[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.
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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
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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.
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Budget preparation The budget documents are prepared December 1998-
and transmittal. and transmitted to Congress. February 1999
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Congressional action Congress reviews the March-September
on the budget. President's budget, develops its 1999
own budget, and approves
spending and revenue bills.
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The fiscal year begins. October 1, 1999
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Agency program managers execute the budget October 1, 1999-
provided in law. September 30, 2000
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Data on actual spending and receipts for October-November
the completed fiscal year become available. 2000
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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'
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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.''
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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.