Analytical Perspectives - 23. Budget System and Concepts and Glossary

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

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BUDGET SYSTEM AND CONCEPTS
AND GLOSSARY

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23. BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

The budget system of the United States Government provides the means
for the President and Congress to decide how much money to spend, what
to spend it on, and how to raise the money they have decided to spend.
Through the budget system, they determine the allocation of resources
among the Government's major functions--such as providing for the
national defense, regulating commerce, and ensuring the availability of
health care--and among individual programs, projects, and activities--
such as building navy ships, issuing patents, and controlling diseases.
The budget system focuses primarily on dollars, but it also allocates
other resources, such as Federal employment. 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. The Congress and the President enact budget
decisions into law. The budget system ensures these laws are carried
out.
This chapter provides an overview of the budget system and explains
some of the more important budget concepts. It includes summary dollar
amounts to illustrate major concepts. Other chapters of the budget
documents discuss these amounts, and more detailed amounts, in greater
depth. A glossary of budget terms appears at the end of the chapter.
Various laws, enacted to carry out requirements of the Constitution,
govern the budget system. This chapter refers to the principal ones by
title throughout the text and gives complete citations in the section
just preceding the glossary.

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. 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,
in this case 1999, 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 2000 budget covers the fiscal years through 2004. The
budget includes data on the most recently completed fiscal year, in this
case 1998, so that the reader can compare budget estimates to actual
accounting data.
The President begins the process of formulating the budget by
establishing general budget and fiscal policy guidelines. This occurs
not later than the spring of each year, at least nine months before the
President transmits the budget to Congress and at least 18 months before
the fiscal year begins. (See the Budget Calendar below.) 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, the President, the Director of
OMB, and other officials in the Executive Office of the President
continually exchange information, proposals, and evaluations bearing on
policy decisions with the Secretaries of the departments and the heads
of the other Government agencies. Decisions reflected in previously
enacted budgets, including the one for the fiscal year in progress, and
reactions to the last proposed budget (which Congress is considering
when the process of preparing the upcoming budget begins) influence
decisions concerning the upcoming budget. So do projections of the
economic outlook, prepared jointly by the Council of Economic Advisers,
OMB, and the Treasury Department.
In early fall, agencies submit budget requests to OMB, where analysts
review them and identify issues that OMB officials need to discuss with
the agencies. OMB and the agencies resolve many issues themselves.
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 number of
people eligible for various benefit programs, among other things, affect
Government spending and receipts. Small changes in these assumptions can
affect budget estimates by billions of dollars. Chapter 1, ``Economic
Assumptions,'' in the Analytical Perspectives volume of the 2000 budget
provides more information on this subject.

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Statutory limitations on changes in receipts and outlays through 2002
also influence budget decisions (see Budget Enforcement below).
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 law governing the President's budget specifies that the President
is to transmit the budget to Congress on or after the first Monday in
January but not later than the first Monday in February of each year for
the following fiscal year, which begins on October 1. This gives
Congress eight to nine months before the fiscal year begins to act on
the budget.
For various reasons, some parts or all of the budget documents have
been transmitted after the specified 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, for example, 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. He transmitted a Budget Supplement and other budget volumes in
March 1996.

Congressional Action \2\
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\2\ For a fuller discussion of the congressional budget process, see
Robert Keith and Allen Schick, Manual on the Federal Budget Process
(Congressional Research Service Report 98-720 GOV, August 28, 1998, 184
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 and receipts, the size of the deficit or surplus, and the
debt limit. 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 regular 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 particular programs and, in some
cases, limits the amount that can be appropriated for the programs. Some
authorizing legislation expires after one year, some expires after a
specified number of years, and some does not expire. Congress may enact
appropriations for a program even though there is no specific
authorization for it.
Congress begins its budget process shortly after it receives the
President's budget. Under the procedures established by the
Congressional Budget Act of 1974, Congress decides on 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 statutory limitations on changes in
receipts and outlays through 2002 that apply to the President's budget
also apply to the budget resolution.
In the report on the budget resolution, the Budget Committees
allocate amounts of budget authority and outlays within the functional
category totals to the House and Senate Appropriations Committees and
other committees that have jurisdiction over the programs in the
functions. The Appropriations Committees are required, in turn, to
allocate amounts of budget authority and outlays among their respective
subcommittees. The subcommittees may not exceed their allocations in
drafting spending bills. 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 Budget Committees' report may discuss assumptions about the
level of funding for major programs. While these assumptions do not bind
the committees and subcommittees with jurisdiction over the programs,
they may influence decisions about a pro-

