Table of Contents
- What Is the Budget?
- Overview of the Process
- Phases of the Budget Process
What Is the Budget?
The budget is a detailed statement of anticipated revenues and expenditures during an accounting period. The Federal budget sets forth priorities and levels of spending, ways of financing the spending and a plan for managing the funds. Each year, the budget includes a record of actual receipts and spending for the fiscal year that was just completed, an estimate of current-year receipts and spending, and estimates of receipts and spending for the upcoming fiscal year and the 9 succeeding fiscal years.
For the Federal Government, the term “budget” often refers to the President’s budget submission, officially, the Budget of the United States Government. The President’s budget is submitted to Congress early each calendar year in accordance with the Budget and Accounting Act of 1921, as amended, and represents proposals for congressional consideration. The Federal budget process provides the means for the executive and legislative branch to make informed decisions between competing national needs and policies, to determine priorities, to allocate resources to those priorities, and to ensure the laws are executed according to those priorities.
The Budget and Accounting Act of 1921, as amended, requires the President to submit an annual budget proposal to Congress, established the Office of Management and Budget (OMB), and the Government Accountability Office (GAO) (formerly, the General Accounting Office). In 1974, Congress enacted the Congressional Budget and Impoundment Control Act, which provides for the annual adoption of a budget resolution and established the House and Senate Budget Committees and the Congressional Budget Office (CBO). These laws establish the processes by which Congress enacts and the President signs into law spending and revenue measures and have come to be known, collectively, as the Federal budget process.
Overview of the Process
The Federal budget process is initiated in the Executive Branch with budget formulation. Then, no later than the first Monday in February, by law, the President submits his budget to Congress. Congress reviews the President's plan and then adopts a budget resolution, setting forth its own guidelines for spending and revenues that it plans to follow when passing appropriations laws, tax laws and authorizations. It is the appropriations laws and the laws establishing entitlement programs that provide the legal authority for the Federal Government and its agencies to obligate and spend funds. Each appropriations law creates legally binding spending ceilings for the Federal programs it covers, and each law setting up an entitlement program, such as Medicare, establishes and mandates the reasons for and extent of Government spending.
The Federal budget process can be broken down into four phases: budget formulation, the congressional budget process, budget execution and control, and audit and evaluation. For any one fiscal year (beginning October 1 and ending the following September 30), these phases take place over the course of 2-1/2 years (sometimes more, depending on how long funds are available for obligation at the Federal level). Federal agencies must deal concurrently with 3 fiscal years at any one time – implementing the budget for the current fiscal year, seeking funds from Congress for the next fiscal year, and planning for the fiscal year after that.
Phases of the Budget Process
Phase 1: Budget Formulation
Preparation of the President’s budget typically begins in the spring or early summer each year, at least 6 months before the budget is submitted to Congress, about 15 months before the start of the fiscal year to which it pertains, and about 26 months before the close of that fiscal year. When agencies begin work on the budget for a fiscal year, they already are implementing the budget for the fiscal year in progress and awaiting final appropriations actions and other legislative decisions for the fiscal year after that. The long lead times and the fact that appropriations have not yet been made for the next year mean that the budget is prepared with a great deal of uncertainty about economic conditions and congressional actions. In the spring and summer, OMB issues policy directions and planning guidance to the agencies for the upcoming budget request and detailed instructions for submitting budget data and materials for the upcoming fiscal year and the following 9 fiscal years. During this first phase of budget formulation, the agencies set their priorities and develop their budget requests, which are transmitted to OMB, usually in early September.
After the Secretary's transmittal of the budget, OMB examiners schedule hearings or informal discussions to discuss budget proposals in light of presidential priorities, program performance, and any budget constraints, and to obtain a better understanding of the Department’s request and to allow the Department to defend it. OMB examiners make their recommendations to the Director of OMB, and by late November or early December, initial decisions on budget levels are made. OMB passes back initial budget decisions to the agencies on their budget requests, the so-called passback. These decisions may involve, among other things, funding levels, program policy changes, and personnel ceilings. The agencies may appeal decisions with which they disagree and negotiations are held between the agencies and OMB.
