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


[[Page 443]]

                                     

                                     

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

                       BUDGET SYSTEM AND CONCEPTS

                              AND GLOSSARY

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

   

[[Page 445]]

 
              24.  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. The 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 by the 
Government. The primary focus of the budget is on the budget year--the 
next fiscal year for which Congress needs to make appropriations, in 
this case 2001. However, the budget may propose changes to funding 
levels already provided for the current year, in this case 2000, 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 budget 
includes data on the most recently completed fiscal year, in this case 
1999, 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 at least the 
following four years 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 their 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 2001 budget 
provides more information on this subject.)

[[Page 446]]

   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.
   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 \1\
---------------------------------------------------------------------------

  \1\ 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.).
---------------------------------------------------------------------------
   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 
(traditionally thirteen). It also enacts changes each year in other laws 
that affect spending and receipts. Both appropriations acts and these 
other laws are discussed in the following paragraphs.
   In making appropriations, Congress does not vote on the level of 
outlays (spending) directly, but rather on budget authority, which is 
the authority provided by law to incur financial obligations that will 
result in 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, both 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 the amounts of budget authority and outlays within the 
functional category totals to the House and Senate Appropriations 
Committees and the 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. The 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' reports 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 their decisions. The 
budget resolution may contain ``reconciliation direc

[[Page 447]]

tives'' (discussed below) to the committees responsible for tax laws and 
for spending not controlled by annual appropriation acts, in order to 
conform the level of receipts and this type of spending to the levels 
specified in the budget resolution.
   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. The President can only approve or veto 
an entire bill. He cannot approve or veto selected parts of a bill. \2\
---------------------------------------------------------------------------
  \2\  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.
---------------------------------------------------------------------------
   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.
   As explained earlier, Congress also provides budget authority in laws 
other than appropriations acts. In fact, while annual appropriations 
acts control the spending for the majority of Federal programs, they 
control only one-third of the total spending in a typical year. 
Permanent laws, called authorizing legislation, control the rest of the 
spending. Such a large proportion of the budget is determined by such 
laws because they determine the amount of interest the Government pays 
on the public debt and the amounts spent by a few programs with large 
amounts of spending each year, such as social security. This chapter 
discusses the control of budget authority and outlays 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' 
reports 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 their 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 
Budget and Emergency Deficit Control Act, and the

[[Page 448]]

law pertaining to the President's budget (see PRINCIPAL BUDGET LAWS, 
later in the chapter). The BEA constrains legislation enacted through 
2002 (2003 in certain cases) 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 
(2003 in the case of spending for highways and mass transit). The 
following table lists the categories, which vary from year to year, and 
their caps. For 1998 and 1999, the BEA divided most discretionary 
spending between defense and non defense spending, excluding special 
categories. For 2000 through 2002, the BEA combines defense and 
nondefense spending, excluding special categories, into one category, 
which is shown as ``Other discretionary.'' For 1998 through 2000, the 
BEA provided a special category for violent crime reduction spending. 
The Transportation Equity Act for the 21st Century (TEA-21) (Public Law 
105-178) added special categories (applying to outlays only) for highway 
and mass transit spending for 1999 through 2003.
   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 highways and mass transit caps, 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 below) explains 
other cap adjustments proposed in this budget.

                                          DISCRETIONARY SPENDING LIMITS
                                            (In billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                                                   1998    1999    2000    2001    2002    2003
----------------------------------------------------------------------------------------------------------------
Defense:
  Budget Authority..............................................   272     287     N/A     N/A     N/A     N/A
   Outlays......................................................   269     276     N/A     N/A     N/A     N/A
Nondefense, excluding special categories:
  Budget Authority..............................................   256     291     N/A     N/A     N/A     N/A
   Outlays......................................................   286     277     N/A     N/A     N/A     N/A
Violent crime reduction:
  Budget Authority..............................................     6       6       5     N/A     N/A     N/A
   Outlays......................................................     5       5       6     N/A     N/A     N/A
Highways:
  Budget Authority..............................................   N/A     N/A     N/A     N/A     N/A     N/A
   Outlays......................................................   N/A      22      25      27      28      28
Mass transit:
  Budget Authority..............................................   N/A     N/A     N/A     N/A     N/A     N/A
   Outlays......................................................   N/A       4       4       5       5       6
Other discretionary:
  Budget Authority..............................................   N/A     N/A     567     541     550     N/A
   Outlays......................................................   N/A     N/A     565     547     537     N/A
Total discretionary:
  Budget Authority..............................................   533     583     571     541     550     N/A
  Outlays.......................................................   560     584     600     579     571      34
----------------------------------------------------------------------------------------------------------------
N/A means that this category was not applicable in the specified year.

