    [Analytical Perspectives]
    [Budget System and Concepts and Glossary]
    [24. Budget System and Concepts and Glossary]
    [From the U.S. Government Printing Office, www.gpo.gov]

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                           BUDGET SYSTEM AND CONCEPTS

                                  AND GLOSSARY

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    [[Page 325]]

                  24.  BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

      The budget system of the United States Government provides the means
    by which the Government decides how much money to spend and what to
    spend it on, and how to raise the money it has decided to spend. Once
    these decisions are made, the budget system ensures they are carried
    out. The Government uses the budget system to determine the allocation
    of resources among its major functions--such as ensuring the national
    defense, promoting commerce, and providing health care--as well as to
    determine the objectives and scope of individual programs, projects, and
    activities. While the focus of the budget system is on dollars, other
    resources, such as Federal employment, are also controlled through the
    budget system. The decisions made in the budget process affect the
    nation as a whole, state and local governments, and individual
    Americans. Many budget decisions have worldwide significance.
      This chapter provides an overview of the budget system and explains
    some of the more important budget concepts. A glossary of budget terms
    is provided at the end of the chapter. Summary dollar amounts illustrate
    major concepts. These figures and more detailed amounts are discussed in
    more depth in other chapters of the budget documents.
      The budget system is governed by various laws that have been enacted
    to carry out requirements of the Constitution. The principal laws
    pertaining to the budget system are referred to by title throughout the
    text, and complete citations are given later in the chapter.
                               THE BUDGET PROCESS
      The budget process has three main phases, each of which is
    interrelated with the others:
      (1) formulation of the President's budget;
      (2) congressional action on the budget; and
      (3) budget execution.
                      Formulation of the President's Budget
      The Budget of the United States Government consists of several volumes
    that set forth the President's financial proposal with recommended
    priorities for the allocation of resources by the Federal Government.
    The primary focus of the budget is on the budget year--the next fiscal
    year for which Congress needs to make appropriations. However, the
    budget may propose changes to funding levels already provided for the
    current year, and it covers at least the four years following the budget
    year in order to reflect the effect of budget decisions over the longer
    term. The 1997 budget covers five years beyond the budget year because
    budget negotiations concerning the 1996 budget addressed the years
    through 2002. The budget includes data on the most recently completed
    fiscal year so that the budget estimates can be compared to actual
    accounting data.
      The process of formulating the budget begins not later than the spring
    of each year, at least nine months before the budget is transmitted and
    at least 18 months before the fiscal year begins. (See the Budget
    Calendar below.) The President establishes general budget and fiscal
    policy guidelines. Based on these guidelines, the Office of Management
    and Budget (OMB) works with the Federal agencies to establish specific
    policy directions and planning levels for the agencies, both for the
    budget year and for the following four years, at least, to guide the
    preparation of their budget requests.
      During the formulation of the budget, there is a continual exchange of
    information, proposals, evaluations, and policy decisions among the
    President, the Director of OMB, other officials in the Executive Office
    of the President, the Secretaries of the departments, and the heads of
    the Government agencies. Decisions concerning the upcoming budget are
    influenced by the results of previously enacted budgets, including the
    one for the fiscal year in progress, and reactions to the last proposed
    budget, which is being considered by Congress. Decisions also are
    influenced by projections of the economic outlook that are prepared
    jointly by the Council of Economic Advisers, OMB, and the Treasury
    Department.
      In the fall, agencies submit budget requests to OMB, where analysts
    review them and identify for OMB officials issues that need to be
    discussed with agencies. Many issues are resolved between OMB and the
    agency. Others require the involvement of the President and White House
    policy officials. This decision-making process is usually completed by
    late December. At that time, the final stage of developing detailed
    budget data and the preparation of the budget documents begins.
      The decision-makers must consider the effects of economic and
    technical assumptions on the budget estimates. Interest rates, economic
    growth, the rate of inflation, employment levels, and the size of the
    beneficiary populations are some of the assumptions that must be made.
    Small changes in these assumptions can affect budget estimates by
    billions of dollars. (Chapter 1, ``Economic Assumptions,'' in the
    Analytical Perspectives volume of the 1997 budget provides more
    information on this subject.)
    [[Page 326]]
      Budget decisions must also take into account any statutory limitations
    on receipts, outlays, and the deficit (see Budget Enforcement below).
      Thus, the budget formulation process involves the simultaneous
    consideration of the resource needs of individual programs, the
    allocation of resources among the functions of the Government, the total
    outlays and receipts that are appropriate in relation to current and
    prospective economic conditions, and statutory constraints.
      The transmittal of the President's budget to Congress is scheduled in
    law to occur on or after the first Monday in January but not later than
    the first Monday in February of each year. This is eight to nine months
    before the beginning of the next fiscal year on October first.
      For various reasons, some parts or all of the budget documents have