Once final decisions are reached, the Department begins preparation of materials to be included in the printed President's budget and special analyses that explain and justify the budget. These documents include appropriations language; technical financing schedules; narrative explanations of the President's requests and policies; and special exhibits for such items as research and development activities, Federal credit programs, civil rights activities, and tax expenditures that aid education. Current law states that the President must transmit the budget to the Congress after the first Monday in January but not later than the first Monday in February.
Budget presentation begins when the President's budget is transmitted to the Congress. Once the budget is transmitted, the Secretary holds a press conference and makes available a briefing document to the press and the public that provides summary and background information on the new budget. In addition, the Department provides to the Appropriations Committees detailed justifications of the budget request and special reports and analyses of a technical, programmatic, and policy nature.
The President is also required by law to submit to the Congress on or before July 15 a supplementary budget summary that provides updated data on which the February budget can be evaluated. This summary, referred to as the Mid-Session Review, includes updated estimates of the cost of Presidential policy, summary updates of other information contained in the budget, the effect on the budget of congressional enactment or non-enactment, to date, of the President's proposals, and budget-year baseline estimates—also called current services estimates.
Phase 2: Budget Presentation and the Congressional Process
The Congressional Budget and Impoundment Control Act of 1974 established the congressional budget process as the means by which Congress coordinates the various budget-related actions (such as the consideration of appropriations and revenue measures) taken by it during the course of the year. The process is centered around an annual concurrent resolution on the budget that sets aggregate budget policies and functional priorities for at least the next 5 fiscal years.
Because a concurrent resolution is not a law—it cannot be signed or vetoed by the President—the budget resolution does not have statutory effect; no money can be raised or spent pursuant to it. The main purpose of the budget resolution is to establish the framework within which Congress considers separate revenue, spending, and other budget-related legislation. Revenue and spending amounts set in the budget resolution establish the basis for the enforcement of congressional budget policies. The budget resolution also initiates the reconciliation process for conforming existing revenue and spending laws to congressional budget policies.
Formulation and Content of the Budget Resolution
The congressional budget process begins upon the presentation of the President’s budget in January or February. The Congressional Budget Act of 1974, as amended, requires that the Congressional Budget Office submit to the Budget Committees its annual report, entitled The Budget and Economic Outlook, in late January or early February. The report contains CBO’s projection of Federal revenue and spending for the next 10 years, based on its current economic conditions.
The timetable set forth in the 1974 Congressional Budget Act also calls for the final adoption of the budget resolution by April 15, well before the beginning of the new fiscal year on October 1. The budget resolution is considered in each House under special procedures set forth in the Congressional Budget Act. When the Senate and House have both adopted their respective versions of the budget resolution, it is referred to a conference committee to resolve the differences between the two versions. Each chamber must then vote on the conference report. The Congressional Budget Act sets April 15 as the date by which Congress should complete action on the budget resolution; however, in practice, Congress may not meet this date. The 1974 act bars consideration of revenue, spending, and debt-limit measures for the upcoming fiscal year until the budget resolution for that year has been adopted, but certain exceptions are provided (such as the exception that allows the House to consider the regular appropriations bills after May 15, even if the budget resolution has not been adopted by then).
The 1974 Congressional Budget Act requires the budget resolution, for each fiscal year covered, to set forth budget aggregates and spending levels for each functional category of the budget. The aggregates included in the budget resolution are as follows: total revenues (and the amount by which the total is to be changed by legislative action), total new budget authority and outlays, the surplus or deficit, and the debt limit. This budget resolution is drafted using the President’s budget request, information from their own hearings, views and estimates reports from other committees, and CBO’s reports.
There are two types of spending treated in the budget resolution: mandatory and discretionary. For discretionary programs, Congress and the President must act each year to provide spending authority. For mandatory programs, they may act to change the spending that current laws require.
Included in the conference report accompanying the Concurrent Budget Resolution are instructions to the appropriating, authorizing, and tax committees of Congress concerning the revenue changes, programmatic changes and appropriation amounts that are assumed in the budget resolution ceilings. These directions to the committees are called "reconciliation instructions." The process of taking action to pass the legislation that would carry out the assumptions made in the Concurrent Budget Resolution is called "reconciliation.
