[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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24. BUDGET SYSTEM AND CONCEPTS AND GLOSSARY
The budget system of the United States Government provides the means
by which the Government decides how much money to spend and what to
spend it on, and how to raise the money it has decided to spend. Once
these decisions are made, the budget system ensures they are carried
out. The Government uses the budget system to determine the allocation
of resources among its major functions--such as ensuring the national
defense, promoting commerce, and providing health care--as well as to
determine the objectives and scope of individual programs, projects, and
activities. While the focus of the budget system is on dollars, other
resources, such as Federal employment, are also controlled through the
budget system. The decisions made in the budget process affect the
nation as a whole, state and local governments, and individual
Americans. Many budget decisions have worldwide significance.
This chapter provides an overview of the budget system and explains
some of the more important budget concepts. A glossary of budget terms
is provided at the end of the chapter. Summary dollar amounts illustrate
major concepts. These figures and more detailed amounts are discussed in
more depth in other chapters of the budget documents.
The budget system is governed by various laws that have been enacted
to carry out requirements of the Constitution. The principal laws
pertaining to the budget system are referred to by title throughout the
text, and complete citations are given later in the chapter.
THE BUDGET PROCESS
The budget process has three main phases, each of which is
interrelated with the others:
(1) formulation of the President's budget;
(2) congressional action on the budget; and
(3) budget execution.
Formulation of the President's Budget
The Budget of the United States Government consists of several volumes
that set forth the President's financial proposal with recommended
priorities for the allocation of resources by the Federal Government.
The primary focus of the budget is on the budget year--the next fiscal
year for which Congress needs to make appropriations. However, the
budget may propose changes to funding levels already provided for the
current year, and it covers at least the four years following the budget
year in order to reflect the effect of budget decisions over the longer
term. The 1999 budget covers four years beyond the budget year through
2003. 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 issues for OMB officials that need to be
discussed with agencies. Many issues are resolved directly between OMB
and the agencies. 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 1999 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 law 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\
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\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.''
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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.
Congressional Action \2\
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\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, 218 p. -- a revised and updated report will be issued
in 1998); and Robert Keith, A Brief Introduction to the Federal Budget
Process (Congressional Research Service Report 96-912 GOV, updated
October 20, 1997, 29 p.).
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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 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 levels for total receipts and for budget
authority and outlays, in total and by functional category (see
Functional Classification below). It also sets 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 resolution, a point of order can be raised to block
consideration of bills that would cause a committee's allocation to be
exceeded. Like the President's budget, the budget resolution is subject
to spending limitations imposed in law through 2002.
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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
plans to reduce the deficit or balance the budget. These agreements were
reflected in the budget resolution and legislation passed for those
years.
Appropriations bills are initiated in the House. They provide the
budget authority for the majority of Federal programs. 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 budget 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 budget authority for the majority of Federal
programs is provided each year in appropriations acts, a majority of the
total budget authority available in a year is provided by permanent
laws. This is because budget authority for interest on the public debt
($356 billion in 1997) and a few programs with large amounts of spending
each year, such as social security ($366 billion in 1997), are funded by
permanent law.
The outlays from permanent budget authority, together with the outlays
from budget authority provided in appropriations acts for 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 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 report amendments to 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,
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, revise 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 (BEA), first enacted in 1990 and extended
in 1993 and 1997, 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 enacted through 2002 that would increase
spending or decrease receipts .
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 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, be
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cause receipts are generally controlled by permanent laws.
The BEA constrains discretionary spending differently from mandatory
spending and receipts. The BEA defines categories of discretionary
spending and limits (``caps'') spending in each category by specifying
dollar amounts for both budget authority and outlays for each fiscal
year through 2002. The categories change from year to year. For 1998 and
1999, they are defense, non-defense, and violent crime reduction. For
2000, they are violent crime reduction and all other discretionary
spending. For 2001 and 2002, all discretionary spending constitutes a
single category. The BEA requires the caps to be adjusted for certain
reasons, such as to reflect conceptual changes or the enactment of
emergency appropriations. The adjusted caps are shown in the following
table. Further cap adjustments proposed in this budget are shown in the
Preview Report described below.
DISCRETIONARY SPENDING LIMITS
(In billions of dollars)
------------------------------------------------------------------------
1998 1999 2000 2001 2002
------------------------------------------------------------------------
Defense:
Budget authority.............. 269.0 271.6 ...... ...... ......
