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


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                       BUDGET SYSTEM AND CONCEPTS

                              AND GLOSSARY

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                 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 1998 budget covers four years beyond the budget year 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, the unemployment rate, 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 1998 budget provides more 
information on this subject.)
  Budget decisions must also take into account any statutory limitations 
on receipts, outlays, and the deficit (see Budget Enforcement below).

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  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. For example, President 
Clinton transmitted an abbreviated budget document to Congress on 
February 5, 1996, because of uncertainty over 1996 appropriations as 
well as possible changes in mandatory programs and tax policy. A Budget 
Supplement and other budget volumes were transmitted in March 1996. This 
budget is being transmitted on February 6, 1997, three days after the 
date designated in the law. The delay is so that the budget will not 
precede the State of the Union address, which was scheduled by the 
President in consultation with the Congress for February 4th.

                        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, 218p.); Keith and Davis, Budget Process Changes Made 
in the 102nd-103rd Congress (1991-1994) (Congressional 
Research Service Report 95-457 GOV, March 31, 1995, 14 p.); and Keith, 
Budget Process Changes Made in the 104th Congress (1995-1996) 
(Congressional Research Service Report 97-44 GOV, December 27, 1996, 19 
p.)
---------------------------------------------------------------------------
  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.
  Congress does not enact a budget as such. Through the process of 
adopting a budget resolution (described below), it agrees on appropriate 
levels for total spending, receipts, and other matters. The budget 
resolution then provides the framework within which congressional 
committees prepare appropriations bills and other spending and receipts 
legislation. Congress 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 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.
  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 their respective subcommittees. Other 
committees with jurisdiction over spending and receipts 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 reso-


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lution, 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.
  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 (see 
discussion on Line Item Veto below).
  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, a majority 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 ($344 billion in 1996) and a few programs with large amounts of 
obligations each year, such as social security ($352 billion in 1996), 
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. The Administration 
and Congress are expected to consider an extension of the BEA through 
2002 in 1997.
  The BEA divides spending into two types--discretionary spending and 
direct 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. Direct spending is more 
commonly called mandatory spending. 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 


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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.
  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................................   522.4   527.0   528.3
Outlays.........................................   550.4   547.1   541.5
------------------------------------------------------------------------

  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. Only 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 14, ``Review of Direct Spending and Receipts,'' in the 
Analytical Perspectives volume of the 1998 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.

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  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 by law to the discretionary caps and publishes the revised 
caps. (See Chapter 13, ``Preview Report,'' in the Analytical 
Perspectives volume of the 1998 budget.) 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 subject to the budget enforcement provisions.

                             Line Item Veto

   In 1996, Congress enacted the Line Item Veto Act, granting the 
President limited authority to cancel new spending and limited tax 
benefits when he signs laws enacted by the Congress. This authority is 
effective for calendar years 1997 through 2004.
   The Line Item Veto Act authorizes the President to cancel any item of 
discretionary or direct spending or any limited tax benefit by sending a 
special message to Congress identifying the item within 5 days of 
signing the act containing the item. Discretionary and direct spending 
are described under Budget Enforcement above. A limited tax benefit is 
defined in the Act. The President may cancel whole individual amounts 
specified in appropriations acts, or in the congressional reports that 
accompany such acts, but cannot reduce amounts. The President also can 
cancel any provision of a law that would increase the level of direct 
spending or provide a limited tax benefit. Cancellations are effective 
upon receipt by Congress and remain in effect unless overturned by a law 
disapproving the cancellations. Congress may disapprove all or only 
selected cancellations.
   The Line Item Veto Act includes provisions to ensure that canceled 
items will be applied to deficit reduction. If an item of discretionary 
spending is canceled, the limits on discretionary spending under the BEA 
(see Budget Enforcement) must be reduced by an equal amount. If an item 
of new direct spending or a limited tax benefit provision is canceled, 
the effect on the deficit may not be used as an offset to increases in 
direct spending or reductions in receipts under the PAYGO rules. 
Requirements such as these are sometimes referred to as a ``lockbox'' 
mechanism.

                            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 1996, a total of $3.7 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 1996, the President 
proposed rescissions totalling $1.4 billion, and Congress rescinded a 
total of $1.0 billion.

                                     


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                                                 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.                                
                                                                                                                

                                     

                         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)                        
------------------------------------------------------------------------
                                               1996     1997      1998  
                                              actual  estimate  estimate
------------------------------------------------------------------------
On-budget:                                                              
  Budget authority.........................    1,274     1,332     1,379
  Outlays..................................    1,260     1,316     1,359
  Receipts.................................    1,086     1,117     1,162
                                            ----------------------------
    Deficit................................     -174      -199      -197
Off-budget:                                                             
  Budget authority.........................      307       321       331
  Outlays..................................      300       315       329
  Receipts.................................      367       389       405
                                            ----------------------------
    Surplus................................       67        74        76
Federal Government:                                                     
  Budget authority.........................    1,581     1,653     1,710
  Outlays..................................    1,560     1,631     1,687
  Receipts.................................    1,453     1,505     1,567
                                            ----------------------------
    Deficit................................     -107      -126      -121
------------------------------------------------------------------------

  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 


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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:
    A function comprises activities with similar purposes 
          addressing an important national need. The emphasis is on what 
          the Federal Government seeks to accomplish rather than the 
          means of accomplishment, the objects purchased, or the 
          clientele or geographic area served.
    A function must be of continuing national importance, and 
          the amounts attributable to it must be significant.
    Each basic unit being classified (generally the 
          appropriation or fund account) usually is classified according 
          to its predominant purpose and assigned to only one 
          subfunction. However, some large accounts that serve more than 
          one major purpose are subdivided into two or more 
          subfunctions.
    Activities and programs are normally classified according to 
          their primary purpose (or function) regardless of which 
          agencies conduct the activities.
  Section VI, ``Investing in the Common Good: The Major Functions of the 
Federal Government'' in the main Budget volume of the 1998 budget 
provides information on government activities by function and 
subfunction.

