United States budget process
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The United States budget process is the framework used by Congress and the President of the United States to formulate and create the United States federal budget. The process was established by the Budget and Accounting Act of 1921, the Congressional Budget and Impoundment Control Act of 1974, and by other budget legislation.
Prior to 1974, Congress had no formal process for establishing a coherent budget. When newly elected President Richard Nixon began to refuse to spend funds that the Congress had allocated, Congress adopted a more formal means by which to challenge him. The Congressional Budget Act of 1974 created the Congressional Budget Office (CBO) and directed more control of the budget to it and away from the President's Office of Management and Budget (OMB). The Act passed easily while the administration was embroiled in the Watergate scandal and unwilling to provoke Congress.
The budget processes
The President's budget request
The United States budget process begins when the President of the United States submits a budget request to Congress. The President's budget is formulated over a period of months with the assistance of the Office of Management and Budget, the largest office within the Executive Office of the President. The budget request includes funding requests for all federal executive departments and independent agencies. Budget documents include supporting documents and historical budget data and contains detailed information on spending and revenue proposals, along with policy proposals and initiatives with significant budgetary implications. The President's budget request constitutes an extensive proposal of the administration's intended revenue and spending plans for the following fiscal year. The budget proposal includes volumes of supporting information intended to persuade Congress of the necessity and value of the budget provisions. In addition, each federal executive department and independent agency provides additional detail and supporting documentation on its own funding requests. The documents are also posted on the OMB website.
The Budget and Accounting Act of 1921 requires the President to submit the budget to Congress for each fiscal year which is the 12-month period beginning on October 1 and ending on September 30 of the next calendar year. The current federal budget law (31 U.S.C. § 1105(a)) requires that the President submit the budget between the first Monday in January and the first Monday in February. In recent times, the President's budget submission has been issued in the first week of February. The budget submission has been delayed, however, in some new presidents' first year when the previous president belonged to a different party. The 2014 United States federal budget was not submitted by the President until April 10, 2013 due to negotiations over the United States fiscal cliff and implementation of the sequester cuts mandated by the Budget Control Act of 2011. (The House had already prepared its budget proposal on March 21, and the Senate proposed a budget on March 23.)
President Warren G. Harding brought about the enactment of the Budget and Accounting Act of 1921, which, for the first time, required the President to submit a budget annually to Congress and which established the Bureau of the Budget, the forerunner of the Office of Management and Budget, to assist in the formulation of the budget. Initially the Bureau was within Treasury but in 1939 it was moved to the Executive Office of the President.
The President's budget submission is referred to the House and Senate Budget Committees and to the CBO. Other committees with budgetary responsibilities submit requests and estimates to the budget committees during this time.
In March, the CBO publishes an analysis of the President's budget proposals. The CBO budget report and other publications are also posted on the CBO website. CBO computes a current-law baseline budget projection that is intended to estimate what federal spending and revenues would be in the absence of new legislation for the current fiscal year and for the coming ten fiscal years. However, the CBO also computes a current-policy baseline, which makes assumptions about, for instance, votes on tax cut sunset provisions. The current CBO 10 year budget baseline projection grows from $3.7 trillion in 2011 to $5.7 trillion in 2021.
In March, the budget committees consider the President's budget proposals in the light of the CBO budget report, and each committee submits a budget resolution to its house by April 1. The House and Senate each consider these budget resolutions, and are expected to pass them, possibly with amendments, by April 15. A budget resolution is a kind of concurrent resolution; it is not a law, and therefore does not require the President's signature.
There is no obligation for either or both houses of Congress to pass a budget resolution. There may not be a resolution every year; if none is established, the previous year's resolution remains in force. For example, the Senate has not passed a budget resolution for FY2011, FY2012, or FY2013, and passed the FY2014 budget resolution on March 23, 2013–23 days before the deadline set by the No Budget, No Pay Act of 2013. This was the first budget resolution passed by the Senate since a FY2010 budget passed on April 29, 2009. The House and Senate may propose a budget independently of the President's budget. For example, for the 2014 budget process, the House prepared its budget proposal on March 21, and the Senate proposed a budget on March 23, while the President's budget was not submitted until April 10.
After both houses pass a budget resolution, selected Representatives and Senators negotiate a conference report to reconcile differences between the House and the Senate versions. The conference report, in order to become binding, must be approved by both the House and Senate.
The budget resolution is not legally binding but serves as a blueprint for the actual appropriation process, and provides Congress with some control over the appropriation process. All new discretionary spending requires authority through enactment of appropriation bills or continuing resolutions.