Allocations of Spending to Committees
Because Congress operates through its committee system, an essential step in linking particular measures to the budget is to allocate the spending amounts set forth in the budget resolution among House and Senate committees. The Congressional Budget Act requires that the House and Senate Appropriations Committees subdivide the amounts allocated to them under the budget resolution among their subcommittees. These are known as Section 302(b) allocations. The subcommittees’ Section 302(b) subdivisions may not exceed the total amount allocated to the committee. Each Appropriations Committee reports its subdivisions to its respective chamber; the appropriations bills may not be considered until such a report has been filed.
The Annual Appropriations Process
An appropriations act is a law passed by Congress that provides Federal agencies legal authority to incur obligations and the Treasury Department authority to make payments for designated purposes. The power of appropriation derives from the Constitution, which in Article I, Section 9, provides that “[n]o money shall be drawn from the Treasury but in consequence of appropriations made by law.” The power to appropriate is exclusively a legislative power; it functions as a limitation on the executive branch. An agency may not spend more than the amount appropriated to it, and it may use available funds only for the purposes and according to the conditions provided by Congress.
By precedent, appropriations originate in the House of Representatives. In marking up their appropriations bills, the various subcommittees are guided by the discretionary spending limits and the allocations made to them under Section 302(b) of the 1974 Congressional Budget Act. The House and Senate appropriations subcommittees typically hold extensive hearings on appropriations requests shortly after the President’s budget is submitted. In support of the President’s appropriations requests, agencies submit justification materials to the House and Senate Appropriations Committees. These materials provide considerably more detail than is contained in the President’s budget and are used in support of agency testimony during Appropriations subcommittee hearings on the President’s budget.
Generally starting in late May, the House begins to markup annual appropriations bills. The Senate usually considers appropriations measures after they have been passed by the House. When House action on appropriations bills is delayed, however, the Senate sometimes expedites its actions by considering a Senate-numbered bill up to the stage of final passage. Upon receipt of the House-passed bill in the Senate, it is amended with the text that the Senate already has agreed to (as a single amendment) and then passed by the Senate.
Once an appropriations bill has been passed by the House and Senate appropriations subcommittees and full committees, and been adopted by that chamber, it is referred to a conference committee to resolve the differences between the two versions. Each chamber must then vote on the conference bill and report. It then goes to the President who may either sign it, thus enacting it into law, or veto it.
In the normal appropriation process, Congress acts on 12 regular appropriations bills. Congress must enact these regular appropriations bills by October 1 of each year. If these regular bills are not enacted by the deadline (and in recent years they have not been), Congress must pass a continuing resolution prior to the beginning of each fiscal year to fund Government operations into the next fiscal year. When an agency does not receive its new appropriation before its current appropriation (or continuing resolution) expires, it must cease ongoing, regular functions that are funded with annual appropriations, except for those related to emergencies involving the safety of human life or the protection of property. A continuing resolution, commonly called a CR, generally continues existing programs at limited spending levels for a short period of time until an annual appropriation is passed. If Congress does not pass an annual appropriations bill before the expiration of the CR, another CR will be passed, and so on, until Congress passes and the President signs an annual funding bill. The scope and duration of continuing resolutions depend on the status of the regular appropriations bills and the degree of budgetary conflict between the President and Congress and the likelihood of passage of regular appropriations bills. In recent years, Congress has passed several continuing resolutions and then merged two or more of the regular appropriations bill for a fiscal year into a single, omnibus appropriations act.
The standard appropriation is for a single fiscal year—the funds have to be obligated during the fiscal year for which they are provided; they lapse (are returned to the Treasury) if not obligated by the end of that year. An appropriation that does not mention the period during which the funds are to be available is a 1-year appropriation. Congress also makes no-year appropriations by specifying that the funds shall remain available until expended. No-year funds are carried over to future years, even if they have not been obligated. Congress sometimes makes multiyear appropriations, which provide for funds to be available for 1½, 2, or more fiscal years.
