receipts from individual income taxes social insurance taxes
(or payroll taxes such as Social Security and Medicare taxes) and corporate income taxes
Preferential provisions such as tax exemptions deductions and credits which reduce
government receipts are called tax expenditures Excise taxes duties gifts and miscellaneous
receipts are other sources of federal revenues
―Offsetting collections usually are deducted from the budget authority and outlays made
available to agencies and are not classified as revenue
ldquoBudget Deficit or Surplus The difference between government revenues and outlays in a
fiscal year equals the budget deficit or surplus A budget deficit results when outlays exceed
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 36
36
revenues a budget surplus results when revenues exceed outlays However what is counted as
government revenues and outlays depends on the presentation of the federal budget For the past
several decades the focus of debates about the federal budget deficit or surplus has been on the
consolidated budget The consolidated budget also referred to as the unified budget consists of
the two main types of funds federal funds and trust funds Federal funds comprise general
government receipts not earmarked for any specific government activity Trust funds are
designated by law to a particular purpose For example the Hospital Insurance trust funds are
earmarked to Medicare Part A benefits The consolidated budget represents a comprehensive
picture of the federal governmentrsquos financial activities
ldquoDebt The gross federal debt almost all of which is subject to statutory limitation consists of
the debt held by the public plus the debt held by government accounts The debt held by the
public is the total net amount borrowed from the public by the federal government to cover its
budget deficits over the years Usually analysts use the debt held by the public as the measure of
the impact of the federal governmentrsquos borrowing on the economy It is this portion of federal
debt that not only reflects the amount of the nationrsquos wealth invested in federal government
securities rather than in private investment but also determines the level of real resources the
government must acquire to make interest and principal payments The debt held by government
accounts is the total net amount of federal debt issued to specialized federal accounts primarily
trust funds It represents internal transactions of the federal governmentrdquo
Source Heniff Bill Jr 2004 Basic Federal Budgeting Terminology Congressional Research
Service CRS Report for Congress 98-410 GOV November 22
httpwwwruleshousegovarchives98-410pdf accessed March 6 2009
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c
Page 37
37
Appendix C Self-Test Answers
1 d 6 c 11 d
2 b 7 b 12 d
3 c 8 a 13 a
4 b 9 c 14 d
5 c 10 a 15 c