    [A Citizen's Guide to the Federal Budget]
    [3. How Does the Government Create a Budget?]
    [From the U.S. Government Printing Office, www.gpo.gov]

    The President and Congress both play major roles in developing the
    Federal budget.

    The President's Budget

    The law requires that, by the first Monday in February, the President
    submit to Congress his proposed Federal budget for the next fiscal
    year, which begins October 1.

    The White House's Office of Management and Budget (OMB) prepares the
    budget proposal, after receiving direction from the President and
    consulting with his senior advisors and officials from Cabinet
    departments and other agencies.

    The President's budget--which typically includes a main book and
    several accompanying books--covers thousands of pages and provides
    reams of details.

    This year, President Clinton faced unusual challenges in presenting
    his budget. At a time when OMB normally would have prepared that
    budget, the President and congressional leaders of both parties were
    negotiating a plan to balance the budget over seven years, and
    Congress had not finished the necessary spending bills for 1996.

    As a result, the President submitted a brief budget document on
    February 5 to comply with the legal requirement, and the rest of the
    budget books,1 with the traditional amount of back-up details, in
    March.
    -----------------
    1 They are the main budget book, entitled, Budget of the United States
    Government--Supplement: Fiscal Year 1997, as well as Analytical
    Perspectives, Appendix, Historical Tables, and A Citizen's
    Guide to the Federal Budget, which you are now reading.

    [[Page 18]]

    The Budget Process

    Through the budget process, the President and Congress decide how much
    to spend and tax in any one fiscal year. More specifically, they
    decide how much to spend on each activity, ensure that the Government
    spends no more and spends it only for that activity, and report on
    that spending at the end of each budget cycle.

    The President's budget is his plan for the next year. But it's just a
    proposal. After receiving it, Congress has its own budget process to
    follow. Only after the Congress passes, and the President signs, the
    required spending bills has the Government created its actual budget.

    For fiscal 1997-that is, October 1, 1996 to September 30, 1997--the
    major steps in the budget process are outlined in Chart 3-1.

    Chart 3-1. Major Steps in the Budget Process
    -----------------------------------------------------------------------
    Formulation of the President's budget for fiscal 1997.

      Executive Branch agencies develop requests for funds and submit them to
      the Office of Management and Budget. The President reviews the requests
      and makes the fiscal decisions on what goes in his budget.

      February-December 1995
    -----------------------------------------------------------------------
    Budget preparation and transmittal.

      The budget documents are prepared and transmitted to the Congress.

      December 1995--February/March 1996 1
    -----------------------------------------------------------------------
    Congressional action on the budget.

      The Congress reviews the President's proposed budget, develops its
      own budget, and approves spending and revenue bills.

      March--September 1996
    -----------------------------------------------------------------------
    The fiscal year begins.

      October 1, 1996
    -----------------------------------------------------------------------
    Agency program managers execute the budget provided in law.

      October 1, 1996--September 30, 1997
    -----------------------------------------------------------------------
    Data on actual spending and receipts for the completed fiscal year
    become available.

      October--November 1997
    -----------------------------------------------------------------------
    1 Due to unusual circumstances, the President submitted the 1997 budget
    in two steps--one in February, the other in March.

    [[Page 19]]

    Action in Congress

    Congress first must pass a ``budget resolution''--a framework within
    which the Members will make their decisions about spending and taxes.
    It includes targets for total spending, total revenues, and the
    deficit, and allocations within the spending target for the two types
    of spending--discretionary and mandatory--explained below:

      Discretionary spending, which accounts for 33 percent of all Federal
      spending, is what the President and Congress must decide to spend for
      the next year through the 13 annual appropriations bills. It includes
      money for such activities as the FBI and the Coast Guard, for housing
      and education, for space exploration and highway construction, and for
      defense and foreign aid.

      Mandatory spending, which accounts for 67 percent of all spending, is
      authorized by permanent laws, not by the 13 annual appropriations
      bills. It includes entitlements--such as Social Security, Medicare,
      veterans' benefits, and Food Stamps--through which individuals receive
      benefits because they are eligible based on their age, income, or
      other criteria. It also includes interest on the national debt, which
      the Government pays to individuals and institutions that hold Treasury
      bonds and other Government securities. The President and Congress can
      change the law in order to change the spending on entitlements and
      other mandatory programs--but they don't have to.

    Think of it this way: For discretionary programs, Congress and the
    President must act each year to provide spending authority. For mandatory
    programs, they may act in order to change the spending that current
    laws require.

    Currently, the law imposes a limit, or ``cap,'' through 1998 on total
    annual discretionary spending. Within the cap, however, the President and Congress can, and often do, change the spending levels from year
    to year for the thousands of individual Federal spending programs.

    In addition, the law requires that legislation that would raise
    mandatory spending or lower revenues--compared to existing law--be
    offset by spending cuts or revenue increases. This requirement, called
    ``pay-as-you- go,'' is designed to prevent new legislation from increasing the deficit.

    Once Congress passes the budget resolution, it turns its attention to
    passing the 13 annual appropriations bills and, if it chooses,
    ``authorizing'' bills to change the laws governing mandatory spending and revenues.

    [[Page 20]

    Congress begins by examining the President's budget in detail. Scores
    of committees and subcommittees hold hearings on proposals under their
    jurisdiction. The House and Senate Armed Services Authorizing Committees,
    and the Defense and Military Construction Subcommittees of
    the Appropriations Committees, for instance, hold hearings on the
    President's defense plan. If the President's budget proposed changes
    in taxes, the House Ways and Means and the Senate Finance Committees
    would hold hearings. The Budget Director, Cabinet officers, and other
    Administration officials work with Congress as it accepts some of the
    President's proposals, rejects others, and changes still others.
    Congressional rules require that these committees and subcommittees
    take actions that reflect the budget resolution.

    If you read through the President's budget, the budget resolution, or
    the appropriations or authorizing bills that Congress drafts, you will
    notice that the Government measures spending in two ways--``budget
    authority'' and ``outlays'':

    Budget authority (or BA) is what the law authorizes the Federal
    Government to spend for certain programs, projects, or activities.
    What the Government actually spends in a particular year, however, is
    an outlay. To see the difference, consider what happens when the
    Government decides to build a space exploration system.

    The President and Congress may agree to spend $1 billion for the space
    system. Congress appropriates $1 billion in BA. But the system may
    take 10 years to build. Thus, the Government may spend $100 million in
    outlays in the first year to begin construction and the remaining $900
    million over the next nine years as construction continues.

    Monitoring the Budget

    Once the President and Congress approve spending, the Government
    monitors the budget through:

      agency program managers and budget officials, including the Inspectors
      General, or IGs, who report only to the agency head;

      OMB;

      congressional committees; and

      the General Accounting Office, an auditing arm of Congress.

    [[Page 21]]

    This oversight is designed to:

      ensure that agencies comply with legal limits on spending, and that
      they use budget authority only for the purposes intended;

      see that programs are operating consistently with legal requirements
      and existing policy; and, finally,

      ensure that programs are well managed and achieving the intended results.

    The Government has paid more attention to good management of late,
    through the work of Vice President Gore's National Performance Review
    and implementation of the 1993 Government Performance and Results Act.
    This law is designed to improve Government programs by using better
    measurements of their results in order to evaluate their effectiveness.