Outlays....................... 267.1 266.6 ...... ...... ......
Nondefense:
Budget authority.............. 253.5 283.7 ...... ...... ......
Outlays....................... 285.7 289.3 ...... ...... ......
Discretionary, excluding violent
crime reduction:
Budget authority.............. ...... ...... 561.4 ...... ......
Outlays....................... ...... ...... 559.1 ...... ......
Violent crime reduction:
Budget authority.............. 5.5 5.8 4.5 ...... ......
Outlays....................... 4.8 5.0 5.6 ...... ......
Total discretionary:
Budget authority.............. 528.0 561.1 565.9 571.3 581.0
Outlays....................... 557.6 560.9 564.7 564.1 560.3
------------------------------------------------------------------------
If the amount of budget authority provided in appropriations acts for
the year exceeds the cap on budget authority for a category, or the
amount of outlays for the year estimated to result from this budget
authority exceeds the cap on outlays for a category, the BEA specifies a
procedure, called sequestration, for reducing the spending in that
category. Under a sequester, spending for most programs in the category
is reduced by a uniform percentage. Special rules apply in reducing some
programs, and some programs are exempt from sequestration
There are no caps on mandatory spending and no required level of
receipts. Instead, the BEA requires that all laws enacted through 2002
that affect mandatory spending or receipts must be enacted on a ``pay-
as-you-go'' (PAYGO) basis. If a law increases the deficit in the budget
year or any of the four following years, another law must be enacted
with an offsetting reduction in spending or increase in receipts for
each year that is affected. Legislated increases in benefit payments,
for example, would have to be offset by legislated reductions in other
mandatory spending or increases in receipts. Otherwise, a sequestration
would be triggered at the end of the session of Congress in the fiscal
year in which the deficit would be increased. The BEA sequestration
procedures require a uniform reduction of mandatory spending programs
that are neither exempt nor subject to special rules. The BEA exempts
social security, interest on the public debt, Federal employee
retirement, Medicaid, most means-tested entitlements, deposit insurance,
other prior legal obligations, and most unemployment benefits. A special
rule limits the sequestration of Medicare spending to no more than four
percent, and special rules for some other programs limit the size of a
sequestration for those programs. As a result of exemptions and special
rules, only about three percent of all mandatory spending is subject to
sequestration.
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. Likewise, tax receipts decrease when the profits of
private businesses decline as the result of economic conditions.
The BEA requires OMB to make the estimates and calculations that
determine whether there is to be a sequestration 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. OMB's estimates and calculations are the basis for
sequestration orders issued by the President. The President's order may
not change any of the particulars of the OMB report. The General
Accounting Office is required to prepare compliance reports.
OMB and CBO are required to publish three sequestration reports--a
``preview'' report at the time the President submits the budget, an
``update'' report in August, and a ``final'' report at the end of a
session of Congress (usually in the fall of each year). The preview
report discusses the status of discretionary and PAYGO sequestration,
based on current law. This report also explains the adjustments that are
required by law to the discretionary caps and publishes the revised
caps. (See Chapter 14, ``Preview Report,'' in the Analytical
Perspectives volume of the 1999 budget.) The preview report estimates
are revised in the update and final reports to reflect the effects of
newly enacted discretionary and PAYGO legislation. In addition, OMB and
CBO are required to estimate the effects of appropriations acts and
PAYGO laws immediately after each one is enacted and these estimates are
included, without change, in the update and final reports. OMB's final
report estimates trigger a sequestration 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.
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From the end of a session of Congress through the following June 30th,
discretionary sequestrations take place whenever an appropriations act
for the current fiscal year causes a cap to be exceeded. Because a
sequestration in the last quarter of a fiscal year might be too
disruptive, the BEA specifies that a sequestration that otherwise would
be required then is to be accomplished by reducing the cap 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 partially. The President
also may 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 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 sequestration
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 sequestration preview.
October 1...................................... Fiscal year begins.
15 days after the end of a session of Congress. OMB issues final sequestration report, and the President issues
a sequestration order, if necessary.
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
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immediately unless overturned by an act of Congress. In 1997, a total of
$3.5 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 about one-third of the amount of funds that Presidents have
proposed for rescission since enactment of the Impoundment Control Act.
In 1997, the President proposed rescissions totaling $0.4 billion, and
Congress rescinded a total of $0.3 billion.