   If the amount of budget authority provided in appropriations acts for 
a given year exceeds the cap on budget authority for a category, or the 
amount of outlays in that 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 
entirely.
   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 or 
reduces a surplus 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 
unemploy

[[Page 449]]

ment 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 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 2001 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 or reduce a surplus. 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    President transmits the budget, including a sequestration
 Monday in February............................   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 cir

[[Page 450]]

cumstances. This system helps to ensure that funds are available to 
cover operations for the entire year.
   During the budget execution phase, the Government often finds that it 
needs to spend more money than Congress has appropriated for the fiscal 
year because of circumstances that were not anticipated when the budget 
was formulated and appropriations enacted for that fiscal year. For 
example, more money might be needed in order to provide adequate 
assistance to an area stricken by an unusually severe natural disaster. 
Under such circumstances, Congress may enact a supplemental 
appropriation.
   On the other hand, changing circumstances may reduce the need for 
certain spending for which Congress has appropriated funds. The 
President may propose not to spend funds under procedures specified in 
the Impoundment Control Act of 1974. These procedures prevent the 
President from failing to spend the funds without Congress' agreement. 
Otherwise, it would possible for the President to thwart Congress' 
spending policies through inaction. Under the act, the President may 
propose deferrals or rescissions. Deferrals, which are temporary 
withholdings, take effect immediately unless overturned by an act of 
Congress. The President may only defer funds to provide for 
contingencies, to achieve savings made possible through changes in 
requirements or greater efficiency of operations, or as otherwise 
specifically provided in law. He may not defer funds for policy reasons. 
In 1999, the President proposed a total of $1.7 billion in deferrals, 
and Congress overturned none. Rescissions, which permanently cancel 
budget authority, take effect only if Congress passes a law approving 
them. The law may approve only part of a rescission. If Congress does 
not pass such a law within 45 days of continuous session, the President 
must make the funds available for spending. The President may propose a 
rescission for any reason. 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 1999, the 
President proposed rescissions totaling $35 million, and Congress 
rescinded a total of $17 million.

                          COVERAGE OF THE BUDGET

                   Federal Government and Budget Totals

            TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
                        (In billions of dollars)
------------------------------------------------------------------------
                                                            Estimate
                                                 1999  -----------------
                                                actual    2000     2001
------------------------------------------------------------------------
Budget authority
  Total......................................    1,777    1,801    1,885
  Off-budget.................................      326      334      343
  On-budget..................................    1,450    1,467    1,543

Receipts:
  Total......................................    1,828    1,956    2,019
  Off-budget.................................      445      477      500
  On-budget..................................    1,383    1,480    1,519

Outlays:
  Total......................................    1,703    1,790    1,835
  Off-budget.................................      321      329      340
  On-budget..................................    1,382    1,461    1,495

Surplus:
  Total......................................      124      167      184
  Off-budget.................................      124      148      160
  Medicare Solvency Debt Reduction Reserve...  .......  .......       15
  Remaining On-budget........................        1       19        9
------------------------------------------------------------------------

   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 or surplus 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.
  In 2001, the surplus section of this table shows the effect of the 
Administration's proposal to reserve part of the on-budget surplus for 
Medicare solvency and for catastrophic prescription drug coverage. 
Called ``Medicare Solvency/Debt Reduction,'' these amounts would not be 
available for spending under the budget resolution or on the PAYGO 
scorecard. They would be available only for debt reduction, pending 
their use for Medicare or the catastrophic prescription drug program. 
These proposals are part of a broader budget framework proposal 
discussed in chapter 13, ``Preview Report,'' of the Analytical 
Perspectives volume of the 2001 budget.
   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

