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


  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).

[[Page 2]]

  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.

[[Page 3]]

  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

[[Page 4]]

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.

[[Page 5]]

  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. 

                                     

                                                 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.                          
                                                                                                                

  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

[[Page 6]]

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.

[[Page 7]]

         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 8]]

                         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 9]]

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 10]]

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\
---------------------------------------------------------------------------
  \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 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 11]]

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 12]]

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 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 13]]

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.

[[Page 14]]

                        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

[[Page 15]]

          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.)


[[Page 16]]


  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

[[Page 17]]

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.