         Agencies, Accounts, Programs, Projects, and Activities

  Various summary tables in the Analytical Perspectives volume of the 
1998 budget provide information on budget authority, outlays, and 
receipts arrayed by Federal agency. Chapter 26 of that volume, ``Federal 
Programs by Agency and Account,'' consists of a table that lists budget 
authority and outlays by budget account within each agency and the 
totals for each agency of budget authority, outlays, and receipts that 
offset the agency spending totals. The Appendix to the Budget of the 
United States Government provides budgetary, financial, and descriptive 
information about programs, projects, and activities by account within 
each agency. That volume of the budget also presents the most recently 
enacted appropriation language for an account and any changes that are 
proposed to be made for the budget year.

                             Types of Funds

  Agency activities are financed through Federal funds and trust funds.

  Federal funds comprise several types of funds. The general fund, which 
is the greater part of the budget, is credited with receipts not 
earmarked by law for a specific purpose, such as almost all income tax 
receipts, and is also credited with the proceeds of general borrowing. 
General fund appropriation accounts record general fund expenditures. 
General fund appropriations are drawn from general fund receipts 
collectively and, therefore, are not specifically linked to receipt 
accounts. Special funds consist of receipt accounts for Federal fund 
receipts that are earmarked by law for specific purposes and associated 
appropriation accounts for the expenditure of the earmarked receipts. 
Public enterprise (revolving) funds are used for programs authorized by 
law to conduct a cycle of business-type operations, primarily with the 
public, in which outlays generate collections. Intragovernmental funds 
are revolving funds that conduct business-type operations primarily 
within and between Government agencies. The collections and the outlays 
of revolving funds are recorded in the same account.
  Trust funds are established to account for the receipt and expenditure 
of monies by the Government for carrying out specific purposes and 
programs in accordance with the terms of a statute that designates the 
fund as a trust fund (such as the Highway Trust Fund) or for carrying 
out the stipulations of a trust agreement (such as any of several trust 
funds for gifts and donations for specific purposes). Trust revolving 
funds are trust funds credited with collections earmarked by law to 
carry out a cycle of business-type operations.
  The Federal budget meaning of the term ``trust'' differs significantly 
from its private sector usage. In the private sector, the beneficiary of 
a trust usually owns the trust's assets, which are managed by a trustee 
who must follow the stipulations of the trust. In contrast, the Federal 
Government owns the assets of most Federal trust funds, and it can raise 
or lower future trust fund collections and payments, or change the 
purposes for which the collections are used, by changing existing laws. 
There is no substantive difference between a trust fund and a special 
fund or between a trust revolving fund and a public enterprise revolving 
fund. (Chapter 17, ``Trust Funds and Federal Funds,'' in the Analytical 
Perspectives volume of the 1998 budget provides more information on this 
subject.)

          Current Operating Expenditures and Capital Investment

  The budget includes all types of spending, including both current 
operating expenditures and capital investment. Capital investment 
includes direct purchases of land, structures, and equipment. It also 
includes subsidies for capital investment provided by direct loans and 
loan guarantees; the purchase of other financial assets; grants to state 
and local governments for the purchase of physical assets; and the 
conduct of research, development, education, and training. (Chapter 6, 
``Federal Investment Spending and Capital Budget-


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ing,'' in the Analytical Perspectives volume of the 1998 budget provides more information on capital investment.)

                               COLLECTIONS

                               In General

  Money collected by the Government is classified into two major 
categories:
    Governmental receipts, which are compared in total to 
          outlays (net of offsetting collections) in calculating the 
          surplus or deficit.
    Offsetting collections, which are deducted from gross 
          outlays to produce net outlay figures.

                          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 usually counted as governmental receipts. Total receipts 
for the Federal Government include both on-budget and off-budget 
receipts (see the table, ``Totals for the Budget and Federal 
Government,'' which appears earlier in this chapter.)

                         Offsetting Collections

  These are amounts received from the public as a result of business-
like or market-oriented activities (for example, proceeds from the sale 
of postage stamps or electricity, fees for admittance to recreation 
areas, or the proceeds from the sale of Government-owned land) and 
amounts collected by one Government account from another. Offsetting 
collections from the public are deducted from gross budget authority and 
outlays, rather than combined with governmental receipts. The purpose of 
this treatment is to produce budget totals for receipts, budget 
authority, and outlays that represent governmental rather than market 
activity. Intragovernmental offsetting collections are deducted from 
gross budget authority and outlays so that the budget totals measure the 
transactions of the Government with the public.
  Offsetting collections are classified into two major categories: 
offsetting collections credited to expenditure accounts, and offsetting 
receipts. The accounting for each type differs.

