    [A Citizen's Guide to the Federal Budget]
    [3. How Does the Government Create a Budget?]
    [From the U.S. Government Printing Office, www.gpo.gov]

    3. How Does the Government Create a Budget?

       The President and Congress both play major roles in developing the
       Federal budget.

       The President's Budget

       The law requires that, by the first Monday in February, the
       President submit to Congress his proposed Federal budget for the
       next fiscal year, which begins October 1.

       The White House's Office of Management and Budget (OMB) prepares
       the budget proposal, after receiving direction from the President
       and consulting with his senior advisors and officials from Cabinet
       departments and other agencies.

       The President's budget--which typically includes a main book and
       several accompanying books 1--covers thousands of pages and
       provides reams of details.

       The Budget Process

       Through the budget process, the President and Congress decide how
       much to spend and tax in any one fiscal year. More specifically,
       they decide how much to spend on each activity, ensure that the
       Government spends no more and spends it only for that activity,
       and report on that spending at the end of each budget cycle.

       The President's budget is his plan for the next year. But it's
       just a proposal. After receiving it, Congress has its own budget
       process to follow. Only after the Congress passes, and the
       President signs, the required spending bills has the Government
       created its actual budget.

       \1\ They are the main budget book, entitled, Budget of the United
           States Government: Fiscal Year 2000, as well as Analytical
           Perspectives, Appendix, Historical Tables, and A Citizen's
           Guide to the Federal Budget, which you are now reading.

    [[Page 18]]

    For fiscal 2000--that is, October 1, 1999 to September 30, 2000_the
    major steps in the budget process are outlined in Chart 3-1.

                Chart 3-1. Major Steps in the Budget Process
    -----------------------------------------------------------------------------
    Formulation of the    Executive Branch agencies develop     February-December
    President's budget    requests for funds and submit them    1998
    for fiscal 2000.      to the Office of Management and
                          Budget. The President reviews the
                          requests and makes the final
                          decisions on what goes in his budget.
    -----------------------------------------------------------------------------
    Budget preparation    The budget documents are prepared     December 1998-
    and transmittal.      and transmitted to Congress.          February 1999
    -----------------------------------------------------------------------------
    Congressional action  Congress reviews the                  March-September
    on the budget.        President's budget, develops its      1999
                          own budget, and approves
                          spending and revenue bills.
    -----------------------------------------------------------------------------
    The fiscal year begins.                                     October 1, 1999
    -----------------------------------------------------------------------------
    Agency program managers execute the budget                  October 1, 1999-
    provided in law.                                            September 30, 2000
    -----------------------------------------------------------------------------
    Data on actual spending and receipts for                    October-November
    the completed fiscal year become available.                 2000
    -----------------------------------------------------------------------------

    Action in Congress

    Congress first must pass a ``budget resolution''--a framework within
    which the Members will make their decisions about spending and taxes.
    It includes targets for total spending, total revenues, and the deficit,
    and allocations within the spending target for the two types of spending--
    discretionary and mandatory--explained below.

     Discretionary spending, which accounts for 33 percent of all
             Federal spending, is what the President and Congress must
             decide to spend for the next year through the 13 annual
             appropriations bills. It includes money for such activities
             as the FBI and the Coast Guard, for housing and education,
             for space exploration and highway construction, and for defense
             and foreign aid.

     Mandatory spending, which accounts for 67 percent of all
             spending, is authorized by permanent laws, not by the 13
             annual appropriations bills. It includes entitlements--such
             as Social Security, Medicare, veterans'

    [[Page 19]]

             benefits, and Food Stamps-through which individuals receive
             benefits because they are eligible based on their age, income,
             or other criteria. It also includes interest on the national
             debt, which the Government pays to individuals and institutions
             that hold Treasury bonds and other Government securities. The
             President and Congress can change the law in order to change
             the spending on entitlements and other mandatory programs--but
             they don't have to.

    Think of it this way: For discretionary programs, Congress and the
    President must act each year to provide spending authority. For mandatory
    programs, they may act in order to change the spending that current laws
    require.

    Currently, the law imposes a limit, or ``cap,'' through 2002 on total
    annual discretionary spending. Within the cap, however, the President
    and Congress can, and often do, change the spending levels from year to
    year for the thousands of individual Federal spending programs.

    In addition, the law requires that legislation that would raise mandatory
    spending or lower revenues-compared to existing law-be offset by
    spending cuts or revenue increases. This requirement, called
    ``pay-as-you-go,'' is designed to prevent new legislation from
    increasing the deficit.

    Once Congress passes the budget resolution, it turns its attention to
    passing the 13 annual appropriations bills and, if it chooses,
    ``authorizing'' bills to change the laws governing mandatory spending
    and revenues.

    Congress begins by examining the President's budget in detail. Scores
    of committees and subcommittees hold hearings on proposals under
    their jurisdiction. The House and Senate Armed Services Authorizing
    Committees, and the Defense and Military Construction Subcommittees of
    the Appropriations Committees, for instance, hold hearings on the
    President's defense plan. If the President's budget proposed changes
    in taxes, the House Ways and Means and the Senate Finance Committees
    would hold hearings. The Budget Director, Cabinet officers, and other
    Administration officials work with Congress as it accepts some of the
    President's proposals, rejects others, and changes still others.
    Congressional rules require that these committees and subcommittees
    take actions that reflect the budget resolution.

    If you read through the President's budget, the budget resolution,
    or the appropriations or authorizing bills that Congress drafts, you
    will notice that the Government measures spending in two ways ``budget
    authority'' and ``outlays.''

    [[Page 20]]

    Budget authority (or BA) is what the law authorizes the Federal
    Government to spend for certain programs, projects, or activities. What
    the Government actually spends in a particular year, however, is an
    outlay. To see the�20difference, consider what happens when the Government
    decides to build a space exploration system.

    The President and Congress may agree to spend $1 billion for the
    space system. Congress appropriates $1 billion in BA. But the system
    may take 10 years to build. Thus, the Government may spend $100
    million in outlays in the first year to begin construction and the
    remaining $900 million over the next nine years as construction continues.

    Monitoring the Budget

    Once the President and Congress approve spending, the Government
    monitors the budget through:

     agency program managers and budget officials, including
             the Inspectors General, or IGs, who report only to the
             agency head;

     OMB;

     congressional committees; and

     the General Accounting Office, an auditing arm of Congress.

    This oversight is designed to:

     ensure that agencies comply with legal limits on spending,
             and that they use budget authority only for the purposes
             intended;

     see that programs are operating consistently with legal
             requirements and existing policy; and, finally,

     ensure that programs are well managed and achieving the
             intended results.

    The Government has paid more attention to good management of
    late, through the work of Vice President Gore's National Performance
    Review and implementation of the 1993 Government Performance and
    Results Act. This law is designed to improve Government programs by
    using better measurements of their results in order to evaluate
    their effectiveness.