Authorization and appropriations
In general, funds for federal government programs must be authorized by an "authorizing committee" through enactment of legislation. Then, through subsequent acts by Congress, budget authority is then appropriated by the Appropriations Committee of the House. In principle, committees with jurisdiction to authorize programs make policy decisions, while the Appropriations Committees decide on funding levels, limited to a program's authorized funding level, though the amount may be any amount less than the limit.
The budget resolutions specify funding levels for the House and Senate Appropriations Committees and their 12 subcommittees, establishing various budget totals, allocations, entitlements, and may include reconciliation instructions to designated House or Senate committees. The appropriations committees, starting with allocations in the budget resolution, draft appropriations bills, which may be considered in the House after May 15. Once appropriations committees pass their bills, they are considered by the House and Senate. When there is a final budget, the spending available to each appropriations committee for the coming fiscal year is usually provided in the joint explanatory statement included in the conference report. The appropriations committees then allocate that amount among their respective subcommittees, each to allocate the funds they control among the programs within their jurisdiction.
A conference committee is typically required to resolve differences between House and Senate appropriation bills. Once a conference bill has passed both chambers of Congress, it is sent to the President, who may sign the bill or veto it. If he signs, the bill becomes law. Otherwise, Congress must pass another bill to avoid a shutdown of at least part of the federal government.
In recent years, Congress has not passed all of the appropriations bills before the start of the fiscal year. Congress may then enact continuing resolutions, that provide for the temporary funding of government operations. Failure to appropriate funds results in a partial government shutdown, such the federal government shutdown in October 2013.
In practice, the separation between policy making and funding, and the division between appropriations and authorization activities are imperfect. Authorizations for many programs have long lapsed, yet still receive appropriated amounts. Other programs that are authorized receive no funds at all. In addition, policy language—that is legislative text changing permanent law—is included in appropriation measures.
Discretionary and mandatory spending
Each function within the budget may include "budget authority" and "outlays" that fall within the broad categories of discretionary spending or direct spending.
Discretionary spending requires an annual appropriation bill, which is a piece of legislation. Discretionary spending is typically set by the House and Senate Appropriations Committees and their various subcommittees. Since the spending is typically for a fixed period (usually a year), it is said to be under the discretion of the Congress. Some appropriations last for more than one year (see Appropriation bill for details). In particular, multi-year appropriations are often used for housing programs and military procurement programs.
There are currently 12 appropriation bills that must be passed each fiscal year in order for continued discretionary spending to occur. The subject of each appropriations bill corresponds to the jurisdiction of the respective House and Senate appropriation subcommittees:
As of 2012, there are twelve appropriations bills which need to be passed each year:
- Agriculture, Rural Development, and Food and Drug Administration
- Commerce, Justice, and Science
- Energy and Water Development
- Financial Services and General Government (includes judicial branch, the Executive Office of the President, and District of Columbia appropriations)
- Homeland Security
- Interior and Environment
- Labor, Health and Human Services, and Education
- Legislative Branch
- Military Construction and Veterans Affairs
- State and Foreign Operations
- Transportation and Housing and Urban Development
Multiple bills are sometimes combined into one piece of legislation, such as the Omnibus Appropriations Act, 2009. A continuing resolution is often passed if an appropriations bill has not been signed into law by the end of the fiscal year.
Direct spending, also known as mandatory spending, refers to spending enacted by law, but not dependent on an annual or periodic appropriation bill. Most mandatory spending consists of transfer payments and welfare benefits such as Social Security benefits, Medicare, and Medicaid. Many other expenses, such as salaries of federal judges, are mandatory, but account for a relatively small share of federal spending. The Congressional Budget Office (CBO) estimates costs of mandatory spending programs on a regular basis.
Congress can affect spending on entitlement programs by changing eligibility requirements or the structure of programs. Certain programs, because the language authorizing them are included in appropriation bills, are termed "appropriated entitlements." This is a convention rather than a substantive distinction, since the programs, such as Food Stamps, would continue to be funded even were the appropriation bill to be vetoed or otherwise not enacted.
The federal budget is divided into categories known as budget functions. These functions include all spending for a given topic, regardless of the federal agency that oversees the individual federal program. Both the President's budget, and Congress' budget resolution provide summaries by function.