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gram. The budget resolution may contain ``reconciliation directives,''
which are discussed below.
The congressional timetable calls for the whole Congress to adopt the
budget resolution by April 15 of each year, but Congress regularly
misses this deadline. Once Congress passes a budget resolution, a member
of Congress can raise a point of order to block a bill that would cause
a committee's allocation to be exceeded.
Budget resolutions are not laws and, therefore, do not require the
President's approval. However, Congress considers the President's views
in preparing budget resolutions, 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. These 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 drafted by a subcommittee, the committee and the whole
House, in turn, must approve the bill, usually with amendments to the
original version. The House then forwards the bill to the Senate, where
a similar review follows. If the Senate disagrees with the House on
particular matters in the bill, which is often the case, the two bodies
form a conference committee (consisting of Members of both bodies) to
resolve the differences. The conference committee revises the bill and
returns it to both bodies for approval. When the revised bill is agreed
to, first in the House and then in the Senate, Congress sends it to the
President for approval or veto. \3\
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\3\ 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. However, in 1998,
the Supreme Court declared the authority provided by the Act to be
unconstitutional. As a result of the Court's decision, the spending and
limited tax benefits that had been canceled were restored (prior to the
Court's decision, Congress had passed legislation overriding a number of
the spending cancellations.)
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If Congress does not complete action on one or more appropriations
bills by the beginning of the fiscal year, it enacts a joint resolution,
which is similar to an appropriations bill, 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 continuing resolution has funded a portion or all of the
Government for the entire year. Congress must present these resolutions
to the President for approval or veto. In some cases, the President has
rejected continuing resolutions because they contained unacceptable
provisions. Left without funds, Government agencies were required by law
to shut down operations--with exceptions for some activities--until
Congress passed a continuing resolution the President would approve.
Shutdowns have lasted for periods of a day to several weeks.
Congress also provides budget authority in permanent laws, ones that
do not need to be enacted each year. In fact, while annual
appropriations acts provide the budget authority for the majority of
Federal programs, permanent laws provide a majority of the total budget
authority available in a year. This is because permanent laws provide
the budget authority for interest on the public debt ($364 billion in
1998) and a few programs with large amounts of spending each year, such
as social security ($371 billion in 1998).
The outlays from permanent budget authority, together with the
outlays from budget authority provided in appropriations acts for
previous years, account for over half of the outlay total for any year.
This means that less than half of outlays in a year are controlled
through the appropriations acts for that year. This chapter discusses
the types of budget authority, their control by Congress, and the
relation of outlays to budget authority in greater detail under BUDGET
AUTHORITY AND OTHER BUDGETARY RESOURCES, OBLIGATIONS, AND OUTLAYS.
Almost all taxes and most other receipts result from permanent laws.
The House initiates tax bills, specifically in the Ways and Means
Committee. In the Senate, the Finance Committee has jurisdiction over
tax laws.
The budget resolution often includes reconciliation directives, which
require authorizing committees to change permanent laws that affect
receipts and outlays. They direct 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
directives 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 Budget Committees'
report on the budget resolution may discuss assumptions about how the
laws would be changed. Like other assumptions in the report, they do not
bind the committees of jurisdiction but may influence decisions.
The committees subject to reconciliation directives draft the
implementing legislation. Such legislation may, for example, change the
tax code, revise benefit formulas or eligibility requirements for
benefit 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

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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 permanent laws authorize payments for those purposes. The BEA
specifically defines funding for the Food Stamp program as mandatory
spending, even though appropriations acts provide the funding. The BEA
includes receipts under the same rules that apply to mandatory spending,
because permanent laws generally control receipts. The BEA constrains
discretionary spending differently from mandatory spending and receipts,
as explained in the following paragraphs.
The BEA defines categories of discretionary spending and limits
(``caps'') the spending in each category by specifying dollar amounts
for both budget authority and outlays for each fiscal year through 2002.
The following table lists the categories, which vary from year to year,
and their caps. The BEA requires OMB to adjust the caps up or down for
certain reasons, such as to reflect conceptual changes or the enactment
of emergency appropriations. The Transportation Equity Act for the 21st
Century (TEA-21) (Public Law 105-178, which was enacted in 1998) amended
the BEA to add the highways and mass transit categories. The caps on
these categories, which apply to outlays only, were based on estimates
at the time TEA-21 was drafted of gasoline excise taxes and other
receipts credited to the Highway Trust Fund each year. The TEA-21
amendments require OMB to adjust these caps up or down for the
difference in the amount of receipts actually collected in the past year
and for reestimates of the amount the Government expects to collect in
the budget year. The table shows the adjusted caps. The Preview Report
(described above) explains other cap adjustments proposed in this
budget.
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 requires a
procedure, called sequestration, for reducing the spending in that
category. A sequestration reduces spending for most programs in the
category by a uniform percentage. The BEA specifies special rules for
reducing some programs and exempts some programs from sequestration.