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 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)
------------------------------------------------------------------------
1997 1998 1999
actual estimate estimate
------------------------------------------------------------------------
On-budget:
Budget authority......................... 1,328 1,365 1,420
Outlays.................................. 1,291 1,348 1,404
Receipts................................. 1,187 1,242 1,309
----------------------------
Deficit................................ -103 -106 -96
Off-budget:
Budget authority......................... 315 322 331
Outlays.................................. 311 320 329
Receipts................................. 392 416 434
----------------------------
Surplus................................ 81 96 105
Federal Government:
Budget authority......................... 1,643 1,687 1,751
Outlays.................................. 1,601 1,668 1,733
Receipts................................. 1,579 1,658 1,743
----------------------------
Surplus/Deficit(-)..................... -22 -10 10
------------------------------------------------------------------------
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 to the Treasury and are recorded in the
budget as receipts.
Functional Classification
The functional classification arrays budget authority, outlays, and
other budget data according to the major purpose served--such as
agriculture, income security, and national defense. There are nineteen
major functions, most of which are divided into subfunctions. For
example, the Agriculture function is divided into Farm Income
Stabilization and Agricultural Research and Services. The functional
classification is an integral part of the congressional budget process,
and the functional array meets the Congressional Budget Act requirement
for a presentation in the budget by national needs and agency missions
and programs.
The following criteria are used in the establishment of functional
categories and the assignment of activities to them:
A function encompasses 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: Program Performance in
Federal Functions,'' in the main Budget volume of the 1999 budget
provides information on government activities by function and
subfunction.
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Agencies, Accounts, Programs, Projects, and Activities
Various summary tables in the Analytical Perspectives volume of the
1999 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 funds are revolving funds 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 1999 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 Budgeting,'' in the Analytical
Perspectives volume of the 1999 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.)
[[Page 374]]
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 are credited to the Postal Service Fund (a
revolving fund) and budget authority is recorded in an amount equal to
the collections. Sometimes the budget authority recorded 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
Government-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 that administers the transactions and
the subfunction that records the administrative expenses.
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
[[Page 375]]
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, charges, and
assessments levied on a class directly benefiting from, or subject to
regulation by, government programs or activity, to be utilized solely to
support the program or activity. 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 1999 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 when 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, the amount of budget authority
recorded is equal to the amount of obligations that can be incurred.
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 an economically useful segment of a 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 ensure
that all costs and benefits are taken into account fully at the time
decisions are made to provide resources. It also avoids sinking money
into a procurement or project without being certain if or when future
funding will be available to complete the procurement or project.
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, which permits obligations to be
incurred but requires that funds be borrowed, usually from the
general fund of the Treasury, to make payment;
contract authority, which 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, which
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 provide one of the forms of budget
authority directly, without the need for further appropriations. 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
[[Page 376]]
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. Only another law can extend a limited period of availability
(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. Budget authority that has been obligated but not
paid constitutes the account's obligated balance. 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\
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\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.
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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 current 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 1999
appropriations act extends the availability of unobligated budget
authority that otherwise would expire at the end of 1998, new budget
authority would be recorded for 1999.
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.
Advance 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 dollar amount
(which may be 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 the amount of
collections otherwise available is counted as budget authority, because
the rest is 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
[[Page 377]]
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 cash 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 last year began to issue a
new kind of security that features 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 are recorded as outlays as the interest accrues. The monthly
adjustment to principal is 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 that result from overpayments (such as income
taxes withheld in excess of tax liabilities) are recorded as reductions
of receipts, rather than as outlays. However, payments to tax payers for
tax credits (such as earned income tax credits) that exceed the tax
payer's tax liability are recorded as outlays.
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 year 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 loan guarantees 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
[[Page 378]]
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.
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\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 indefinite 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.
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 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 be virtually 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 1997, the Government borrowed $38 billion from the public. Most of
this amount was needed to finance the deficit of $22 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 1997, the debt held by
the public was $3,771 billion. (See Chapter 13, ``Federal Borrowing and
Debt,'' in the Analytical Perspectives volume of the 1999 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 adds to the Government's cash balance, but unlike the
payment of taxes or other receipts, it does not involve a transfer of
financial asset from the public. Instead, it arises from the exercise of
the Government's power to create money. Therefore, seigniorage is
excluded from receipts and treated as a means of financing 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
[[Page 379]]
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 are therefore a means of financing other than borrowing from
the public. Like outlays, they may be either positive or negative.