List of budget functions:
|050||National Defense||The National Defense function includes the military activities of the Department of Defense (DoD), the nuclear-weapons related activities of the Department of Energy (DoE) and the National Nuclear Security Administration, the national security activities of several other agencies such as the Selective Service Agency, and portions of the activities of the Coast Guard and the Federal Bureau of Investigation. The programs in this function include: the pay and benefits of active, Guard, and reserve military personnel; DoD operations including training, maintenance of equipment, and facilities; health care for military personnel and dependents; procurement of weapons; research and development; construction of military facilities, including housing; research on nuclear weapons; and the cleanup of nuclear weapons production facilities.|
|150||International Affairs||Function 150 contains funding for all U.S. international activities, including: operating U.S. embassies and consulates throughout the world; providing military assistance to allies; aiding developing nations; dispensing economic assistance to fledgling democracies; promoting U.S. exports abroad; making U.S. payments to international organizations; and contributing to international peacekeeping efforts. Funding for all of these activities constitutes about one percent of the federal budget. The major agencies in this function include the Departments of Agriculture, State, and the Treasury; the United States Agency for International Development; and the Millennium Challenge Corporation.|
|250||General Science, Space, and Technology||This function includes the National Science Foundation (NSF), programs at the National Aeronautics and Space Administration except for aviation programs, and general science programs at the Department of Energy (DOE).|
|270||Energy||Function 270 contains civilian energy and environmental programs in the Department of Energy (DOE). This function also includes the Rural Utilities Service of the Department of Agriculture, the Tennessee Valley Authority, the Federal Energy Regulatory Commission, and the Nuclear Regulatory Commission. This function does not include DOE's national security activities, which are in Function 050 (National Defense), or its basic research and science activities, which are in Function 250 (General Science, Space and Technology).|
|300||Natural Resources and Environment||Function 300 includes programs concerned with environmental protection and enhancement; recreation and wildlife areas; and the development and management of the nation's land, water, and mineral resources. It includes programs within the following federal departments and agencies: Agriculture, Commerce, Interior, Transportation, the Army Corps of Engineers, and the Environmental Protection Agency (EPA).|
|350||Agriculture||Function 350 includes farm income stabilization, agricultural research, and other services administered by the U.S. Department of Agriculture. The discretionary programs include research and education programs, economics and statistics services, administration of the farm support programs, farm loan programs, meat and poultry inspection, and a portion of the Public Law (P.L.) 480 international food aid program. The mandatory programs include commodity programs, crop insurance, and certain farm loans.|
|370||Commerce and Housing Credit||Function 370 includes mortgage credit, the Postal Service, deposit insurance, and other advancement of commerce (the majority of the discretionary and mandatory spending in this function). The mortgage credit component includes housing assistance through the Federal Housing Administration, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), the Government National Mortgage Association (Ginnie Mae), and rural housing programs of the Department of Agriculture. The function also includes net postal service spending and spending for deposit insurance activities of banks, thrifts, and credit unions. Most of the Commerce Department is provided for in this function. Finally, the function also includes funding for independent agencies such as the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Federal Trade Commission, the Federal Communications Commission, and the majority of the Small Business Administration.|
|400||Transportation||Function 400 consists mostly of the programs administered by the Department of Transportation, including programs for highways, mass transit, aviation, and maritime activities. This function also includes two components of the Department of Homeland Security: the Coast Guard and the Transportation Security Administration. In addition, this function includes several small transportation-related agencies and the research program for civilian aviation at the National Aeronautics and Space Administration (NASA).|
|450||Community and Regional Development||Function 450 includes federal programs to improve community economic conditions, promote rural development, and assist in federal preparations for and response to disasters. This function provides appropriated funding for the Community Development Block Grant, Department of Agriculture rural development programs, the Bureau of Indian Affairs, the Federal Emergency Management Agency, and other disaster mitigation and community development-related programs. It also provides mandatory funding for the federal flood insurance program.|
|500||Education, Training, Employment, and Social Services||Function 500 includes funding for the Department of Education, social services programs within the Department of Health and Human Services, and employment and training programs within the Department of Labor. It also contains funding for the Library of Congress and independent research and art agencies such as the Corporation for Public Broadcasting, the Smithsonian Institution, the National Gallery of Art, the John F. Kennedy Center for the Performing Arts, the National Endowment for the Arts, and the National Endowment for the Humanities.|