[[Page 451]]

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 establishing functional categories and assigning 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, the clientele or geographic area served, or the 
          Federal agency conducting the activity.
     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 primary 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.
   Section V, ``Improving Government Performance,'' in the main Budget 
volume of the 2001 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 
2001 budget provide information on budget authority, outlays, and 
offsetting collections 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 funds 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 the 
associated appropriation accounts for the expenditure of those receipts. 
Public enterprise funds are revolving funds used for programs authorized 
by law to conduct a cycle of business-type operations, primarily with 
the public, in which outlays generate collections. Intragovernmental 
funds are revolving funds that conduct business-type operations 
primarily within and between Government agencies. The collections and 
the outlays of revolving funds are recorded in the same budget 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 2001 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, equipment, and software. 
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

[[Page 452]]

research, development, education, and training. (Chapter 6, ``Federal 
Investment Spending and Capital Budgeting,'' in the Analytical 
Perspectives volume of the 2001 budget provides more information on 
capital investment.)

      RECEIPTS, OFFSETTING COLLECTIONS AND RECEIPTS, AND USER FEES

                                In General

   The budget records money collected by Government agencies two 
different ways. Depending on the nature of the activity generating the 
collection, they are recorded as either:
     Receipts, which are compared in total to outlays (net of 
          offsetting collections and receipts) in calculating the 
          surplus or deficit; or
     Offsetting collections or offsetting receipts, which are 
          deducted from gross outlays to produce net outlay figures.

                                 Receipts

   Receipts are collections that result from the Government's exercise 
of its sovereign power to tax or otherwise compel payment and gifts of 
money to the Government. Sometimes they are called governmental 
receipts. 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 System. 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 2001 budget provides more 
information on receipts.

                   Offsetting Collections and Receipts

   Offsetting collections and receipts result from either of 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 or receipts. They 
          are deducted from gross budget authority and outlays, rather 
          than added to 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 or receipts. 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 and receipts are 
          deducted from gross budget authority and outlays so that the 
          budget totals measure the transactions of the Government with 
          the public.
   A table in Chapter 20, ``Outlays to the Public, Net and Gross,'' in 
the Analytical Perspectives volume of the 2001 budget, shows the effect 
of offsetting collections and receipts on gross outlays for each major 
Federal agency.
   Although they both offset gross budget authority and outlays, the 
budget accounts for offsetting collections differently from offsetting 
receipts, as explained in the following sections.

                          Offsetting Collections

   Some laws authorize agencies to credit collections directly to the 
account from which they will be spent and, usually, to spend the 
collections 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 
are 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. In addition to 
revolving funds, some agencies are authorized to charge fees to defray a 
portion of costs for a program that are otherwise financed by 
appropriations from the general fund. In such cases, the budget records 
the offsetting collections and resulting budget authority in the 
program's general fund expenditure account.
   Sometimes appropriations acts or provisions in other laws limit the 
obligations that can be financed by budget authority from offsetting 
collections. In those cases, the budget records budget authority in the 
amount available to incur obligations. 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. The budget labels these ``offsetting 
governmental collections.''

[[Page 453]]

                           Offsetting Receipts

   Collections that are offset against gross outlays but 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, they offset budget authority and outlays 
at the agency and subfunction levels. Offsetting receipts are subdivided 
into three categories, as follows:
     Proprietary receipts from the public.--These are 
          collections from the public that arise out of the business-
          type or market-oriented activities of the Government. Most 
          proprietary receipts are deducted from the budget authority 
          and outlay totals of the agency that conducts the activity 
          generating the receipt and of the subfunction to which the 
          activity is assigned. For example, fees for using National 
          Parks are deducted from the totals for the Department of 
          Interior, which has responsibility for the parks, and the 
          Recreational Resources subfunction. 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 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 Fees

   In the budget, the term ``user fee'' refers to fees, charges, and 
assessments the Governemnt levies on a class directly benefiting from, 
or subject to regulation by, a Government program 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 receipts or as offsetting collections or receipts, depending on 
whether the fee results primarily from the exercise of governmental 
powers or from business-like activity.
   See Chapter 4, ``User Fees and Other Collections,'' in the Analytical 
Perspectives volume of the 2001 budget, for a more detailed discussion 
of user fees and offsetting collections and receipts.