In addition to providing funds, appropriations acts often contain substantive limitations on Government agencies. Accompanying any appropriations bills as they go through the process of becoming law are committee reports. These are the House and Senate Appropriations Committee reports and the Conference Committee report. These reports include explanations of the Committee's actions, as well as expectations and, most importantly, directives concerning the Department's actions relative to a specific program or programs.
Report language, unlike bill language, does not have the force of law and, at least technically, compliance is not required. However, for reasons of maintaining a good relationship with the Appropriations Committees, unless compliance is legally or programmatically impossible, the Department tries to carry out the Committees' wishes stated in the various reports. Members of Congress generally consider report language to be very important, and the Committees require that, in the annual Justifications of the Budget to Congress, the Department report the status of action on any directives included in the previous year's reports.
Phase 3: Budget Execution
The body of enacted laws providing appropriations for a fiscal year becomes the Government’s financial plan for that fiscal year. The execution and control phase refers generally to the period during which the budget authority made available by appropriations remains available for obligation by the Federal Government. An agency’s task during this phase is to spend the money Congress has provided to carry out the objectives of its program legislation in accordance with fiscal statutes and appropriations, and authorizing legislation. During this same period agencies will be beginning phase 1 for the next budget.
OMB is responsible for apportioning appropriated amounts to the executive branch agencies, thereby making funds in appropriation accounts (administered by Treasury) available for obligation. The apportionment is intended to achieve an effective and orderly use of available budget authority and ensure that obligations and expenditures are made at a controlled rate to reduce the need for supplemental appropriations, and prevent deficiencies from arising before the end of a fiscal year. The purpose of the funds control system and regulations is (1) to prevent overobligations and expenditures and (2) to fix accountability for obligations or expenditures. An obligation or expenditure that exceeds the amount of the appropriation, the apportionment, or the allotment violates the Antideficiency Act.
Once OMB apportions funds, it is the agency’s responsibility to allocate the funds in accordance with its funds control system and regulations. In the Department of Education, Principal Offices are required to submit to the Budget Service an operating plan detailing the approximate dates funds will be required, and allotments are issued in accordance with this plan.
After the end of a fiscal year (September 30), the financial transactions that have taken place during that fiscal year are certified by November 13, and the totals become the "actual year" column—the first column—that will appear in the new President's budget.
Phase 4: Audit and Evaluation
Individual agencies are responsible—through their own review and control systems—for ensuring that the obligations they incur and the resulting outlays adhere to the provisions in the authorizing and appropriations legislation as well as to other laws and regulations governing the obligation and expenditure of funds. OMB provides extensive guidance to agencies on budget execution. In addition, a series of Federal laws are aimed at controlling and improving agency financial management. For example, the Inspector General Act of 1978, as amended, established agency inspectors general to provide policy direction for and to conduct, supervise, and coordinate audits and investigations relating to agency programs and operations. The Chief Financial Officers Act of 1990 established agency chief financial officers to oversee all financial management activities relating to agency programs and operations. The Government Management Reform Act of 1994 requires the audit of agency financial statements and the preparation and audit of a consolidated financial statement for the Federal Government. And the Federal Financial Management Improvement Act of 1996 directs auditors to report on whether agency financial statements comply with Federal financial management systems requirements, Federal accounting standards, and the U.S. Standard General Ledger (SGL).
OMB reviews program and financial reports and monitors agencies’ efforts to attain program objectives. Congress exercises oversight over executive branch agencies through the legislative process, formal hearings, and investigations. Congress uses oversight hearings, for example, to evaluate the effectiveness of a program and whether it is administered in a cost-effective manner, to determine whether the agency is carrying out congressional intent, and to identify fraud or abuse. GAO regularly audits, examines, and evaluates Government programs. Its findings and recommendations for corrective action are made to Congress, to OMB, and to the agencies concerned. GAO also has the authority to settle all accounts of the United States Government and to issue legal decisions and opinions concerning the availability and use of appropriated funds. GAO develops Government audit and internal control standards.