|550||Health||Function 550 includes most direct health care services programs. Other health programs in this function fund anti-bioterrorism activities, national biomedical research, protecting the health of the general population and workers in their places of employment, providing health services for under-served populations, and promoting training for the health care workforce. Some of the agencies funded in this function include the National Institutes of Health (NIH), Centers for Disease Control and Prevention, Health Resources and Services Administration, and the Food and Drug Administration. The major mandatory programs in this function are Medicaid, the State Children's Health Insurance Program (SCHIP), federal and retirees' health benefits, and health care for Medicare-eligible military retirees.|
|570||Medicare||Function 570 includes only the Medicare program, which provides health insurance to senior citizens and persons with disabilities. Congress provides an annual appropriation for the costs of administering and monitoring the Medicare program. Nearly 99 percent of spending in this function occurs on the mandatory side of the budget, and almost all of the mandatory spending consists of payments for Medicare benefits.|
|600||Income Security||Function 600 consists of a range of income security programs that provide cash or near-cash assistance (e.g., housing, nutrition, and energy assistance) to low-income persons, and benefits to certain retirees, persons with disabilities, and the unemployed. Housing assistance programs account for the largest share of discretionary funding in this function. Major federal entitlement programs in this function include unemployment insurance, trade adjustment assistance income support, food stamps, Temporary Assistance to Needy Families, foster care, and Supplemental Security Income. Federal and other retirement and disability programs comprise approximately one third of the funds in this function.|
|650||Social Security||Function 650 consists of the two payroll tax-financed programs that are collectively known as Social Security: Old-Age and Survivors Insurance and Disability Insurance (OASDI). This function includes Social Security benefit payments and funds to administer the program. Under provisions of the Congressional Budget Act and the Budget Enforcement Act, Social Security trust funds are off-budget and do not appear in the budget resolution totals. However, a small portion of spending in Function 650 - the general fund transfer of income taxes on Social Security benefits - is considered on-budget and appears in the budget resolution totals.|
|700||Veterans Benefits and Services||Function 700 covers the programs of the Department of Veterans Affairs (VA), including veterans' medical care, compensation and pensions, education and rehabilitation benefits, and housing programs. It also includes the Department of Labor's Veterans' Employment and Training Service, the United States Court of Appeals for Veterans Claims, and the American Battle Monuments Commission. Almost 90 percent of appropriated funding in Function 700 goes to veterans' health care.|
|750||Administration of Justice||The Administration of Justice function consists of federal law enforcement programs, litigation and judicial activities, correctional operations, and state and local justice assistance. Agencies within this function include: the Federal Bureau of Investigation; the Drug Enforcement Administration; Border and Transportation Security; the Bureau of Alcohol, Tobacco, Firearms and Explosives; the United States Attorneys; legal divisions within the Department of Justice; the Legal Services Corporation; the federal Judiciary; and the Federal Bureau of Prisons. This function includes several components of the Department of Homeland Security.|
|800||General Government||This function includes the activities of the White House and the Executive Office of the President, the legislative branch, and programs designed to carry out the legislative and administrative responsibilities of the federal government, including personnel management, fiscal operations, and property control.|
|900||Net Interest||Function 900 consists primarily of the interest paid by the federal government to private and foreign government holders of U.S. Treasury securities. This amount is slightly offset by interest income received by the federal government on loans and cash balances and by earnings of the National Railroad Retirement Investment Trust.|
|920||Allowances||This function displays the budgetary effect of proposals that cannot easily be distributed across other budget functions. In the past, this function has included funding for emergencies or proposals contingent on certain events.|
|950||Undistributed Offsetting Receipts||This function comprises major offsetting receipt items that would distort the funding levels of other functional categories if they were distributed to them.|
- Office of Management and Budget
- United States public debt
- Budget resolution
- Government financial statements
- Anti-Deficiency Act
- 2015 United States federal appropriations
- Budget and Accounting Act of 1921 on GPO access Archived October 23, 2008, at the Wayback Machine.
- Budget and Impoundment Control Act of 1974 on GPO access
- Budget Resolution Explainer, Rudolph Penner, Urban Institute
- 31 U.S.C. 1105(a) on Cornell Legal Information Institute
- "Obama Will Send Fiscal 2014 Budget to Congress April 10". Bloomberg L.P. March 28, 2013.
- "Executive Office of the President". whitehouse.gov. Oct 14, 2013.
- Tollestrup, Jessica. "The Congressional Appropriations Process: An Introduction" (PDF). Congressional Research Service. Retrieved April 9, 2013.
- "Status of Appropriations Legislation for Fiscal Year 2012". THOMAS. Library of Congress. Retrieved 15 November 2011.
- Budget Calculator Online calculator that places specific tax or spending numbers in the context of the total U.S. budget. It also compares any spending or revenue item to projected defense spending. (Center for Economic and Policy Research)
- The Congressional Budget Process: an Explanation - published by the Senate Budget Committee, 1998 (PDF file)
- 2007 Financial Report of the United States Government
- Columbia University selective guide for research on the U.S. Federal budget process
- Budget Process Tutorial From the House Budget Committee (Republican Staff)
- The Congressional Budget Office
- Eric M. Patashnik, "Ideas, Inheritances, and the Dynamics of Budgetary Change," Governance, 12.2 (April 1999): 147-174
- Understanding the Federal Budget