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 the 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) 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

[[Page 454]]

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 and receipts 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, or trust funds, or authorize the spending 
of offsetting collections credited to expenditure accounts, including 
revolving funds. Borrowing authority is usually authorized for business-
like activities where the activity being financed is expected to produce 
income over time with which to repay the borrowing with interest. 
Contract authority is a traditional form of budget authority for certain 
programs, particularly transportation programs.
   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 that allow 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 the 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 at the end of the year 
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 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 an equal change in the level of 
outlays in that year. Conversely, 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. \3\
---------------------------------------------------------------------------
  \3\ 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.

[[Page 455]]

   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 2001 
appropriations act extends the availability of unobligated budget 
authority that otherwise would expire at the end of 2000, new budget 
authority would be recorded for 2001.
   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 provided in an annual appropriations act and mandatory if provided in 
authorizing legislation. However, the BEA requires the budget authority 
provided in annual appropriations acts for certain specifically 
identified programs to be treated as mandatory. This is 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. As discussed 
later, the discretionary and mandatory classification applies to the 
outlays that flow from budget authority, according to the classification 
of the budget authority.
   The budget also classifies budget authority as definite or 
indefinite. It is definite if the legislation that provides it specifies 
a dollar amount (which may be an amount not to be exceeded). It is 
indefinite if, instead of specifying an amount, the legislation 
providing it permits the amount to be determined by subsequent 
circumstances. For example, indefinite budget authority is provided for 
interest on the public debt, payment of claims and judgments awarded by 
the courts against the U.S., and many entitlement programs. Many of the 
laws that authorize collections to be credited to revolving, special, 
and trust funds make all of the collections available for expenditure 
for the authorized purposes of the fund, and such authority is 
considered to be indefinite budget authority. In some such cases, only 
some of the amount of collections otherwise available is counted as 
budget authority, because the rest is precluded from obligation in a 
fiscal year by a provision of law, such as a limitation on obligations 
or a benefit formula that determines the amounts to be paid (for 
example, the formula for unemployment insurance benefits).

                           Obligations Incurred

   Following the enactment of budget authority and the completion of 
required apportionment action, Government agencies incur obligations to 
make payments. 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 
and an increase in debt when debt instruments (bonds, debentures, notes, 
or monetary credits) are used to pay obligations. 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 Treasury 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

[[Page 456]]

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 taxpayers for tax credits (such as earned income tax 
credits) that exceed the taxpayer'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 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.
   As mentioned earlier, the budget classifies budget authority as 
discretionary or mandatory for the purposes of the BEA. This 
classification indicates whether appropriations acts or authorizing 
legislation control the amount of budget authority that is available. 
Outlays are classified as discretionary or mandatory according to the 
classification of the budget authority from which they flow. This 
classification of outlays measures the extent to which actual spending 
is controlled through the annual appropriations process. Typically, only 
one-third ($575 billion in 1999) of total outlays for a fiscal year are 
discretionary and the rest ($1,128 billion in 1999) consists of 
mandatory spending and net interest payments. Such a large portion of 
total spending is nondiscretionary because authorizing legislation 
determines net interest payments ($230 billion in 1999) and the spending 
for a few programs with large amounts of spending each year, such as 
Social Security ($387 billion in 1999) and Medicare ($188 billion in 
1999).
   Outlays for an account are stated both gross and net of any 
offsetting collections credited to the account, but function, agency, 
and Government-wide outlay totals are only stated net. (See Chapter 20, 
``Outlays to the Public, Net and Gross,'' in the Analytical Perspectives 
volume of the 2001 budget.) Total outlays for the Federal Government 
include both on-budget and off-budget outlays. (See the table, ``Totals 
for the Budget and Federal Government'' above.)

                              FEDERAL CREDIT

   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. 
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. The Federal Credit Reform 
Act provides a permanent indefinite appropriation to pay the increased 
costs resulting from reestimates.
   If the Government modifies the terms of an outstanding direct loan or 
loan guarantee in a way that

[[Page 457]]

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 to 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 means of financing discussed under this heading. The 
Government's debt (debt held by the public) is approximately 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 means of 
financing. Most of the other means of financing may be either positive 
or negative; that is, they may increase or decrease the Government's 
borrowing needs or its ability to reduce the publicly held debt.