DISCRETIONARY SPENDING LIMITS
(In billions of dollars)
------------------------------------------------------------------------
1999 2000 2001 2002
------------------------------------------------------------------------
Defense
Budget authority...................... 276 NA NA NA
Outlays............................... 270 NA NA NA
Nondefense, excluding special
categories:
Budget authority...................... 285 NA NA NA
Outlays............................... 274 NA NA NA
Violent crime reduction:
Budget authority...................... 6 5 NA NA
Outlays............................... 5 6 NA NA
Highways:
Budget authority...................... NA NA NA NA
Outlays............................... 22 25 26 27
Mass transit:
Budget authority...................... NA NA NA NA
Outlays............................... 4 4 5 5
Other discretionary:
Budget authority...................... NA 532 541 550
Outlays............................... NA 537 540 535
Total discretionary:
Budget authority...................... 566 536 541 550
Outlays............................... 576 571 571 567
------------------------------------------------------------------------

The BEA does not cap mandatory spending or require a certain level of
receipts. Instead, it requires that all laws enacted through 2002 that
affect mandatory spending or receipts must be enacted on a ``pay-as-you-
go'' (PAYGO) basis. This means that 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, including the maximum amounts
allowed under special rules.
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

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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. It requires the Congressional Budget Office
(CBO) to make the same estimates and calculations, and the Director of
OMB to explain any differences between the OMB and CBO estimates. The
BEA requires the President to issue a sequestration order without
changing any of the particulars of the OMB report. It requires the
General Accounting Office to prepare compliance reports.
The BEA requires OMB and CBO to publish three sequestration reports--
a ``preview'' report at the time the President submits the budget, an
``update'' report in August, and a ``final'' report at the end of a
session of Congress (usually in the fall of each year). The preview
report discusses the status of discretionary and PAYGO sequestration,
based on current law. This report also explains the adjustments that are
required by law to the discretionary caps and publishes the revised
caps. (See Chapter 13, ``Preview Report,'' in the Analytical
Perspectives volume of the 2000 budget.) The update and final reports
revise the preview report estimates to reflect the effects of newly
enacted discretionary and PAYGO laws. The BEA requires OMB and CBO to
estimate the effects of appropriations acts and PAYGO laws immediately
after each one is enacted and to include these estimates, 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 a deficit. In addition, CBO estimates the effects
of bills as they move through Congress for the purpose of the Budget
Committees' enforcement of the budget resolution within Congress. OMB
provides advisory estimates on bills that might have significant
consequences as they move through Congress.
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.

Budget Calendar

The following timetable highlights the scheduled dates for significant budget events during the year.

Between the 1st Monday in January and the 1st
Monday in February............................ President transmits the budget, including a sequestration
preview report.

Six weeks later................................ Congressional committees report budget estimates to Budget
Committees.

April 15....................................... Action to be completed on congressional budget resolution.

May 15......................................... House consideration of annual appropriations bills may begin.

June 15........................................ Action to be completed on reconciliation.

June 30........................................ Action on appropriations to be completed by House.

July 15........................................ President transmits Mid-Session Review of the budget.

August 20...................................... OMB updates the sequestration preview.

October 1...................................... Fiscal year begins.

15 days after the end of a session of Congress. OMB issues final sequestration report, and the President issues
a sequestration order, if necessary.