    been transmitted after the scheduled date. One reason is that the
    current timing does not require an outgoing President to transmit a
    budget, and it is impractical for an incoming President to complete a
    budget within a few days of taking office on January 20th. President
    Clinton, the first President subject to the current requirement,
    submitted a report to Congress on February 17, 1993, describing the
    comprehensive economic plan he proposed for the Nation and containing
    summary budget information. He transmitted the Budget of the United
    States for 1994 on April 8, 1993.\1\
      \1\The transmittal date was changed in 1990 from the first Monday
    after January 3rd. The report submitted on February 17, 1993, was
    entitled, ``A Vision of Change for America.''
    ---------------------------------------------------------------------------
      In some years, the late or pending enactment of appropriations acts,
    other spending legislation, and tax laws considered in the previous
    budget cycle have delayed preparation and transmittal of complete
    budgets. For this reason, President Reagan submitted his budget for 1988
    forty-five days after the date specified in law. In other years,
    Presidents have submitted abbreviated budget documents on the due date,
    sending the more detailed documents weeks later. This is the case for
    the 1997 budget. President Clinton transmitted a budget document to
    Congress on February 5, 1996. It provided a thematic overview of his
    priorities and the Administration's latest assumptions about the
    economy. Because of uncertainty over 1996 appropriations as well as
    possible changes in mandatory programs and tax policy, OMB was unable to
    provide by that date all of the material normally contained in the
    President's budget. That material is being transmitted in mid-March
    1996.
                             Congressional Action\2\
      \2\For a fuller discussion of the congressional budget process, see
    Allen Schick, Robert Keith, and Edward Davis, Manual on the Federal
    Budget Process (Congressional Research Service Report 91-902 GOV,
    December 24, 1991) and Davis and Keith, Budget Process Changes Adopted
    in August 1993 (CRS Report 93-778 GOV, December 6, 1993).
    ---------------------------------------------------------------------------
      Congress considers the President's budget proposals and approves,
    modifies, or disapproves them. It can change funding levels, eliminate
    programs, or add programs not requested by the President. It can add or
    eliminate taxes and other sources of receipts, or make other changes
    that affect the amount of receipts collected.
      Congressional review of the budget begins shortly after the President
    transmits the budget to Congress. Under the procedures established by
    the Congressional Budget Act of 1974, Congress considers budget totals
    before completing action on individual appropriations. The Act requires
    each standing committee of the House and Senate to recommend budget
    levels and report legislative plans concerning matters within the
    committee's jurisdiction to the Budget Committee in each body. The
    Budget Committees then initiate the concurrent resolution on the budget.
    The budget resolution sets appropriate levels for total receipts and for
    budget authority and outlays, in total and by functional category (see
    Functional Classification below). It also sets appropriate levels for
    the budget deficit (or surplus) and debt.
      The explanatory statement that accompanies the budget resolution
    allocates amounts of budget authority and outlays within the functional
    category totals to the committees that have jurisdiction over the
    programs in the functions. The House and Senate Appropriations
    Committees are required, in turn, to allocate amounts of budget
    authority and outlays among its respective subcommittees. Other
    committees may make allocations among their subcommittees but are not
    required to. There is no allocation at the program level. However, the
    functional allocations are based on certain assumptions about the level
    of funding for major programs. These assumptions may be included in the
    explanatory statement, but they are not binding on the committees of
    jurisdiction. The budget resolution may contain ``reconciliation
    directives,'' which are discussed below.
      The budget resolution is scheduled to be adopted by the whole Congress
    by April 15 of each year, but passage is often delayed. After passage of
    the budget resolution, a point of order can be raised to block
    consideration of bills that would cause a committee's allocation to be
    exceeded. Like the President's budget, the budget resolution is subject
    to spending limitations imposed in law through 1998.
      Budget resolutions are not laws and, therefore, do not require the
    President's approval. However, Congress considers the Administration's
    views, because legislation developed to meet congressional budget
    allocations does require the President's approval. In some years, the
    President and the joint leadership of Congress have formally agreed on
    the framework of a deficit reduction plan. These agreements were
    reflected in the budget resolution and legislation passed for those
    years.
      Congress does not enact a budget as such. It provides spending
    authority for specified purposes in several appropriations acts each
    year (usually thirteen). It also enacts changes each year in permanent
    laws that affect spending and receipts.
      In making appropriations, Congress does not vote on the level of
    outlays (spending) directly, but rather on budget authority, which is
    the authority to incur legally binding obligations of the Government
    that will result in immediate or future outlays. In a separate process,
    prior to making appropriations, Congress usually enacts
    [[Page 327]]
    legislation that
    authorizes an agency to carry out a particular program and, in some
    cases, includes limits on the amount that can be appropriated for the
    program. Some programs require annual authorizing legislation, some are
    authorized for a specified number of years, and others are authorized
    indefinitely. Congress may enact appropriations for a program even
    though there is no specific authorization for it.
      Appropriations bills are initiated in the House. The Appropriations
    Committee in each body has jurisdiction over annual appropriations.