                       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 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 1999, the Government repaid $89 
billion of debt held by the public. This was the result of a $4 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 1999, the debt held by the public was $3,633 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 thus do not raise or use any cash 
for the Government as a whole. (See Chapter 12, ``Federal Borrowing and 
Debt,'' in the Analytical Perspectives volume of the 2001 budget for a 
fuller discussion of this topic.)

                   Debt Buyback Premiums and Discounts

   The Treasury Department plans to buy back outstanding U.S. notes and 
bonds as part of its efforts to manage efficiently the reduction of the 
publicly held debt. The Treasury has made no firm decisions about the 
timing or the amount of the buybacks at this time.
   Because interest rates are now lower than the coupon rates on most of 
the notes and bonds that Treasury might buy, the government will have to 
pay a premium over the book value of these securities. However, because 
any new securities issued to finance these purchases would carry a lower 
coupon rate, these transactions would involve no net long-term cost to 
the taxpayer; in fact, if the liquidity of all new issues of Treasury 
securities is enhanced by the buybacks, as expected, total interest 
costs should be reduced. This raised a question about the proper budget 
treatment of any purchase premium.
   There is no precise precedent for the budget treatment of debt 
buybacks, in that the Treasury has not entered into the market to buy 
outstanding Federal securities for cash during the past century. The 
buyback premium is part of the cost of borrowing money for the period in 
which the debt was outstanding, like a coupon interest payment. Interest 
payments are normally recorded as budget outlays over the period in 
which the debt is outstanding, but buyback premiums present special 
problems, in that they would be paid when the debt is repaid.
   In similar past circumstances (in particular, the small amounts of 
unamortized original-issue discount that remained on several issues of 
Treasury bonds that were called), the practice has been to record any 
premium as interest at the time of the buyback--in the year the premium 
was paid in cash. However, this shows the cost at a time different from 
when it was incurred, and makes it appear that the buyback itself 
results

[[Page 458]]