Budget Execution

Government agencies may not spend more than Congress has
appropriated, and they may use funds only for purposes specified in law.
The Antideficiency Act prohibits them 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 OMB to
reapportion funds 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.
The President cannot impound funds appropriated by Congress by simply
failing to spend them. 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

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savings made possible through changes in requirements or greater
efficiency of operations, or as otherwise specifically provided in law.
The Impoundment Control Act of 1974 specifies the procedures that must
be followed if funds are withheld. Deferrals, which are temporary
withholdings, take effect immediately unless overturned by an act of
Congress. In 1998, the President proposed a total of $4.8 billion in
deferrals, and Congress overturned none. Rescissions, which permanently
cancel budget authority, take effect only if Congress passes a law
approving them. If Congress does not pass such a law within 45 days of
continuous session, the President must make the funds 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 1998, the President proposed rescissions
totaling $25 million, and Congress rescinded a total of $17 million.

COVERAGE OF THE BUDGET

Federal Government and Budget Totals

The budget documents provide information on all Federal agencies and
programs. However, because the laws governing social security (the
Federal Old-Age and Survivors Insurance and the Federal Disability
Insurance trust funds) and the Postal Service Fund exclude the receipts
and outlays for those activities from the budget totals and from the
calculation of the deficit for Budget Enforcement Act purposes, the
budget presents on-budget and off-budget totals. The off-budget totals
include the transactions excluded by law from the budget totals. 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)
------------------------------------------------------------------------
1998 1999 2000
actual estimate estimate
------------------------------------------------------------------------
On-budget:
Budget authority........................ 1,368 1,444 1,442
Outlays................................. 1,336 1,404 1,430
Receipts................................ 1,306 1,362 1,418
----------------------------
Deficit............................... -30 -42 -12

Off-budget:
Budget authority........................ 324 326 339
Outlays................................. 317 323 336
Receipts................................ 416 444 465
----------------------------
Surplus................................ 99 121 129

Federal Government:
Budget authority........................ 1,692 1,770 1,781
Outlays................................. 1,653 1,727 1,766
Receipts................................ 1,722 1,806 1,883
----------------------------
Surplus............................... 69 79 117
------------------------------------------------------------------------

Neither the on-budget nor the off-budget totals include transactions
of Government-sponsored enterprises, such as the Federal National
Mortgage Association (Fannie Mae). Federal laws established these
enterprises for public policy purposes, but they are privately owned and
operated corporations. Because of their close relationship to the
Government, the budget discusses them and reports their financial data
in the budget Appendix and in some detailed tables.
The Appendix includes a presentation for the Board of Governors of
the Federal Reserve System 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
transfers its net earnings to the Treasury, and the budget records them
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 comprises the subfunctions 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,
emphasizing 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

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volume of the 2000 budget provides information on government activities
by function and subfunction.

Agencies, Accounts, Programs, Projects, and Activities

Various summary tables in the Analytical Perspectives volume of the
2000 budget provide information on budget authority, outlays, and
receipts arrayed by Federal agency. Chapter 25 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. The Appendix 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. Receipt accounts of
the general fund, which is the greater part of the budget, record
receipts not earmarked by law for a specific purpose, such as almost all
income tax receipts. The general fund also includes the proceeds of
general borrowing. General fund appropriation accounts record general
fund expenditures. General fund appropriations draw 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 laws have earmarked 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 budget
records the collections and the outlays of revolving funds in the same
account.
Trust funds 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 where the Nation is the beneficiary (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,'' as applied to trust
fund accounts, 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. The Government
does act as a true trustee for some funds. For example, it maintains
accounts on behalf of individual Federal employees in the Thrift Savings
Fund, investing them as directed by the individual employee. The
Government accounts for such funds in deposit funds, which are not
included in the budget. Chapter 15, ``Trust Funds and Federal Funds,''
in the Analytical Perspectives volume of the 2000 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; purchases of other financial assets; grants to state
and local governments for purchases 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 2000 budget provides more information on
capital investment.

COLLECTIONS

In General

The budget classifies money collected by the Government 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. They
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 Sys-

[[Page 400]]

tem. They also include gifts and donations. 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.) Chapter 3, ``Federal Receipts,'' in
the Analytical Perspectives volume of the 2000 budget provides more
information on governmental receipts.

Offsetting Collections

Offsetting collections result from two kinds of transactions:
Business-like or market-oriented activities with the
public. The budget records the proceeds from the sale of
postage stamps, the fees charged for admittance to recreation
areas, and the proceeds from the sale of Government-owned
land, for example, as offsetting collections. Such collections
are deducted from gross budget authority and outlays, rather
than added to governmental receipts. This treatment produces
budget totals for receipts, budget authority, and outlays that
represent governmental rather than market activity.
Intragovernmental transactions. The budget also records
collections by one Government account from another as
offsetting collections. For example, the General Services
Administration records payments it receives from other
Government agencies for the rent of office space as offsetting
collections in the Federal Buildings Fund. 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.
Some offsetting collections are credited to expenditure accounts and
some are credited to receipt accounts. The following sections explain
the differences in accounting for such collections.