    Those committees are divided into subcommittees that hold hearings and
    review detailed budget justification materials prepared by the agencies
    within the subcommittee's jurisdiction. After a bill has been approved
    by the committee and by the whole House, usually with amendments to the
    original version, it is forwarded to the Senate, where a similar review
    follows. In case of disagreement between the two Houses of Congress, a
    conference committee (consisting of Members of both bodies) meets to
    resolve the differences. The report of the conference committee is
    returned to both Houses for approval. When the measure is agreed to,
    first in the House and then in the Senate, it is ready to be transmitted
    to the President as an enrolled bill, for approval or veto.
      If action on one or more appropriations bills is not completed by the
    beginning of the fiscal year, Congress enacts a joint continuing
    resolution to provide authority for the affected agencies to continue
    operations at some specified level up to a specific date or until their
    regular appropriations are enacted. In some years, a portion or all of
    the Government has been funded for the entire year by a continuing
    resolution. Continuing resolutions must be presented to the President
    for approval or veto.
      Congress provides spending authority in permanent laws as well as in
    appropriations acts. These are laws that do not need to be reenacted
    each year. In fact, while spending authority for the majority of Federal
    programs is provided each year in appropriations acts, most of the total
    spending authority available in a year is provided by permanent laws.
    This is because the budget authority for interest on the public debt
    ($332 billion in 1995) and a few programs with large amounts of
    obligations each year, such as social security ($333 billion in 1995),
    are funded by permanent law. The outlays from permanent budget
    authority, together with the outlays from obligations incurred with
    budget authority provided in previous years, account for the majority of
    the outlay total for any year. Therefore, the majority of outlays in a
    year are not controlled through appropriations actions for that year.
    The types of budget authority, their control by Congress, and the
    relation of outlays to budget authority are discussed in more detail in
    later in the chapter.
      Almost all taxes and most other receipts result from permanent laws.
    Tax bills are initiated in the House. The House Ways and Means Committee
    and the Senate Finance Committee have jurisdiction over tax laws.
      The budget resolution often includes reconciliation directives, which
    require authorizing committees to change permanent laws. They instruct
    each designated committee to make changes in the laws under the
    committee's jurisdiction that will change the levels of receipts and
    spending controlled by the laws. The instructions specify the dollar
    amount of changes that each designated committee is expected to achieve
    through changes in law, but do not specify the laws to be changed or the
    changes to be made. However, the changes in receipt and outlay amounts
    are based on certain assumptions about how laws would be changed, and
    these assumptions may be included in the explanatory statement
    accompanying the budget resolution. Like other assumptions included in
    the explanatory statement, these are not binding on the committees of
    jurisdiction.
      The committees that are subject to reconciliation directives are
    expected to prepare implementing legislation. Such legislation may, for
    example, change the tax code, change benefit formulas or eligibility
    requirements for entitlement programs, or authorize Government agencies
    to charge fees to cover some of their costs. In some years, Congress has
    enacted an omnibus budget reconciliation act, which combines the
    amendments to implement reconciliation directives in a single act. These
    acts, together with appropriations acts for the year, often implement
    agreements between the President and the Congress. They may include
    other matters, such as laws providing the means for enforcing these
    agreements, as described below.
                               Budget Enforcement
      The Budget Enforcement Act of 1990 (BEA) significantly amended the
    laws pertaining to the budget process, including the Congressional
    Budget Act, the Balanced Budget and Emergency Deficit Control Act, and
    the law pertaining to the President's budget (see PRINCIPAL BUDGET LAWS,
    later in the chapter). The BEA constrains legislation that would
    increase spending or decrease receipts through 1998. As this budget was
    being prepared, the Administration and Congress were considering the
    extension of the BEA through 2002.
      The BEA divides spending into two types--discretionary spending and
    direct spending. Direct spending is more commonly called mandatory
    spending. Discretionary spending is controlled through annual
    appropriations acts. Funding for salaries and other operating expenses
    of Government agencies, for example, is usually discretionary because it
    is usually provided by appropriations acts. Mandatory spending is
    controlled by permanent laws. Medicare and medicaid payments,
    unemployment insurance benefits, and farm price supports are examples of
    mandatory spending, because payments for those purposes are authorized
    in permanent laws. The BEA specifically defines funding for the Food
    Stamp program as mandatory spending, even though funding for the program
    is provided in appropriations acts. The BEA includes receipts under the
    same rules that apply to mandatory spending, because receipts are
    generally controlled by permanent laws.
    [[Page 328]]
      The BEA constrains discretionary spending differently from mandatory
    spending and receipts. Discretionary spending is constrained by dollar
    limits (``caps'') on total budget authority and outlays for this
    category for each fiscal year through 1998. The caps are adjusted when
    the budget is transmitted each year for the difference between the
    inflation rates assumed when the caps were enacted and the actual
    inflation rates. The BEA also requires the caps to be adjusted for
    certain other reasons, such as to reflect the enactment of emergency
    appropriations. The caps for this budget, adjusted to reflect proposed
    changes, are shown in the following table:

                          DISCRETIONARY SPENDING LIMITS
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                       1996    1997    1998
    ------------------------------------------------------------------------
    Budget authority................................   495.8   496.8   501.5
    Outlays.........................................   539.1   538.6   534.2
    ------------------------------------------------------------------------

      If the amount of budget authority provided in appropriations acts for
    the year exceeds the discretionary cap on budget authority, or the
    amount of outlays estimated to result from this budget authority is
    estimated to exceed the discretionary cap on outlays, the BEA specifies
    a procedure, called sequestration, for reducing discretionary spending.
    Under a sequester, spending for most discretionary programs is reduced
    by a uniform percentage. Special rules apply in reducing some programs,
    and some programs are exempt from sequester by law.
      The Violent Crime Control and Law Enforcement Act of 1994 created the
    Violent Crime Reduction Trust Fund to earmark funding for specified
    programs. It appropriated a specified amount to the Fund for each year
    from 1995 through 2000. Spending from the Fund is controlled by annual
    appropriations acts, but it is not subject to the general purpose
    discretionary caps. Instead, the Act specified outlay caps, which are
    not adjustable, and effectively capped budget authority, as shown in the
    following table:

                         VIOLENT CRIME REDUCTION LIMITS
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                     1996     1997     1998
    ------------------------------------------------------------------------
    Budget authority.............................     4.3      5.0      5.5
    Outlays......................................     2.3      3.9      4.9
    ------------------------------------------------------------------------