in an additional cost to the government. It also has the effect of 
reducing the budget surplus, which could discourage buybacks, even 
though they impose no additional cost to the government. Moreover, under 
this accounting, the budget would record receipts if securities were 
bought at a discount (which would be the case when current interest 
rates were higher than the rates on outstanding securities). This would 
create a perverse incentive to buy back securities that were available 
at a discount to increase the recorded surplus, even though such 
transactions would yield no long-term gain to the government.
   There are three alternatives to recording buyback premiums and 
discounts in the year of the buyback. Like immediate scoring, each has 
advantages and disadvantages--no option is perfect.
   Premiums and discounts could be spread retroactively over the years 
when the securities were outstanding, by adjusting the historical 
interest outlay figures. This would reflect the cost in the period in 
which it was incurred, and would eliminate the perverse incentives 
created by recording the premiums or discounts in the year of the 
buyback. However, this method would record the interest cost for 
securities that are bought back differently from that of otherwise 
identical securities that remain outstanding. It would also require 
changes to historical data every time Treasury bought back more 
securities, making those data less useful and reducing their 
credibility.
   The outlays for premiums or receipts for discounts could be amortized 
in future years--for example, over a period equal to the remaining lives 
of the securities when they were bought back. This would reduce the 
perverse incentives of the current treatment. However, it would record 
outlays for premiums or receipts for discounts much later than the 
period in which the costs were really incurred. It would lead future 
recorded interest outlays (net of receipts from discounts) to be 
inconsistent with the terms and amount of the debt outstanding in future 
years. In the extreme, the budget could show interest outlays (because 
of amortized premiums) after all debt had been retired.
   There are many possible variations of these alternatives that would 
record premiums (or discounts) over shorter or longer periods in the 
past or the future. None of them would significantly alter the pros and 
cons identified above.
   A third alternative is to record payments for premiums or collections 
for discounts not as outlays or receipts, but as a means of financing 
the surplus or deficit, in the year of the buyback. This is the way that 
borrowing and repayment of debt are treated. Under this accounting, 
premiums would decrease the Treasury's cash balance, and discounts would 
increase it, in the year of the buyback. Because the premiums or 
discounts would not be recorded as outlays or receipts, this would avoid 
the perverse incentives associated with recording outlays or receipts 
all in the buyback year. It would not require repeated changes to the 
historical data. It would not distort outlays in the current year or 
future years as a measure of the costs incurred in those periods. A 
disadvantage is that the budget would not record buyback premiums as 
interest outlays or buyback receipts as interest receipts in any period 
(though the premiums and discounts would be presented in the Budget 
table on the Federal debt), and thus the budget would permanently 
misstate the cumulative interest outlays over time.
   After consulting with the Congressional Budget Office and the House 
and Senate Budget Committees, the Administration has concluded that, on 
balance, the best option is to account for buyback premiums and 
discounts as a means of financing (although, like all of the other 
options, it does have some disadvantages). However, this treatment 
clearly would not be appropriate for any non-financial Federal 
transaction. Debt buybacks would not use or transfer the control of real 
resources, would not change the net worth (in economic terms) of the 
Federal government or the private sector, and would not change net 
credit flows. In contrast, any government transfer payment, or any 
purchase of a good or service, would so allocate Federal resources, and 
so must be recorded as a budgetary outlay. Most Federal financial 
transactions, including the payment of coupon interest on outstanding 
securities and the subsidy conveyed by direct loans and loan guarantees, 
also impose a cost on the government and allocate resources, and 
therefore must also be recorded as outlays. This is so even though a 
government purchase might be deemed to have long-term benefits for the 
Nation (in fact, all government purchases are deemed to be beneficial), 
or might be undertaken under a legal obligation (such as the payment of 
coupon interest on outstanding Treasury bonds, notes or bills).
   The Treasury will begin conducting debt buybacks in the next few 
months, and expects to conduct several such operations in the first half 
of calendar year 2000. Based on the results of these first operations, 
the Treasury expects to develop a plan for debt buybacks as a part of 
its ongoing cash- and debt-management operations. Because it is 
impossible to develop a firm plan prior to completion of the initial 
operations, this budget includes no estimate of future buyback premiums. 
When the buybacks do occur, future budgets will record any premium 
payments or discount collections as a means of financing, and will 
present them in a separate entry in the tables on the Federal debt that 
show the means of financing.

                        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 
other than borrowing from the public. The budget treats prof

[[Page 459]]

its 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 other than 
borrowing from the public. 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 other than borrowing from the public. To the extent that the 
balances are invested in Federal debt, changes in the balances are 
reflected as borrowing from the public.

             Exchanges with the International Monetary Fund

   Under the terms of its participation in the IMF, the U.S. transfers 
dollars to the IMF and receives Special Drawing Rights in return. The 
SDR's are interest-bearing monetary assets and may be exchanged for 
foreign currency at any time. These transfers are like bank deposits and 
withdrawals. Following a recommendation of the 1967 President's 
Commission on Budget Concepts, the budget excludes these transfers from 
budget outlays or receipts. The budget does record interest paid by the 
IMF on U.S. deposits (as an offsetting collection). It also records 
outlays for foreign currency exchanges to the extent there is a realized 
loss in dollars terms and offsetting collections to the extent there is 
a realized gain in dollar terms.

                            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, and vacancies during the year. 
For example, one full-time employee and two half-time employees would 
count as two FTE's but three positions. (Chapter 10, ``Federal 
Employment,'' in the Analytical Perspectives volume of the 2001 budget 
provides more information on this subject.)

                        TOTAL FEDERAL EMPLOYMENT
------------------------------------------------------------------------
                                                                 Percent
                                  1999       2000       2001     change
                                 actual   estimated  estimated   1999 to
                                                                  2000
------------------------------------------------------------------------
 Total FTE's.................  4,113,481  4,182,925  4,086,227    -0.7
 Federal Executive Branch            9.7        9.8        9.4    -3.1
 civilian employees per 1000
 U.S. population.............
------------------------------------------------------------------------

                        BASIS FOR BUDGET FIGURES

                          Data for the Past Year

   The past year column (1999) 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

[[Page 460]]

in Treasury's published data. The budget usually notes the sources of 
such differences.