Offsetting Collections Credited to Expenditure Accounts

Some laws authorize agencies to credit collections directly to the
account from which they will be spent and, usually, to be spent for the
purpose of the account without further action by Congress. Most
revolving funds operate with such authority. 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 budget records these collections in the Postal
Service Fund (a revolving fund) and records budget authority in an
amount equal to the collections. Some intragovernmental collections may
be recorded in this manner. For example, the budget records the
intragovernmental collections of the Federal Buildings Fund (mentioned
earlier) in the same manner as the Postal Service Fund. Some agencies
are authorized to defray a portion of costs mostly financed by
appropriations from the general fund. In such cases, the budget records
the offsetting collections and resulting budget authority in the general
fund expenditure account.
Where accounts have offsetting collections, the budget shows the
budget authority and outlays of the account both gross (before deducting
offsetting collections) and net (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 ``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. However, unlike
offsetting collections credited to expenditure accounts, offsetting
receipts do not offset budget authority and outlays at the account
level. In most cases, such deductions are made at the subfunction and
agency levels. 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 from 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. Proprietary receipts from a few sources, 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

[[Page 401]]

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.

User Fee

In the budget, the term ``user fee'' 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. The budget records user fees as governmental
receipts or offsetting collections, depending on whether the fee results
primarily from the exercise of governmental powers or from business-like
activity. Chapter 4, ``User Fees and Other Collections,'' in the
Analytical Perspectives volume of the 2000 budget discusses user fees in
greater detail.

BUDGET AUTHORITY AND OTHER BUDGETARY RESOURCES, OBLIGATIONS, AND OUTLAYS

Budget Authority and Other Budgetary Resources

Budget authority is the authority provided in law 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.
The budget records budget authority 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. The budget does not record these balances 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 (for example, the formula
for unemployment insurance benefits), precludes the obligation of funds
that would otherwise be available for obligation. In such cases, the
budget records budget authority 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, agency officials estimate the total amount of
obligations they will need to incur 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 covers
needs for the year. For major procurement programs and construction
projects, the Government generally applies a full funding policy. Under
this policy, agencies must request an amount to be appropriated in the
first year that they estimate will be adequate to complete an
economically useful segment of a procurement or project, even though it
may be obligated over several years. This policy is intended to ensure
that the decision-makers take into account all costs and benefits 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, provided in annual appropriations acts or
permanent laws, permit agencies to incur obligations and make
payment;
authority to borrow, usually provided in permanent laws,
permits agencies to incur obligations but requires them to
borrow funds, usually from the general fund of the Treasury,
to make payment;
contract authority, usually provided in permanent law,
permits agencies to incur 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, usually
provided in permanent law, permits agencies to credit
offsetting collections to an expenditure account, incur
obligations, and make payment 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.
Authorizing statutes usually determine the form of budget authority
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 inter-

[[Page 402]]