      A separate sequester procedure, similar to the one required for
    general purpose discretionary spending, applies to amounts appropriated
    from the Trust Fund if the Violent Crime Reduction caps are exceeded.
      The BEA constrains mandatory spending and receipts differently. Laws
    that would increase mandatory spending or decrease receipts are
    constrained through ``pay-as-you-go'' (PAYGO) rules. Under these rules,
    the cumulative effects of legislation affecting mandatory spending or
    receipts must not increase the deficit. Legislated increases in benefit
    payments, for example, have to be offset by legislated reductions in
    other mandatory spending or increases in receipts. Following the end of
    a session of Congress, OMB estimates the net effect on the deficit of
    laws enacted since the BEA was passed that affect mandatory spending and
    receipts. If there is an estimated net increase in the deficit for the
    current fiscal year and the budget year combined, the BEA specifies
    sequester procedures for the uniform reduction of most non-exempt
    mandatory spending programs. Special rules apply in reducing some non-
    exempt programs. Less than 3 percent of all mandatory spending is
    sequesterable by either uniform reduction or special rule; the rest is
    exempt from sequester by law.
      The PAYGO rules do not apply to increases in mandatory spending or
    decreases in receipts that are not the result of new laws. For example,
    mandatory spending for benefit programs, such as unemployment insurance,
    rises when the population of eligible beneficiaries rises, and many
    benefit payments are automatically increased for inflation under
    existing laws. Tax receipts decrease when the profits of private
    businesses decline as the result of economic conditions. To address the
    problem of rising mandatory spending, President Clinton issued Executive
    Order No. 12857, which established targets for mandatory spending
    (excluding deposit insurance and interest on the public debt) for 1994
    through 1997. The targets were based on estimates made in 1994 and may
    be adjusted for unanticipated increases in the number of beneficiaries.
    If there is an actual or projected overage in any year, the President
    must submit a message to Congress, explaining the cause. Depending on
    the economic circumstances at the time, the President may recommend
    recouping or eliminating all, some, or none of the overage. If the
    President recommends reducing the overage, he must specify how. The
    House has instituted rules to expedite its response to such a message.
    (Chapter 13, ``Review of Direct Spending and Receipts,'' in the
    Analytical Perspectives volume of the 1997 budget provides more
    information on this subject.)
      The BEA requires OMB to make the estimates and calculations that
    determine whether there is to be a sequester and report them to the
    President and Congress. The Congressional Budget Office (CBO) is
    required to make the same estimates and calculations, and the Director
    of OMB is required to explain any differences between the OMB and CBO
    estimates. The estimates and calculations by OMB are the basis for
    sequester orders issued by the President. The President's orders may not
    change any of the particulars of the OMB report. The General Accounting
    Office is required to prepare compliance reports.
      OMB and CBO are required to publish three sequestration reports--a
    ``preview'' report at the time the President submits the budget, an
    ``update'' report in August, and a ``final'' report at the end of a
    session of Congress (usually in the fall of each year). The preview
    report discusses the status of discretionary and PAYGO sequestration,
    based on current law. This report also explains the adjustments that are
    required
    [[Page 329]]
    by law to the discretionary caps and publishes the revised
    caps. The preview report estimates are revised in the update and final
    reports to reflect the effects of laws enacted since the preview report.
    In addition to these reports, OMB and CBO are required to estimate the
    effects of appropriations acts and PAYGO laws immediately after each one
    is enacted. The estimates in the OMB final report trigger a sequester if
    the appropriations enacted for the current year exceed the caps or if
    the cumulative effect of PAYGO legislation is estimated to increase the
    deficit.
      From the end of a session of Congress through the following June 30th,
    discretionary sequesters take place whenever an appropriations act for
    the current fiscal year causes a cap to be exceeded. Because a sequester
    in the last quarter of a fiscal year might be too disruptive, the BEA
    specifies that a sequester that otherwise would be required then is to
    be accomplished by reducing the limit for the next fiscal year. These
    requirements ensure that supplemental appropriations enacted during the
    fiscal year are covered by the budget enforcement provisions.
                                Budget Execution
      Government officials are generally required to spend no more and no
    less than has been appropriated, and they may use funds only for
    purposes specified in law. The Antideficiency Act prohibits government
    officials from spending or obligating the government to spend in advance
    of an appropriation, unless specific authority to do so has been
    provided in law. Additionally, the Act requires the President to
    apportion the funds available to most executive branch agencies. The
    President has delegated this authority to OMB, which usually apportions
    by time periods (usually by quarter of the fiscal year) and sometimes by
    activities. Agencies may request that an account be reapportioned during
    the year to accommodate changing circumstances. This system helps to
    ensure that funds are available to cover operations for the entire year.
      If changes in laws or other factors make it necessary, Congress may
    enact supplemental appropriations. For example, a supplemental
    appropriation might be required to respond to an unusually severe
    natural disaster.
      On the other hand, changing circumstances may reduce the need for
    certain spending for which funds have been appropriated. The President
    may withhold appropriated amounts from obligation only under certain
    limited circumstances--to provide for contingencies, to achieve savings
    made possible through changes in requirements or greater efficiency of
    operations, or as otherwise specifically provided in law. The
    Impoundment Control Act of 1974 specifies the procedures that must be
    followed if funds are withheld. Deferrals, which are temporary
    withholdings, take effect immediately unless overturned by an act of
    Congress. In 1995, a total of $17.8 billion in deferrals was reported to
    Congress and none was overturned. Rescissions, which permanently cancel
    budget authority, do not take effect unless Congress passes a law
    rescinding them. If such a law is not passed within 45 days of
    continuous session, the withheld funds must be made available for
    spending. In total, Congress has rescinded less than one-third of the
    amount of funds that Presidents have proposed for rescission since
    enactment of the Impoundment Control Act. In 1995, the President
    proposed rescissions totalling $1.2 billion, and Congress rescinded a
    total of $0.8 billion.