         Offsetting Collections Credited to Expenditure Accounts

  Some laws authorize collections to be credited directly to the account 
from which they will be expended and, usually, to be spent for the 
purpose of the account without further action by Congress. This is the 
case for most revolving funds and many expenditure accounts of other 
types. These collections may be from either the public or other 
expenditure accounts. For example, a permanent law authorizes the Postal 
Service to use collections from the sale of stamps to finance its 
operations without a requirement for annual appropriations. The 
offsetting collections that are authorized to be spent are recorded as 
budget authority. Sometimes this is not the full amount of the 
offsetting collections, because appropriations acts may contain 
limitations on the obligations that can be financed by budget authority 
from offsetting collections. In those cases, the recorded budget 
authority is adjusted to reflect the amount available to incur 
obligations. The budget authority and outlays of the appropriation or 
fund account are shown both gross (that is, before deducting offsetting 
collections) and net (that is, after deducting offsetting collections). 
Totals for the agency, subfunction, and budget are net of offsetting 
collections.
  While most offsetting collections credited to expenditure accounts 
result from business-like activity or are collected from other 
Government accounts, some are governmental in nature but are required by 
law to be treated as offsetting. These are labeled as ``offsetting 
governmental collections.''

                           Offsetting Receipts

  Offsetting collections that are not authorized to be credited to 
expenditure accounts are credited to general fund, special fund, or 
trust fund receipt accounts and are called offsetting receipts. 
Offsetting receipts are deducted from budget authority and outlays in 
arriving at total budget authority and outlays. In most cases, such 
deductions are made at the subfunction and agency levels. Unlike 
offsetting collections credited to expenditure accounts, offsetting 
receipts do not offset budget authority and outlays at the account 
level. Offsetting receipts are subdivided into three categories, as 
follows:
    Proprietary receipts from the public.--These are collections 
          from the public, deposited in receipt accounts, that arise out 
          of the business-type or market-oriented activities of the 
          Government. Most proprietary receipts are deducted from the 
          budget authority and outlay totals of the agency that conducts 
          the activity generating the receipt and of the subfunction to 
          which the activity is assigned. For example, fees for using 
          National Parks are deducted from the totals for the Department 
          of Interior, which has responsibility for the parks, and the 
          Recreational Resources subfunction. A limited number of 
          proprietary receipts, however, are not offset against any 
          specific agency or function and are classified as 
          undistributed offsetting receipts. They are deducted from the 
          Gov-


[[Page 343]]

          ernment-wide totals for budget authority and outlays. For 
          example, the collections of rents and royalties from Outer 
          Continental Shelf lands are undistributed because the amounts 
          are large and for the most part are not related to the 
          spending of the agency and subfunction that administers the 
          transactions.
    Intragovernmental transactions.--These are collections from 
          expenditure accounts that are deposited into receipt accounts. 
          Most intragovernmental transactions are deducted from the 
          budget authority and outlays of the agency that conducts the 
          activity generating the receipts and of the subfunction to 
          which the activity is assigned. In two cases, however, 
          intragovernmental transactions appear as special deductions in 
          computing total budget authority and outlays for the 
          Government rather than as offsets at the agency level--
          agencies' payments as employers into employee retirement trust 
          funds and interest received by trust funds. The special 
          treatment for these receipts is necessary because the amounts 
          are large and would distort the agency totals, as measures of 
          the agency's activities, if they were attributed to the 
          agency.
    Offsetting governmental receipts.--These are collections 
          that are governmental in nature but are required by law to be 
          treated as offsetting and are not authorized to be credited to 
          expenditure accounts.
  There are several categories of intragovernmental transactions. 
Intrabudgetary transactions include all payments from on-budget 
expenditure accounts to on-budget receipt accounts. These are subdivided 
into three categories: (1) interfund transactions, where the payment is 
from an expenditure account in one fund group (either Federal funds or 
trust funds) to a receipt account in the other fund group; (2) Federal 
intrafund transactions, where the payment and receipt both occur within 
the Federal fund group; and (3) trust intrafund transactions, where the 
payment and receipt both occur within the trust fund group. In addition, 
there are intragovernmental transactions that are not intrabudgetary--
payments from on-budget expenditure accounts to off-budget receipt 
accounts, and from off-budget expenditure accounts to on-budget receipt 
accounts.

                                User Fee

  User fee is a general term that refers to fees charged to users 
directly availing themselves of, or subject to, a government service, 
program, or activity, in order to cover the government's costs. It does 
not refer to a separate budget category for collections. User fees are 
classified as governmental receipts or offsetting collections, depending 
on whether the fee results primarily from the exercise of governmental 
powers or from business-like activity. (User fees are discussed in more 
detail in Chapter 4, ``User Fees and Other Collections,'' in the 
Analytical Perspectives volume of the 1998 budget.)