est. Contract authority is a traditional form of budget authority for
certain programs, particularly transportation programs.
Annual appropriations acts generally make budget authority available
for obligation only during the fiscal year to which the act applies.
However, they specify many exceptions, allowing budget authority for a
particular purpose to remain available for obligation for a longer
period or indefinitely (that is, until expended or until the program
objectives have been attained). Typically, appropriations acts make
budget authority for current operations available for only one year, and
budget authority for construction and some research projects available
for a specified number of years or indefinitely. Many appropriations of
trust fund receipts make the budget authority available indefinitely.
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. In some cases, an account may have
carried forward unobligated budget authority from more than one year.
The sum of such amounts constitutes 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 or the balances are canceled. (A general
law cancels the obligated balances of budget authority that was made
available for a definite period five years after the end of the period,
and then other resources must be used to pay the obligations.) Due to
such flows, a change in the amount of budget authority available in any
one year may change the level of obligations and outlays for several
years to come. Conversely, a change in the amount of obligations
incurred from one year to the next does not necessarily result from an
equal change in the amount of budget authority available for that year
and will not necessarily result in a change in the level of outlays in
that year. \4\
---------------------------------------------------------------------------
\4\ A separate report, ``Balances of Budget Authority,'' provides
additional information on balances. The National Technical Information
Service, Department of Commerce, makes the report available 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 count as new budget authority in the fiscal year in
which the balances become newly available. For example, if a 2000
appropriations act extends the availability of unobligated budget
authority that otherwise would expire at the end of 1999, new budget
authority would be recorded for 2000.
The budget classifies budget authority as current or permanent.
Generally, budget authority is current if an annual appropriations act
provides it and permanent if authorizing legislation provides it.
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.
Obligations and outlays resulting from permanent budget authority
account for more than half of the budget totals. Put another way, annual
appropriations acts control less than half of the obligations and
outlays in the budget. 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.
For purposes of the Budget Enforcement Act (discussed earlier under
``Budget Enforcement''), the budget classifies budget authority as
discretionary or mandatory. Generally, budget authority is discretionary
if an annual appropriations act provides it and mandatory if authorizing
legislation provides it. This classification is nearly the same as the
one for current and permanent budget authority. It differs in a few
cases, because the BEA requires the budget authority (and resulting
outlays) provided in annual appropriations acts for certain specifically
identified programs to be treated as mandatory. The BEA requires this
because the authorizing legislation in these cases entitles
beneficiaries to receive payment or otherwise obligates the Government
to make payment, even though the payments are funded by a subsequent
appropriation. Since the authorizing legislation effectively determines
the amount of budget authority required, the BEA classifies it as
mandatory.
The budget also classifies budget authority as definite or
indefinite. It is definite if the legislation that

[[Page 403]]

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 that provides 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, and
such authority is considered to be indefinite budget authority.

Obligations Incurred

Following the enactment of budget authority and the completion of
required apportionment action, Government agencies incur obligations to
make payments. Agencies must record obligations when they enter into
binding agreements that will result in outlays, immediately or in the
future. Such obligations include the current liabilities for salaries,
wages, and interest; and contracts for the purchase of supplies and
equipment, construction, and the acquisition of office space, buildings,
and land. 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. The budget records
outlays for payments that 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. The
Government usually makes outlays in the form of cash (currency, checks,
or electronic fund transfers). However, in some cases agencies pay
obligations without disbursing cash and the budget records outlays
nevertheless. For example, the budget records outlays 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.
(The budget also records receipts for the deductions of Federal income
taxes and other payments to the Government.) The budget records outlays
when debt instruments (bonds, debentures, notes, or monetary credits)
are used to pay obligations and an increase in debt. For example, the
budget records the acquisition of physical assets through certain types
of lease-purchase arrangements as though an outlay were made for an
outright purchase. Because no cash is paid up front to the nominal owner
of the asset, the transaction creates a Government debt. In such cases,
the cash lease payments are treated as repayments of principal and
interest.
The measurement of interest varies. The budget records outlays for
the interest on the public issues of Treasury debt securities as the
interest accrues, not when the cash is paid. Treasury issues a 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 budget records the interest payments
on these securities 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 budget normally states
the interest on special issues of the debt securities held by trust
funds and other Government accounts on a cash basis. When a Government
account is invested 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, two trust funds in the
Department of Defense, the Military Retirement Trust Fund and the
Education Benefits Trust Fund, routinely have relatively large
differences between purchase price and par. 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. The budget records interest
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).
The budget records refunds of receipts that result from overpayments
(such as income taxes withheld in excess of tax liabilities) as
reductions of receipts, rather than as outlays. The budget records
payments to tax payers for tax credits (such as earned income tax
credits) that exceed the tax payer's tax liability as outlays.
Outlays during a fiscal year may liquidate obligations incurred in
the same year or in prior years. Obligations, in turn, may be incurred
against budget authority provided in the same year or against
unobligated balances of budget authority provided in prior years.
Outlays, therefore, flow in part in part from budget authority provided
for the year in which the money is spent and in part from budget
authority provided in prior years. 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.)