                                                     Budget Calendar

      The following timetable highlights the scheduled dates for significant budget events during the year.

    Between the 1st Monday in January and the 1st
     Monday in February............................  President transmits the budget, including a sequester preview
                                                      report.

    Six weeks later................................  Congressional committees report budget estimates to Budget
                                                      Committees.

    April 15.......................................  Action to be completed on congressional budget resolution.

    May 15.........................................  House consideration of annual appropriations bills may begin.

    June 15........................................  Action to be completed on reconciliation.

    June 30........................................  Action on appropriations to be completed by House.

    July 15........................................  President transmits Mid-Session Review of the budget.

    August 20......................................  OMB updates the sequester preview.

    October 1......................................  Fiscal year begins.

    15 days after the end of a session of Congress.  OMB issues final sequester report, and the President issues a
                                                      sequester order, if necessary.

    [[Page 330]]

                             COVERAGE OF THE BUDGET
                      Federal Government and Budget Totals
      The budget documents provide information on all Federal agencies and
    programs. The total receipts and outlays of the Federal Government are
    composed of both on-budget receipts and outlays and receipts and outlays
    that, by law, are designated as off-budget. By law, the receipts and
    outlays of social security (the Federal Old-Age and Survivors Insurance
    and the Federal Disability Insurance trust funds) and the Postal Service
    Fund are excluded from the budget totals and from the calculation of the
    deficit for Budget Enforcement Act purposes. The off-budget transactions
    are separately identified in the budget. The on-budget and off-budget
    amounts are added together to derive the unified totals for the Federal
    Government. These are sometimes referred to as the unified or
    consolidated budget totals.

                TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                   1995     1996      1997
                                                  actual  estimate  estimate
    ------------------------------------------------------------------------
    On-budget:
      Budget authority.........................    1,253     1,263     1,319
      Outlays..................................    1,230     1,270     1,318
      Receipts.................................    1,004     1,059     1,107
                                                ----------------------------
        Deficit................................     -226      -211      -210
    Off-budget:
      Budget authority.........................      291       308       320
      Outlays..................................      289       302       318
      Receipts.................................      351       367       388
                                                ----------------------------
        Surplus................................       62        65        70
    Federal Government:
      Budget authority.........................    1,543     1,572     1,638
      Outlays..................................    1,519     1,572     1,635
      Receipts.................................    1,355     1,427     1,495
                                                ----------------------------
        Deficit................................     -164      -146      -140
    ------------------------------------------------------------------------

      Neither the on-budget nor the off-budget totals include transactions
    of Government-sponsored enterprises, such as the Federal National
    Mortgage Association (Fannie Mae) and the Student Loan Marketing
    Association (Sallie Mae). These enterprises were established by Federal
    law for public policy purposes but are privately owned and operated
    corporations. Because of their close relationship to the Government,
    these enterprises are discussed in several parts of the budget, and
    their financial data are reported in the Appendix to the Budget of the
    United States Government and some detailed tables.
      A presentation for the Board of Governors of the Federal Reserve
    System is included in the Appendix for information only. The amounts are
    not included in either the on-budget or off-budget totals because of the
    independent status of the System. However, the Federal Reserve System's
    net earnings are transferred annually to the Treasury and are recorded
    in the budget as receipts.
                            Functional Classification
      The functional classification arrays budget authority, outlays, and
    other budget data according to the major purpose served--such as
    agriculture, income security, and national defense. There are nineteen
    major functions, most of which are divided into subfunctions. For
    example, the Agriculture function is divided into Farm Income
    Stabilization and Agricultural Research and Services. The functional
    classification is an integral part of the congressional budget process,
    and the functional array meets the Congressional Budget Act requirement
    for a presentation in the budget by national needs and agency missions
    and programs.
      The following criteria are used in the establishment of functional
    categories and the assignment of activities to them:

    [[Page 339]]

                            GLOSSARY OF BUDGET TERMS

      Balances of budget authority--These are amounts of budget authority
    provided in previous years that have not been outlayed.