                        Data for the Current Year

   The current year column (2000) 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 (2001) 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, this 
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 (2002 through 2005) 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. 
(Chapter 14, ``Current Services Estimates,'' in the Analytical 
Perspectives volume of the 2001 budget provides more information on the 
baseline.)
   The baseline serves several useful for purposes:
     It may warn of future problems, either for Government 
          fiscal policy as a whole or for individual tax and spending 
          programs; or it may show the resources available for future 
          use to reduce the publicly held debt, increase spending 
          programs, or cut taxes.
     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.

                          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.


[[Page 461]]


     Balanced Budget and Emergency Deficit Control Act of 1985 
          (Public Law 99-177), as amended, which prescribes rules and 
          procedures (including ``sequestration'') designed to eliminate 
          excess spending. This Act is commonly known as the Gramm-
          Rudman-Hollings Act.

     Budget Enforcement Act of 1990 (Title XIII, Public Law 101-
          508) significantly amended key laws pertaining to the budget 
          process, including the Congressional Budget Act and the 
          Balanced 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

   Agency means a department or establishment of the Government.
   Allowance means a lump-sum included in the budget to represent 
certain transactions that are expected to increase or decrease budget 
authority, outlays, or receipts but that are not, for various reasons, 
reflected in the program details.
   Balances of budget authority means the amounts of budget authority 
provided in previous years that have not been outlayed.
   Baseline means an estimate of the receipts, outlays, and deficit or 
surplus that would result from continuing current law through the period 
covered by the budget.
   Budget means the Budget of the United States Government, which sets 
forth the President's comprehensive financial plan for allocating 
resources and indicates the President's priorities for the Federal 
Government.
   Budget authority (BA) means the authority provided by law to incur 
financial obligations that will result in outlays. (For a description of 
the several forms of budget authority, see Budget Authority and Other 
Budgetary Resources earlier in this chapter.)
   Budget totals mean the totals included in the budget 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.
   Budgetary resources mean amounts available to incur obligations in a 
given year. The term comprises new budget authority and unobligated 
balances of budget authority provided in previous years.
   Cap means the legal limits on the budget authority and outlays for 
each fiscal year provided by discretionary appropriations.
   Cash equivalent transaction means a transaction in which the 
Government makes outlays or receives collections in a form other than 
cash. (For a examples, see the section on Outlays earlier in this 
chapter.)
   Credit program account means a budget account that receives and 
obligates appropriations to cover the subsidy cost of a direct loan or 
loan guarantee and disburses the subsidy cost to a financing account.
   Deficit means the amount by which outlays exceed receipts in a fiscal 
year. It may refer to the on-budget, off-budget, or unified budget 
deficit.
   Direct loan means 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--See mandatory spending.
   Discretionary appropriations means budgetary resources (except those 
provided to fund mandatory

[[Page 462]]