BUDGET AUTHORITY AND OTHER BUDGETARY RESOURCES, OBLIGATIONS, AND OUTLAYS

             Budget Authority and Other Budgetary Resources

  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. Government officials may obligate the 
Government to make outlays only to the extent they have been granted 
budget authority. Budget authority is recorded as a dollar amount in the 
year that it first becomes available. Under circumstances described 
below, unobligated balances of budget authority may be carried over into 
the next year. These balances are not recorded as budget authority 
again. They do, however, constitute a budgetary resource that is 
available for obligation. In some cases, a provision of law (such as a 
limitation on obligations or a benefit formula) precludes the obligation 
of funds that would otherwise be available for obligation and recorded 
as budget authority. In such cases, generally, the amount of budget 
authority recorded is equal to the amount of obligations that can be 
incurred. There are a few exceptions where the amount of budget 
authority recorded is equal to the amounts otherwise available even 
though a limitation precludes the obligation of the full amount.
  In deciding the amount of budget authority to request for a program, 
project, or activity, Government officials estimate the total amount of 
obligations that will need to be incurred to achieve desired goals and 
subtract the amounts of unobligated balances available for these 
purposes. The amount of budget authority requested is influenced by the 
nature of the programs, projects, or activities being financed. For 
current operating expenditures, the amount requested usually is the 
amount estimated to be needed for the year. For major procurement 
programs and construction projects, a full funding policy generally 
applies. Under this policy, an amount that is estimated to be adequate 
to complete the procurement or project must be requested to be 
appropriated in the first year, even though it may be obligated over 
several years. This policy is intended to avoid piecemeal funding of 
programs and projects that cannot be used until they have been 
completed. The 1998 budget includes a variation on this full funding 
policy. For certain capital asset acquisitions (capital assets may 
include land, structures, equipment, and intellectual property that are 
used by the Government), the budget includes a request for a regular 
appropriation in the budget year and advance appropriations in 
subsequent years that together are sufficient to fully fund the 
acquisition. This policy is intended to ensure 


[[Page 344]]

full funding but avoid 
``spikes''--large amounts of budget authority that cannot readily be 
accomodated under the discretionary caps that apply to the budget year.
  Budget authority takes several forms:
    appropriations, which may be provided in appropriations acts 
          or other laws, permit obligations to be incurred and payments 
          to be made;
    authority to borrow, permits obligations to be incurred but 
          requires that funds be borrowed, usually from the general fund 
          of the Treasury, to make payment;
    contract authority, permits obligations in advance of a 
          separate appropriation of the cash for payment or in 
          anticipation of the collection of receipts that can be used 
          for payment; and
    spending authority from offsetting collections, permits 
          offsetting collections to be credited to an expenditure 
          account and obligations and payments to be made using the 
          offsetting collections.
  Because offsetting collections (offsetting receipts and offsetting 
collections credited to expenditure accounts) are deducted from gross 
budget authority, they are referred to as negative budget authority for 
some purposes, such as Congressional Budget Act provisions that pertain 
to budget authority.
  The form of budget authority is usually determined in the authorizing 
statute for a program. The authorizing statute may authorize a 
particular type of budget authority to be provided in annual 
appropriations acts, or it may actually provide the budget authority in 
one of its forms. Most programs are funded by appropriations. An 
appropriation may make funds available from the general fund, special 
funds, trust funds, or authorize the spending of offsetting collections 
credited to expenditure accounts, including revolving funds. Borrowing 
authority is usually authorized for business-like activities where the 
activity being financed is expected to produce income over time with 
which to repay the borrowing with interest. Contract authority is a 
traditional form of budget authority for certain programs, particularly 
transportation programs.
  Budget authority that is provided in an annual appropriations act is 
available for obligation only during the fiscal year to which the 
appropriations act applies, unless the appropriation language providing 
the budget authority specifies that it is to remain available for a 
longer period. Typically, budget authority for current operations is 
made available for obligation in only one year. Some budget authority is 
made available for a specified number of years. Other budget authority, 
including most provided for construction, some for research, and many 
appropriations of trust fund receipts, is made available for obligation 
until the amount appropriated has been expended or until the program 
objectives have been attained. When budget authority is made available 
by law for a specific period of time, any part that is not obligated 
during that period expires and cannot be used later, unless the period 
of availability is extended in law (see Reappropriation below). Budget 
authority provided in authorizing statutes usually remains available 
until expended.
  Budget authority that is available for more than one year and that is 
not obligated in the year it becomes available is carried forward for 
obligation in a following year. The sum of such amounts is an account's 
unobligated balance. The obligated balance is that portion of the budget 
authority that has been obligated but not paid. For example, in the case 
of salaries and wages, one to three weeks elapse between the time of 
obligation and the time of payment. In the case of major procurement and 
construction, payments may occur over a period of several years after 
the obligation is made. Obligated balances of budget authority are 
carried forward until the obligations are paid. Due to such flows, a 
change in the amount of obligations incurred from one year to the next 
is not necessarily accompanied by an equal change in either the budget 
authority or the outlays of that same year. Conversely, a change in 
budget authority in any one year may cause changes in the level of 
obligations and outlays for several years.\3\
---------------------------------------------------------------------------
  \3\ Additional information is provided in a separate report, 
``Balances of Budget Authority,'' which is available from the National 
Technical Information Service, Department of Commerce, shortly after the 
budget is transmitted.
---------------------------------------------------------------------------
  Congress usually makes budget authority available on the first day of 
the fiscal year for which the appropriations act is passed. 
Occasionally, the appropriations language specifies a different timing. 
The language may provide an advance appropriation--budget authority that 
does not become available until one year or more beyond the fiscal year 
for which the appropriations act is passed. Forward funding refers to 
budget authority that is made available for obligation beginning in the 
last quarter of the fiscal year (beginning on July 1st) for the 
financing of ongoing grant programs during the next fiscal year. This 
kind of funding is used mostly for education programs, so that 
obligations for grants can be made prior to the beginning of the next 
school year. For certain benefit programs funded by annual 
appropriations, the appropriation provides for advance funding--budget 
authority that is to be charged to the appropriation in the succeeding 
year but which authorizes obligations to be incurred in the last quarter 
of the fiscal year if necessary to meet benefit payments in excess of 
the specific amount appropriated for the year.
  Provisions of law that extend the availability of unobligated amounts 
that have expired or would otherwise expire are called reappropriations. 
Reappropriations are counted as new budget authority in the fiscal year 
in which the balances become newly available. For example, if a 1998 
appropriations act extends the availability of unobligated budget 
authority that otherwise would expire at the end of 1997, new budget 
authority would be recorded for 1998.
  Budget authority is classified as current or permanent. Generally, it 
is current if it is provided by annual appropriations acts and permanent 
if it becomes available pursuant to standing authorizing legislation. 
Ad-