      Obligated balances--These are amounts of budget authority that have
    been obligated but not yet outlayed. Unobligated balances are amounts
    that have not been obligated and that remain available for obligation
    under law.

      Baseline--An estimate of the receipts, outlays, and deficit that would
    result from continuing current law through the period covered by the
    budget.

      Breach--A breach is the amount by which new budget authority or
    outlays within a category of discretionary appropriations for a fiscal
    year is above the cap on new budget authority or outlays for that
    category for that year.

      Budget--The Budget of the United States Government sets forth the
    President's comprehensive financial plan for allocating resources and
    indicates the President's priorities for the Federal Government.

      Budget authority (BA)--Budget authority is the authority becoming
    available during the year to enter into obligations that will result in
    immediate or future outlays of Government funds. (For a description of
    the several forms of budget authority, see Budget Authority and Other
    Budgetary Resources earlier in this chapter.).

      Budgetary resources--Budgetary resources comprise new budget authority
    and unobligated balances of budget authority provided previous years.

      Budget totals--The budget includes totals for budget authority,
    outlays, and receipts. Some presentations in the budget distinguish on-
    budget totals from off-budget totals. On-budget totals reflect the
    transactions of all Federal Government entities except those excluded
    from the budget totals by law. Off-budget totals reflect the
    transactions of Government entities that are excluded from the on-budget
    totals by law. Currently excluded are the social security trust funds
    (Federal Old-Age and Survivors Insurance and Federal Disability
    Insurance Trust Funds) and the Postal Service Fund. The on- and off-
    budget totals are combined to derive a total for Federal activity.

      Cap--This is the term commonly used to refer to legal limits on the
    budget authority and outlays for each fiscal year provided by
    discretionary appropriations. A sequester is required if an
    appropriation for a category causes a breach in the cap.

      Credit program account--A credit program account receives an
    appropriation for the subsidy cost of a direct loan or loan guarantee
    program and disburses such cost to a financing account for the program
    when the direct loan or guaranteed loan is disbursed.

      Deficit--A deficit is the amount by which outlays exceed receipts.

      Direct loan--A direct loan is a disbursement of funds by the
    Government to a non-Federal borrower under a contract that requires the
    repayment of such funds with or without interest. The term includes the
    purchase of, or participation in, a loan made by another lender. The
    term also includes the sale of a Government asset on credit terms of
    more than 90 days duration. The term does not include the acquisition of
    a federally guaranteed loan in satisfaction of default claims or the
    price support loans of the Commodity Credit Corporation. (Cf. loan
    guarantee.)

      Direct spending--Direct spending, more commonly called mandatory
    spending, is a category of outlays from budget authority provided in law
    other than appropriations acts, entitlement authority, and the budget
    authority for the food stamp program. (Cf. discretionary
    appropriations.)

      Discretionary appropriations--Discretionary appropriations is a
    category of budget authority that comprises budgetary resources (except
    those provided to fund direct-spending programs) provided in
    appropriations acts. (Cf. direct spending.)

      Emergency spending--Emergency spending is spending that the President
    and the Congress have designated as an emergency requirement. Such
    spending is not subject to the limits on discretionary spending, if it
    is discretionary spending, or the pay-as-you-go rules, if it is direct
    spending.

      Federal funds--Federal funds are the moneys collected and spent by the
    Government other than those designated as trust funds. Federal funds
    include general, special, public enterprise, and intragovernmental
    funds. (Cf. trust funds.)

      Financing account--A financing account receives the cost payments from
    a credit program account and includes other cash flows to and from the
    Government resulting from direct loan obligations or loan guarantee
    commitments made on or after October 1, 1991. At least one financing
    account is associated with each credit program account. For programs
    that make both direct loans and loan guarantees, there are separate
    financing accounts for the direct loans and the loan guarantees. The
    transactions of the financing accounts are not included in the budget
    totals. (Cf. liquidating account.)

