[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]


                                     

========================================================================

                       BUDGET SYSTEM AND CONCEPTS

                              AND GLOSSARY

========================================================================

   
[[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 
[[Page 340]]
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.)