spending programs) provided in appropriations acts. (Cf. mandatory 
spending.)
   Emergency appropriation means an appropriation 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 mandatory.
   Federal funds group refers to 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 means a non-budgetary account (its transactions are 
excluded from the budget totals) that records all of the cash flows 
resulting from post-1991 direct loan obligations or loan guarantee 
commitments. 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. (Cf. liquidating account.)
   Fiscal year means 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.
   General fund means the accounts for receipts not earmarked by law for 
a specific purpose, the proceeds of general borrowing, and the 
expenditure of these moneys.
   Liquidating account means a budget account that records all cash 
flows to and from the Government resulting from pre-1992 direct loan 
obligations or loan guarantee commitments. (Cf. financing account.)
   Loan guarantee means 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, 
exept for the insurance of deposits, shares, or other withdrawable 
accounts in financial institutions. (Cf. direct loan.)
   Mandatory spending means spending controlled by laws other than 
appropriations acts (including spending for entitlement programs) and 
spending for the food stamp program. Although the Budget Enforcement Act 
use the term direct spending to mean this, mandatory spending is 
commonly used instead. (Cf. discretionary appropriations.)
   Intragovernmental fund--see revolving fund.
   Obligated balance means the cumulative amount of budget authority 
that has been obligated but not yet outlayed. (Cf. unobligated balance.)
   Obligation means a binding agreements that will result in outlays, 
immediately or in the future. Budgetary resources must be available 
before obligations can be incurred legally.
   Off-budget--See budget totals.
   Offsetting collections mean collections that are deducted from gross 
budget authority and outlays, rather than added to receipts, and, by 
law, are credited directly to expenditure accounts. Usually, they may be 
spent for the purposes of the account without further action by 
Congress. They result from business-type or market-oriented activities 
with the public and other Government accounts. (Cf. receipts and 
offsetting receipts.)
   Offsetting receipts mean collections that are deducted from gross 
budget authority and outlays, rather than added to receipts, and are not 
authorized to be credited to expenditure accounts. Instead, they are 
credited to offsetting receipt accounts. The legislation that authorizes 
the offsetting receipts may require them to be appropriated in annual 
appropriation acts before they can be spent. Like offsetting 
collections, they result from business-type or market-oriented 
activities with the public and other Government accounts. (Cf. receipts 
and offsetting collections.)
   On-budget--See budget totals.
   Outlay means a payment to liquidate an obligation (other than the 
repayment of debt). Outlays are the measure of Government spending. 
Except where they are labeled as gross, they are stated net of any 
related refunds and offsetting collections or receipts. Outlays 
generally are equal to cash disbursements but also are recorded for 
cash-equivalent transactions, such as the subsidy cost of direct loans 
and loan guarantees, and interest accrued on public issues of public 
debt.
   Pay-as-you-go (PAYGO) means the requirements of the Budget 
Enforcement Act that result in a sequestration if the estimated combined 
result of legislation affecting mandatory spending or receipts is a net 
cost for a fiscal year.
   Outyear estimates means estimates presented in the budget for the 
years beyond the budget year (usually four) of budget authority, 
outlays, receipts, and other items (such as debt).
   Public enterprise fund--See revolving fund.
   Receipt means a collection that results from the Government's 
exercise of its sovereign power to tax or otherwise compel payment and 
gifts of money to the Government. They are compared to outlays in 
calculating a surplus or deficit. (Cf. offsetting collections and 
offsetting receipts.)

[[Page 463]]

   Revolving fund means a fund that conducts continuing cycles of 
business-like activity, in which the fund charges for the sale of 
products or services and uses the proceeds to finance its spending, 
usually without requirement for annual appropriations. There are two 
types of revolving funds: Public enterprise funds, which conduct 
business-like operations mainly with the public, and intragovernmental 
revolving funds, which conduct business-like operations mainly within 
and between Government agencies.
   Scorekeeping means measuring the budget effects of legislation, 
generally in terms of budget authority, receipts, and outlays for 
purposes of the Budget Enforcement Act.
   Sequestration means the cancellation of budgetary resources provided 
by discretionary appropriations or mandatory spending legislation, 
following various procedures prescribed by the Budget Enforcement Act. A 
sequestration may occur in response to a discretionary appropriation 
that causes discretionary spending to exceed the discretionary spending 
caps or in response to net costs resulting from the combined result of 
legislation affecting mandatory spending or receipts (referred to as a 
``pay-as-you-go'' sequestration).
   Special fund means a Federal fund accounts for receipts earmarked for 
specific purposes and for the expenditure of these receipts. (Cf. trust 
fund.)
   Subsidy means the same as cost when it is used in connection with 
Federal credit programs.
   Surplus means the amount by which receipts exceed outlays.
   Supplemental appropriation means an appropriation 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 fund refers to a type of account, designated by law as a trust 
fund, for receipts earmarked for specific purposes and the expenditure 
of these receipts. Some revolving funds are designated as trust funds, 
and these are called trust revolving funds. (Cf. special fund and 
revolving fund.) Trust funds group refers to the moneys collected and 
spent by the Government through trust fund accounts. (Cf., Federal funds 
group.)
   Unobligated balance means the cumulative amount of budget authority 
that is not obligated and that remains available for obligation under 
law.
   User fee means a fee, charge, and assessment levied on a class 
directly benefiting from, or subject to regulation by, a Government 
program or activity, to be utilized solely to support the program or 
activity.