[[Page 345]]

vance appropriations of budget authority are classified as permanent, 
even though they are provided in annual appropriations acts, because 
they become available a year or more following the year to which the act 
pertains. The authority to spend offsetting collections credited to 
expenditure accounts usually is provided by authorizing legislation and, 
therefore, is usually a form of permanent budget authority.
  Obligations and outlays resulting from permanent budget authority, 
including the authority to spend offsetting collections credited to 
expenditure accounts, account for more than half of the budget totals. 
Put another way, less than half of the obligations and outlays in the 
budget result from annual appropriations acts. Most permanent budget 
authority, other than the authority to spend offsetting collections, 
arises from the authority to spend trust fund receipts and the authority 
to pay interest on the public debt. Most authority to spend offsetting 
collections is provided to public enterprise revolving funds.
  Budget authority also is classified as definite or indefinite. It is 
definite if the legislation that provides it specifies a definite dollar 
amount (including an amount not to be exceeded). It is indefinite if, 
instead of specifying an amount, the legislation providing it permits 
the amount to be determined by subsequent circumstances. For example, 
indefinite budget authority is provided for interest on the public debt, 
payment of claims and judgments awarded by the courts against the U.S., 
and many entitlement programs. Many of the laws that authorize 
collections to be credited to revolving, special, and trust funds make 
all of the collections available for expenditure for the authorized 
purposes of the fund. Such authority is considered to be indefinite 
budget authority. In some such cases, only some of these amounts are 
counted as budget authority, because they are precluded from obligation 
in a fiscal year by a provision of law, such as a limitation on 
obligations or a benefit formula that determines the amounts to be paid 
(for example, the formula for unemployment insurance benefits).

                          Obligations Incurred

  Following the enactment of budget authority and the completion of 
required apportionment action, Government agencies incur obligations to 
make payments. Obligations are binding agreements that will result in 
outlays, immediately or in the future. Such obligations include: the 
current liabilities for salaries, wages, and interest; contracts for the 
purchase of supplies and equipment, construction, and the acquisition of 
office space, buildings, and land; and other arrangements requiring the 
payment of money. For Federal credit programs, obligations are recorded 
in an amount equal to the estimated subsidy cost of direct loans and 
loan guarantees (see FEDERAL CREDIT below).

                                 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. They are recorded when obligations are paid, 
in the amount that is paid. Outlays are usually in the form of cash 
(currency, checks, or electronic fund transfers). However, obligations 
may be paid and outlays recorded even though no cash is disbursed. For 
example, outlays are recorded for the full amount of Federal employees' 
salaries, even though the cash disbursed to employees is net of Federal 
and state income taxes, retirement contributions, life and health 
insurance premiums, and other deductions. (Receipts are also recorded 
for the deductions that represent payments to the Government.) Outlays 
are recorded when debt instruments (bonds, debentures, notes, or 
monetary credits) are used to pay obligations. (An increase in debt is 
also recorded when such instruments are used.) For example, the 
acquisition of physical assets through certain types of lease-purchase 
arrangements is treated as though an outlay were made for an outright 
purchase. Because no cash is paid up front to the nominal owner of the 
asset, a debt is recorded. In such cases, the actual cash payments, 
nominally lease payments, are recorded as repayments of principal and 
interest.
  The measurement of interest varies. Outlays for the interest on the 
public issues of Treasury debt securities are recorded as the interest 
accrues, not when the cash is paid. Treasury plans to issue a new kind 
of security that will feature monthly adjustments to principal for 
inflation and semiannual payments of interest on the inflation-adjusted 
principal. As with fixed-rate securities, the interest payments on these 
securities will be recorded as outlays as the interest accrues. The 
monthly adjustment to principal will be recorded, simultaneously, as an 
increase in debt outstanding and an outlay of interest. The interest on 
special issues of the debt securities held by trust funds and other 
Government accounts is normally stated on a cash basis. When a 
Government account invests in Federal debt securities, the purchase 
price is usually close or identical to the par (face) value of the 
security. The budget records the investment at par value and adjusts the 
interest paid by Treasury and collected by the account by the difference 
between purchase price and par, if any. However, in the case of two 
trust funds in the Department of Defense, the Military Retirement Trust 
Fund and the Education Benefits Trust Fund, the differences between 
purchase price and par are routinely relatively large. For these funds, 
the budget records the holdings of debt at par but records the 
differences between purchase price and par as adjustments to the assets 
of the funds that are amortized over the life of the security. Interest 
is recorded as the amortization occurs.
  For Federal credit programs, outlays are equal to the subsidy cost of 
direct loans and loan guarantees and are recorded as the underlying 
loans are disbursed (see FEDERAL CREDIT below).
  Refunds of receipts (such as income taxes in excess of tax 
liabilities) are recorded as reductions of receipts, rather than as 
outlays.