The net financing disbursements are partly due to intragovernmental
transactions with budgetary accounts (the receipt of subsidy payments
and the receipt or payment of interest) and partly due to transactions
with the public (disbursement and repayment of loans, receipt of
interest and fees, payment of default claims, etc.). An
intragovernmental transaction affects the deficit or surplus and the
means of financing in equal amounts but with opposite signs, so there is
no combined effect on Treasury borrowing from the public. On the other
hand, financing account disbursements to the public increase the
requirement for Treasury borrowing in the same way as an increase in
budget outlays. Financing account receipts from the public can be used
to finance the payment of the Government's obligations and therefore
reduce the requirement for Treasury borrowing from the public in the
same way as an increase in budget receipts.
Deposit Fund Account Balances
Deposit funds are non-budgetary accounts that 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). 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 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 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. Similarly, 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.
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
1999 budget provides more information on this subject.)
TOTAL FEDERAL EMPLOYMENT
------------------------------------------------------------------------
Percent
1997 1998 1999 change
actual estimated estimated 1997 to
1999
------------------------------------------------------------------------
Total FTE's.................. 4,211,136 4,201,684 4,171,785 -0.9
Federal Executive Branch
civilian employees per 1000
U.S. population............. 9.9 9.9 9.8 -1.0
------------------------------------------------------------------------
BASIS FOR BUDGET FIGURES
Data for the Past Year
The past year column (1997) 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.
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Data for the Current Year
The current year column (1998) 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 (1999) 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 (2000 through 2003) 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 or surplus 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 1999 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 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:
Article 1, section 8, clause 1 of the Constitution, which
empowers the Congress to collect taxes.
Article 1, section 9, clause 7 of the Constitution, which
requires appropriations in law before money may be spent from
the Treasury.
Antideficiency Act (codified in Chapters 13 and 15 of Title
31, United States Code), which prescribes rules and procedures
for budget execution.
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) significantly amended key laws pertaining to the budget
process, including the Congressional Budget Act and the
Balanced
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Budget and Emergency Deficit Control Act. The Budget
Enforcement Act of 1997 (Title X, Public Law 105-33) extended
the BEA requirements through 2002 (2006 in part) and altered
some of the requirements. The requirements generally referred
to as BEA requirements (discretionary spending limits, pay-as-
you-go, sequestration, etc.) are part of the Balanced Budget
and Emergency Deficit Control Act.
Federal Credit Reform Act of 1990 (as amended by the Budget
Enforcement Act of 1997), 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 Act 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 or surplus
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 unified or consolidated totals 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 sequestration is required if an
appropriation for a category causes a breach in the cap.
Credit program account--A credit program account receives an
appropriation for the subsidy cost of a direct loan or loan guarantee
program and disburses such cost to a financing account for the program
when the direct loan or guaranteed loan is disbursed.
Deficit--A deficit is the amount by which outlays exceed receipts.
Direct loan--A direct loan is a disbursement of funds by the
Government to a non-Federal borrower under a contract that requires the
repayment of such funds with or without interest. The term includes the
purchase of, or participation in, a loan made by another lender. The
term also includes the sale of a Government asset on credit terms of
more than 90 days duration 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) pursuant 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.)
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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 expenditure accounts; others, called offsetting
receipts, are credited to receipt accounts. The authority to spend
offsetting collections is a form of budget authority. (Cf. governmental
receipts.)
Offsetting receipts--See offsetting collections.
On-budget--See budget totals.
Outlays--Outlays are the measure of Government spending. They are
payments to liquidate obligations (other than the repayment of debt),
net of refunds and offsetting collections. Outlays generally are
recorded on a cash basis, but also include cash-equivalent transactions,
the subsidy cost of direct loans and loan guarantees, and interest
accrued on public issues of Treasury debt.
Pay-as-you-go (PAYGO)--This term refers to requirements in law that
result in a sequestration 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.
Sequestration--A sequestration is the cancellation of budgetary
resources provided by discretionary appropriations or direct spending
legislation, following various procedures prescribed in law. A
sequestration may occur in response to a discretionary appropriation
that causes a breach or in response to increases in the defi
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cit resulting from the combined result of legislation affecting direct
spending or receipts (referred to as a ``pay-as-you-go'' sequestration).
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 fees, charges, and assessments levied on
a class directly benefiting from, or subject to regulation by,
government programs or activity, to be utilized solely to support the
program or activity.