[[Page 404]]

FEDERAL CREDIT

Some laws authorize Government agencies to make 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, when the loans are disbursed, rather than the cash flows over
the term of the loan, so direct loans and loan guarantees can be
compared to each other and to other methods of delivering benefits, such
as grants, on an equivalent basis.
The budget records the estimated long-term cost to the Government
arising from direct loans and loan guarantees in credit program
accounts. The cost is estimated as the present value of expected
disbursements over the term of the loan less the present value of
expected collections. \5\ For most credit programs, as with most other
kinds of programs, agencies can incur costs only if Congress has
appropriated funds sufficient to cover the costs in annual
appropriations acts.
---------------------------------------------------------------------------
\5\ 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 an agency disburses a direct loan or when a non-federal lender
disburses a loan guaranteed by an agency, the program account outlays an
amount equal to the cost to a non-budgetary credit financing account.
For a few programs, the computed cost is negative, because the present
value of expected collections over the term of the loan exceeds that of
expected disbursements. In such cases, the financing account makes a
payment to the Treasury general fund where it is recorded as an
offsetting receipt in an account identified to the program. In a few
cases, the receipts are earmarked in a special fund established for the
program and are available for appropriation for the program.
The agencies responsible for credit programs must reestimate the cost
of the outstanding direct loans and loan guarantees, normally each year.
If an agency estimates the cost to have increased, the agency must make
an additional outlay from the program account to the financing account.
The Federal Credit Reform Act provides a permanent indefinite
appropriation to pay the increased costs resulting from reestimates. If
the agency estimates the cost to have decreased, the agency must make a
payment from the financing account to the program's receipt account,
where it is recorded as an offsetting receipt.
If the Government modifies the terms of an outstanding direct loan or
loan guarantee in a way that increases the cost, as the result of a law
or the exercise of administrative discretion under existing law, the
agency must record an obligation in the program account for an
additional amount equal to the increased cost and outlay the amount to
the financing account. As with the original costs, agencies may incur
modification costs only if Congress has appropriated funds to cover
them. The Government may reduce costs by modifications, in which case
the agency makes a payment from the financing account the program's
receipt account.
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, loan guarantee default payments, fees, and
amounts recovered from disposing assets acquired as a result of
defaults. Separate financing accounts record the cash flows of direct
loans and of loan guarantees for programs that do both. The budget
totals exclude the transactions of financing accounts because they are
not a cost to the Government. Financing account transactions affect the
means of financing a budget surplus or deficit (see Credit Financing
Accounts in the next section). The budget documents display the
transactions of the financing accounts, together with the related
program accounts, for information and analytical purposes.
The budget continues to account for the transactions associated with
direct loan obligations and loan guarantee commitments made prior to
1992 on a cash flow basis. The budget records these transactions in
credit liquidating accounts, which, in most cases, are the accounts that
were used for the programs prior to the enactment of the Credit Reform
Act.

BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING

When outlays exceed receipts, the difference is a deficit. The
Government finances deficits by borrowing and, to a limited extent, with
the other items discussed under this heading. The Government's 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 surplus. The Government uses surpluses to reduce debt
and applies it to the other items.

Borrowing and Debt Repayment

The budget treats borrowing and debt repayment as a means of
financing, not as receipts and outlays. (If borrowing were defined as
receipts and debt repayment as outlays, the budget would be virtually
balanced by

[[Page 405]]

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 1998, the Government repaid $51 billion of debt held by the
public. This was the result of a $69 billion surplus in that year. The
rest of the surplus 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 1998, the debt
held by the public was $3,720 billion. In addition to selling debt to
the public, the Treasury Department issues debt to Government accounts,
primarily trust funds that are required by law to invest in Treasury
securities. Issuing and redeeming this debt does not affect the means of
financing, because these transactions occur between one Government
account and another, and they do not raise or use any cash for the
Government as a whole. Chapter 12, ``Federal Borrowing and Debt,'' in
the Analytical Perspectives volume of the 2000 budget provides 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 assets from the public. Instead, it arises from the exercise
of the Government's power to create money. Therefore, the budget
excludes seigniorage from receipts and treats it as a means of
financing. The budget treats profits resulting from the sale of gold as
a means of financing, since the value of gold is determined by its value
as a monetary asset rather than as a commodity.

Credit Financing Accounts

The budget records the net cash flows of credit programs 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. Like outlays,
they may be either positive or negative.
The net financing disbursements result partly from intragovernmental
transactions with budgetary accounts (the receipt of subsidy payments
and the receipt or payment of interest) and partly from 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 they
have 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

The Treasury uses deposit funds, which are non-budgetary accounts, to
record amounts held temporarily until ownership is determined (for
example, earnest money paid by bidders for mineral leases) or held by
the Government as agent for others (for example, State and local income
taxes withheld from Federal employees' salaries and not yet paid to the
State or local government). Deposit fund balances may be held in the
form of either invested or uninvested balances. Changes in deposit fund
balances affect the Treasury's cash balances, even though the
transactions are not a part of the budget. To the extent that deposit
fund balances are not invested, changes in the balances are a means of
financing. 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 if the investments are classified as held by
Government accounts.