[[Page 346]]

  Outlays during a fiscal year may be for the payment of obligations 
incurred in the same year or in prior years. Obligations, in turn, may 
be incurred under budget authority provided in the same or in prior 
years. Outlays, therefore, flow in part from unexpended balances of 
prior year budget authority and in part from budget authority provided 
for the year in which the money is spent. The ratio of the outlays 
resulting from budget authority enacted in any year to the amount of 
that budget authority is referred to as the spendout rate for that year.
  Outlays for an account are stated both gross and net of offsetting 
collections, but function, agency, and Government-wide outlay totals are 
only stated net. Total outlays for the Federal Government include both 
on-budget and off-budget outlays. (See the table, ``Totals for the 
Budget and Federal Government'' above.)

                             FEDERAL CREDIT

  Government programs may be carried out through federally supported 
credit in the form of direct loans or loan guarantees. 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 equivalent transactions such as 
selling a property on credit terms in lieu of receiving cash up front. 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 
Federal Credit Reform Act prescribes the budget treatment for Federal 
credit programs. This treatment is designed to measure the subsidy cost 
of direct loans and guaranteed loans in the budget, rather than the cash 
flows, so they can be compared to each other and to other methods of 
delivering benefits, such as grants, on an equivalent basis.
  Under credit reform, the estimated long-term cost to the Government 
arising from the direct loans and loan guarantees of a credit program 
must be estimated and recorded in the budget in a credit program 
account. The cost is estimated as the present value of expected 
disbursements over the term of the loan less the present value of 
expected collections.\4\ For most programs, direct loan obligations and 
loan guarantee commitments cannot be made unless Congress has 
appropriated funds for the costs in advance in annual appropriations 
acts. In addition, the appropriation language for most credit programs 
includes annual limitations on the amount of obligations for direct 
loans and commitments for loan guarantees.
---------------------------------------------------------------------------
  \4\ Present value is a standard financial concept that allows for the 
time value of money, that is, for the fact that a given sum of money is 
worth more at present than in the future because interest can be earned 
on it.
---------------------------------------------------------------------------
  When a direct or guaranteed loan is disbursed, the program account 
makes a payment equal to the cost, which is recorded as an outlay, to a 
non-budgetary credit financing account. For a few programs, the computed 
cost is negative for a portion or all of the direct loans and loan 
guarantees. In such cases, the financing account makes a payment to a 
special fund receipt account established for the program, where it is 
recorded as an offsetting receipt.
  The cost of the outstanding direct loans and loan guarantees is 
reestimated normally each year. If the cost is estimated to have 
increased, an additional outlay is made from the program account to the 
financing account, and, if the cost is estimated to have decreased, a 
payment is made from the financing account to the program's special fund 
receipt account, where it is recorded as an offsetting receipt. A 
permanent appropriation is available to pay the increased costs 
resulting from reestimates.
  If the terms of an outstanding direct loan or loan guarantee are 
modified in a way that increases the cost, an outlay in the amount of 
the increased cost is made from the program account to the financing 
account. The additional cost is recorded as an obligation against the 
budget authority provided for the costs of the program for that year. 
The requirement to record the costs of modification applies to pre-
credit reform, as well as post-credit reform, direct loans and loan 
guarantees.
  Credit financing accounts record all cash flows to and from the 
Government arising from direct loan obligations and loan guarantee 
commitments. These cash flows consist mainly of direct loan 
disbursements and repayments and loan guarantee default payments. The 
cash flows of direct loans and of loan guarantees are recorded in 
separate financing accounts for programs that do both. The transactions 
of the financing accounts are displayed in the budget documents for 
information and analytical purposes, together with the related program 
accounts, but are excluded from the budget totals because they are not a 
cost to the Government. Financing account transactions are a means of 
financing a budget surplus or deficit (see Credit Financing Accounts in 
the next section).
  The transactions associated with direct loan obligations and loan 
guarantee commitments made prior to 1992 continue to be accounted for on 
a cash flow basis and are recorded in liquidating accounts. In most 
cases, the liquidating account is the account that was used for the 
program prior to the enactment of credit reform in 1990.


[[Page 347]]

            BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING

  A budget deficit is the amount by which outlays exceed receipts. 
Deficits are financed by borrowing and, to a limited extent, the other 
items discussed under this heading. The debt (debt held by the public) 
is the cumulative amount of borrowing to finance deficits, less 
repayments. When receipts exceed outlays, the difference is a budget 
surplus. Surpluses are used to reduce debt and, to a limited extent, may 
be absorbed by the other items.