      Fiscal year--The fiscal year is the Government's accounting period. It
    begins on October 1st and ends on September 30th, and is designated by
    the calendar year
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    in which it ends. Before 1976, the fiscal year began
    on July 1 and ended on June 30.

      General fund--The general fund consists of accounts for receipts not
    earmarked by law for a specific purpose, the proceeds of general
    borrowing, and the expenditure of these moneys.

      Governmental receipts--These are collections from the public that
    result primarily from the exercise of the Government's sovereign or
    governmental powers. Governmental receipts consist mostly of individual
    and corporation income taxes and social insurance taxes, but also
    include excise taxes, compulsory user charges, customs duties, court
    fines, certain license fees, and deposits of earnings by the Federal
    Reserve System. Gifts and donations are also counted as governmental
    receipts. They are compared to outlays in calculating a surplus or
    deficit. (Cf. offsetting collections.)

      Liquidating account--A liquidating account includes all cash flows to
    and from the Government resulting from direct loan obligations and loan
    guarantee commitments made prior to October 1, 1991. (Cf. financing
    account.)

      Loan guarantee--A loan guarantee is any guarantee, insurance, or other
    pledge with respect to the payment of all or a part of the principal or
    interest on any debt obligation of a non-Federal borrower to a non-
    Federal lender. The term does not include the insurance of deposits,
    shares, or other withdrawable accounts in financial institutions. (Cf.
    direct loan.)

      Mandatory spending--See direct spending.

      Intragovernmental funds--Intragovernmental funds are accounts for
    business-type or market-oriented activities conducted primarily within
    and between Government agencies and financed by offsetting collections
    that are credited directly to the fund.

      Obligations--Obligations are binding agreements that will result in
    outlays, immediately or in the future. Budgetary resources must be
    available before obligations can be incurred legally.

      Off-budget--See budget totals.

      Offsetting collections--Offsetting collections are collections from
    the public that result from business-type or market-oriented activities
    and collections from other Government accounts. These collections are
    deducted from gross disbursements in calculating outlays, rather than
    counted in Governmental receipt totals. Some offsetting collections are
    credited directly to expenditure accounts; others, called offsetting
    receipts, are credited to receipt accounts. The authority to spend
    offsetting collections is a form of budget authority. (Cf. governmental
    receipts.)

      Offsetting receipts--See offsetting collections.

      On-budget--See budget totals.

      Outlays--Outlays are the measure of Government spending. They are
    payments to liquidate obligations (other than the repayment of debt),
    net of refunds and offsetting collections. Outlays generally are
    recorded on a cash basis, but also include cash-equivalent transactions,
    the subsidy cost of direct loans and loan guarantees, and interest
    accrued on public issues of Treasury debt.

      Pay-as-you-go (PAYGO)--This term refers to requirements in law that
    result in a sequester if the estimated combined result of legislation
    affecting direct spending or receipts is an increase in the deficit for
    a fiscal year.

      Public enterprise funds--Public enterprise funds are revolving
    accounts for business or market-oriented activities conducted primarily
    with the public and financed by offsetting collections that are credited
    directly to the fund.

      Receipts--See governmental receipts and offsetting collections.

      Sequester--A sequester is the cancellation of budgetary resources
    provided by discretionary appropriations or direct spending legislation,
    following various procedures prescribed in law. A sequester may occur in
    response to a discretionary appropriation that causes a breach or in
    response to increases in the deficit resulting from the combined result
    of legislation affecting direct spending or receipts (referred to as a
    ``pay-as-you-go'' sequester).

      Special funds--Special funds are Federal fund accounts for receipts
    earmarked for specific purposes and the associated expenditure of those
    receipts. (Cf. trust funds.)

      Subsidy--This term means the same as cost when it is used in
    connection with Federal credit programs.

      Surplus--A surplus is the amount by which receipts exceed outlays.

      Supplemental appropriation--A supplemental appropriation is one
    enacted subsequent to a regular annual appropriations act when the need
    for funds is too urgent to be postponed until the next regular annual
    appropriations act.

      Trust funds--Trust funds are accounts, designated by law as trust
    funds, for receipts earmarked for specific purposes and the associated
    expenditure of those receipts. (Cf. special funds.)