[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]



[[Page 391]]





========================================================================

                       BUDGET SYSTEM AND CONCEPTS
                              AND GLOSSARY

========================================================================

   

[[Page 393]]

 
              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.

[[Page 394]]

   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\
---------------------------------------------------------------------------
  \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.''
---------------------------------------------------------------------------
   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\
---------------------------------------------------------------------------

  \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.).
---------------------------------------------------------------------------
   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- 

[[Page 395]]

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\
---------------------------------------------------------------------------
  \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.)
---------------------------------------------------------------------------
   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

[[Page 396]]

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

[[Page 397]]

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

[[Page 398]]

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

[[Page 399]]

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,

[[Page 406]]

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.

[[Page 407]]

                          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

[[Page 408]]

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- 

[[Page 409]]

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.