                         Borrowing and Repayment

  Borrowing is not defined as receipts, and debt repayment is not 
defined as outlays. If they were, the budget would virtually be balanced 
by definition. This rule applies both to borrowing in the form of 
Treasury securities and to specialized borrowing in the form of agency 
securities (including the issuance of debt securities to liquidate an 
obligation and the sale of certificates representing participation in a 
pool of loans). In addition to issuing debt to the public, the 
Government issues debt to Government accounts, primarily trust funds 
that are required by law to invest in Treasury securities. This debt is 
not a means of financing deficits, because it does not raise any cash. 
In 1996, the Government borrowed $130 billion from the public. Most of 
this amount was needed to finance the deficit of $107 billion in that 
year. The rest was needed to finance direct loans disbursed in credit 
financing accounts, which are discussed below, and for smaller changes 
in the other means of financing. At the end of 1996, the debt held by 
the public was $3,733 billion. (See Chapter 12, ``Federal Borrowing and 
Debt,'' in the Analytical Perspectives volume of the 1998 budget for a 
fuller discussion of this topic.)

                       Exercise of Monetary Power

  Seigniorage is the profit from coining money. It is the difference 
between the value of coins as money and their cost of production. 
Seigniorage on coins arises from the exercise of the Government's 
monetary powers but differs from receipts coming from the public, since 
there is no corresponding payment by another party. Therefore, 
seigniorage is excluded from receipts and treated as a means of 
financing the deficit other than borrowing from the public. The profit 
resulting from the sale of gold as a monetary asset also is treated as a 
means of financing, since the value of gold is determined by its value 
as a monetary asset rather than as a commodity.

                        Credit Financing Accounts

  The net cash flows of credit programs are recorded in credit financing 
accounts, which are excluded from the budget totals and are called net 
financing disbursements. (See FEDERAL CREDIT above.) Net financing 
disbursements are defined in the same way as the outlays of a budgetary 
account and may be either positive or negative. If positive, they must 
be paid in cash and increase the requirement for Treasury borrowing in 
the same way as an increase in budget outlays; if negative, they provide 
cash to the Treasury that can be used to finance the payment of the 
Government's obligations. The net financing disbursements are therefore 
a means of financing the deficit other than borrowing from the public.

                      Deposit Fund Account Balances

  Certain accounts outside the budget, known as deposit funds, are 
established to record amounts held temporarily until ownership is 
determined (for example, earnest money paid by bidders for mineral 
leases) or held by the Government as agent for others (for example, 
State and local income taxes withheld from Federal employees' salaries 
and payroll deductions for the purchase of savings bonds by employees of 
the Government). Deposit fund balances may be held in the form of either 
invested or uninvested balances. Changes in deposit fund balances affect 
the Treasury's cash balances, even though the transactions are not a 
part of the budget. To the extent that deposit fund balances are not 
invested, changes in the balances are a means of financing the deficit 
other than borrowing from the public. To the extent that the balances 
are invested in Federal debt, changes in the balances are reflected as 
borrowing from the public if the deposit fund investments are classified 
as held by the public, and as a means of financing the deficit other 
than borrowing from the public if the investments are classified as held 
by Government accounts.

                            Exchange of Cash

  The Government's deposits with the International Monetary Fund (IMF) 
are considered to be monetary assets. Therefore, the movement of money 
between the IMF and the Treasury is not considered in itself a receipt 
or an outlay, borrowing, or lending. However, interest paid by the IMF 
on U.S. deposits is an offsetting collection. In a similar manner, the 
holdings of foreign currency by the Exchange Stabilization Fund are 
considered to be cash assets. Changes in these holdings are outlays only 
to the extent there is a realized loss of dollars on the exchange and 
are offsetting collections only to the extent there is a realized dollar 
profit.


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                           FEDERAL EMPLOYMENT

  The budget includes information on civilian and military employment 
and personnel compensation and benefits. It also makes comparisons 
between the Federal workforce, State and local government workforces, 
and the United States population. Two different measures of employment 
levels are provided--actual positions filled and full-time equivalents 
(FTE). One FTE is equal to one work year or 2,080 hours. For most 
purposes, the FTE measure is more meaningful, because it takes into 
account part-time employment, temporary employment, and vacancies during 
the year. For example, one full-time employee and two half-time 
employees would count as two FTE's but three positions. (Chapter 10, 
``Federal Employment,'' in the Analytical Perspectives volume of the 
1998 budget provides more information on this subject.)

                        TOTAL FEDERAL EMPLOYMENT                        
------------------------------------------------------------------------
                                                                 Percent
                                  1996       1997       1998     change 
                                 actual   estimated  estimated   1996 to
                                                                  1998  
------------------------------------------------------------------------
Total FTE's..................  4,315,987  4,274,318  4,239,963    -1.8  
Federal Executive Branch                                                
 civilian employees per 1000                                            
 U.S. population.............       10.3       10.1       10.1    -2.9  
------------------------------------------------------------------------

                        BASIS FOR BUDGET FIGURES

                         Data for the Past Year

  The past year column (1996) generally presents the actual transactions 
and balances as recorded in agency accounts and as summarized in the 
central financial reports prepared by the Treasury Department for the 
most recently completed fiscal year. Occasionally the budget reports 
corrections to data reported erroneously to Treasury but not discovered 
in time to be reflected in Treasury's published data. The budget usually 
notes the sources of such differences.

                        Data for the Current Year

  The current year column (1997) includes estimates of transactions and 
balances based on the amounts of budgetary resources that were available 
when the budget was transmitted, including amounts appropriated for the 
year. This column also reflects any supplemental appropriations or 
rescissions proposed in the budget.