Exchange of Cash

The budget treats the Government's deposits with the International
Monetary Fund (IMF) as monetary assets (like bank deposits). 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, the
budget records interest paid by the IMF on U.S. deposits as an
offsetting collection. Similarly, the budget treats the holdings of
foreign currency by the Exchange Stabilization Fund as cash assets. The
budget records outlays for changes in these holdings only to the extent
there is a realized loss of dollars on the exchange and 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 compares the Federal
workforce, State and local government workforces, and the United States
population. The budget provides two different measures of Federal
employment levels--actual positions filled and full-time equivalents
(FTE). One FTE equals 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,

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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 and Compensation,'' in the Analytical
Perspectives volume of the 2000 budget provides more information on this
subject.

TOTAL FEDERAL EMPLOYMENT
------------------------------------------------------------------------
Percent
1998 1999 2000 change
actual estimated estimated 1998 to
2000
------------------------------------------------------------------------
Total FTE's 4,145,814 4,133,431 4,153,582 0.2
Federal Executive Branch
civilian employees per 1000
U.S. population 9.7 9.7 9.7 0.0
------------------------------------------------------------------------

BASIS FOR BUDGET FIGURES

Data for the Past Year

The past year column (1998) generally presents the actual
transactions and balances as recorded in agency accounts and as
summarized in the central financial reports prepared by the Treasury
Department for the most recently completed fiscal year. Occasionally the
budget reports corrections to data reported erroneously to Treasury but
not discovered in time to be reflected in Treasury's published data. The
budget usually notes the sources of such differences.

Data for the Current Year

The current year column (1999) 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 (2000) includes estimates of transactions and
balances based on the amounts of budgetary resources that are estimated
to be available, including new budget authority requested under current
authorizing legislation, and amounts estimated to result from changes in
authorizing legislation and tax laws. The budget Appendix generally
includes the appropriations language for the amounts proposed to be
appropriated under current authorizing legislation. In a few cases, the
language is transmitted later because the exact requirements are unknown
when the budget is transmitted. The Appendix generally does not include
appropriations language for the amounts that will be requested under
proposed legislation; that language is usually transmitted later, after
the legislation is enacted. Some tables in the budget identify the items
for later transmittal and the related outlays 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 (2001 through 2004) in order to reflect the effect of budget
decisions on longer term objectives and plans.

Allowances

The budget may include lump-sum allowances to cover certain
transactions that are expected to increase or decrease budget authority,
outlays, or receipts but are not, for various reasons, reflected in the
program details. For example, the budget might include an allowance to
show the effect on the budget totals of a proposal that would actually
affect many accounts by relatively small amounts, in order to avoid
unnecessary detail in the presentations for the individual accounts.
Congress does not enact the allowances as such.

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. The baseline assumes that
receipts and mandatory spending, which generally are authorized on a
permanent basis, will continue in the future as required by current law.
The baseline assumes that the future funding for discretionary programs,
which generally are funded annually, will equal 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.
The baseline serves several useful for purposes:
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 provides a ``policy-neutral'' benchmark against which
the President's budget and alternative proposals can be
compared to assess the magnitude of proposed changes.
OMB uses it, under the BEA, to determine how much will be
sequestered from each account and the level of funding
remaining after sequestration.
Chapter 14, ``Current Services Estimates,'' in the Analytical
Perspectives volume of the 2000 budget provides more information on the
baseline.

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PRINCIPAL BUDGET LAWS

The following basic laws govern 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.

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 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.

Government Performance and Results Act of 1993, which
emphasizes managing for results. It requires agencies to
prepare strategic plans, annual performance plans, and annual
performance reports.

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 consist of 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. The off-budget totals reflect the
transactions of Government entities that are excluded from the on-budget
totals by law. Under current law, the off-budget totals include the
social security trust funds (Federal Old-Age and Survivors Insurance and
Federal Disability Insurance Trust Funds) and the Postal Service Fund.
The budget combines the on- and off-budget totals 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.
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

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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.)
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--These 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
de-

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ducted 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--These 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 deficit
resulting from the combined result of legislation affecting direct
spending or receipts (referred to as a ``pay-as-you-go'' sequestration).
Special funds--These 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--These 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.