                        Data for the Budget Year

  The budget year column (1998) includes estimates of transactions and 
balances based on the amounts of budgetary resources that are estimated 
to be available, including amounts proposed to be appropriated, and 
amounts estimated to result from changes in authorizing legislation and 
tax laws. The budget generally includes the appropriations language for 
the amounts proposed to be appropriated. Where the estimates represent 
amounts that will be requested under proposed legislation, the 
appropriation language usually is not included; it is transmitted later, 
usually after the legislation is enacted. In a few cases, proposed 
language for appropriations to be requested under existing legislation 
is transmitted later because the exact requirements are not known when 
the budget is transmitted. In certain tables of the budget, the items 
for later transmittal and the related outlays are identified separately. 
Estimates of the total requirements for the budget year include both the 
amounts requested with the transmittal of the budget and the amounts 
planned for later transmittal.

                          Data for the Outyears

  The budget presents estimates for each of the four years beyond the 
budget year (1999 through 2002) in order to reflect the effect of budget 
decisions on longer term objectives and plans.

                               Allowances

  Lump-sum allowances may be included in the budget to cover certain 
transactions that are expected to increase or decrease budget authority, 
outlays, or receipts but that are not, for various reasons, reflected in 
the program details. Budget authority and outlays are never appropriated 
for allowances as such. Rather, the allowances indicate the estimated 
budget authority and outlays that will be requested for specific 
programs.

                                Baseline

  The budget baseline is an estimate of the receipts, outlays, and 
deficits that would result from continuing current law through the 
period covered by the budget. For receipts and mandatory spending, which 
generally are authorized on a permanent basis, it assumes they continue 
in the future as required by current law. For discretionary programs, 
which generally are funded annually, the baseline commonly assumes 
future funding will be equal to the most recently enacted appropriation, 
adjusted for inflation. The baseline represents the amount of real 
resources that would be used by the Government over the period covered 
by the budget on the basis of laws currently enacted. (Chapter 16, 
``Current Services Estimates,'' in the Analytical Perspectives volume of 
the 1998 budget provides more information on the baseline.)
  The baseline is useful for several reasons. It warns of future 
problems, either for Government fiscal policy as a whole or for 
individual tax and spending programs. It provides a starting point for 
formulating the President's budget. It is a ``policy-neutral'' benchmark 
against which the President's budget and alternative proposals can be 
compared to assess the magnitude of proposed changes. And it is used, 
under the Budget 


[[Page 349]]

Enforcement Act, to determine how much will be sequestered from each account and what level of funding will be available after sequestration.

                          PRINCIPAL BUDGET LAWS

  The following are the basic laws pertaining to the Federal budget 
process:
    Antideficiency Act (codified in Chapters 13 and 15 of Title 
          31, United States Code), which prescribes rules and procedures 
          for budget execution.
    Article 1, section 9, clause 7 of the Constitution, which 
          requires appropriations in law before money may be spent from 
          the Treasury.
    Chapter 11 of Title 31, United States Code, which prescribes 
          procedures for submission of the President's budget and 
          information to be contained in it.
    Congressional Budget and Impoundment Control Act of 1974 
          (Public Law 93-344), as amended. This Act comprises the:
     --Congressional Budget Act of 1974, as amended, which prescribes 
         the congressional budget process; and
     --Impoundment Control Act of 1974, which controls certain aspects 
         of budget execution.
    Balanced Budget and Emergency Deficit Control Act of 1985 
          (Public Law 99-177), as amended, which prescribes rules and 
          procedures (including ``sequestration'') designed to eliminate 
          excess spending. This Act is commonly known as the Gramm-
          Rudman-Hollings Act.
    Budget Enforcement Act of 1990 (Title XIII, Public Law 101-
          508), which significantly amended the laws pertaining to the 
          budget process, including the Congressional Budget Act and the 
          Balanced Budget and Emergency Deficit Control Act. The 
          provisions of this act, which would have expired after 1995, 
          were extended through 1998 by the Omnibus Budget 
          Reconciliation Act of 1993 (Public Law 103-66).
    Federal Credit Reform Act of 1990, a part of the Budget 
          Enforcement Act of 1990, which amended the Congressional 
          Budget Act to prescribe the budget treatment for Federal 
          credit programs.
    Line Item Veto Acto of 1996, which granted the President 
          limited authority to cancel new spending and limited tax 
          benefits when he signs laws.

                        GLOSSARY OF BUDGET TERMS

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

  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 in 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 unified or consolidated 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 dis-


[[Page 350]]

burses 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 as well as financing arrangements for other 
transactions that defer payment for more than 90 days. It also includes 
loans financed by the Federal Financing Bank (FFB) purusant to agency 
loan guarantee authority. The term does not include the acquisition of a 
federally guaranteed loan in satisfaction of default or other guarantee 
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 all 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 non-budgetary and 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 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.

  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.

  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 ex-


[[Page 351]]

penditure 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.

  Outyear estimates--This term refers to estimates presented in the 
budget for years beyond the budget year (usually four).

  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.

  Scorekeeping--This term refers to measuring the budget effects of 
legislation, generally in terms of budget authority, receipts, and 
outlays for purposes of the Budget Enforcement Act.

  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.)

  User fee--This term refers to user, regulatory and other fees, 
charges, and assessments levied on a class directly availing itself of, 
or directly subject to a government service, program, or activity, but 
not on the general public, as measures to be utilized solely to support, 
usually subject to annual appropriations, the service, program or 
activity.