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

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

                           BUDGET SYSTEM AND CONCEPTS
                                  AND GLOSSARY

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

    [[Page 437]]

                  25.  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 2002.
    (Fiscal year 2002 will begin on October 1, 2001 and end on September 30,
    2002.) The budget also covers at least the four years following the
    budget year in order to reflect the effect of budget decisions over the
    longer term. It includes the funding levels provided for the current
    year, in this case 2001, so that the reader can compare the budget
    estimates to the most recently enacted levels, and it includes data on
    the most recently completed fiscal year, in this case 2000, so that the
    reader can compare budget estimates to actual accounting data.
      In a normal year, the President begins the process of formulating the
    budget by establishing general budget and fiscal policy guidelines,
    usually by 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
    As

    [[Page 438]]

    sumptions,'' in the Analytical Perspectives volume of the budget
    provides more information on this subject.)
      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.
      In some years, for various reasons, the President cannot adhere to the
    normal schedule. 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. President George
    W. Bush similarly submitted an initial document, A Blueprint for New
    Beginnings--A Responsible Budget for America's Priorities, to Congress
    on February 28, 2001, and is submitting the Budget of the United States
    for Fiscal Year 2002 in April 2001.
      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.
      This Administration supports biennial budgeting and appropriations,
    under which the President's budget would request, and Congress would
    provide, appropriations covering a two-year period (see A Blueprint for
    New Beginnings, ``Biennial Budgeting and Appropriations,'' p.174).

                             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 work on the budget 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

    [[Page 439]]

    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. 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 directives'' (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 exceed
    a committee's allocation.
      A concurrent resolution, such as the one on the budget, is not a law
    and, therefore, does 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. This Administration proposes to formalize this process by making
    the budget resolution a joint resolution, which would require the
    President's approval and would have the force of law (see A Blueprint
    for New Beginnings, ``Joint Budget Resolution,'' p.174).
      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. 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. This Administration proposes
    to give the President a form of line-item veto authority that will pass
    constitutional muster. It would allow the President to decline to spend
    funds or grant limited tax benefits whenever the President determines
    that the spending or limited tax benefits (to 100 or fewer
    beneficiaries) are not essential to Government functions and the
    national interest would not be harmed (see A Blueprint for New
    Beginnings, ``Line-Item Veto,'' p. 175).
      If Congress does not complete action on one or more appropriations
    bills by the beginning of the fiscal year, it enacts a joint resolution
    called a ``continuing 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, Presidents have 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. This Administration
    proposes a backup plan to avoid the threat of a Government shutdown.
    Under this plan, if an appropriations bill is not signed by October 1 of
    the new fiscal year, funding would be provided automatically at the
    lower of the President's budget request or the prior year's level. This
    would remove incentives for the President or the congressional
    leadership to use the leverage of shutting down Government to achieve
    spending objectives (see A Blueprint for New Beginnings, ``Government
    Shutdown Prevention,'' p. 175).
      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. This category of spending includes interest the Government
    pays on the public debt. It also includes the spending of several major
    programs, such as Social Security, Medicare and Medicaid, unemployment
    insurance, and federal employee retirement. This chapter discusses the
    control of budget authority and outlays in greater detail under BUDGET

    [[Page 440]]

    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 would
    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 law pertaining to the
    President's budget (see PRINCIPAL BUDGET LAWS, later in the chapter).
    The BEA constrains legislation enacted through 2002 that would increase
    spending or decrease receipts. Although the BEA expires after 2002, this
    Administration proposes to extend it (see A Blueprint for New
    Beginnings,  ``Spending Limits and Pay-As-You-Go,'' p. 171).
      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 specifies
    dollar limits (``caps'') on the amount of spending in each category. The
    categories and their amounts are determined by negotiations within
    Congress, and between Congress and the President, each time the BEA is
    amended. Amounts cannot be shifted from one category to another, and the
    BEA provides no incentive for appropriating less than the cap levels.
    Thus, the caps tend to be targets for the amount of spending in each
    category. The caps apply to both budget authority and outlays--except in
    the case of the highway and mass transit caps, which apply only to
    outlays.
      The categories have varied from year to year under the original and
    amended versions of the BEA. The current categories, except for the one
    called ``Other Discretionary,'' were added by amendments to the BEA by
    other laws. The Violent Crime Control and Reduction Act of 1994 (Public
    Law 103-322) added a category for violent crime reduction spending,
    which expired after 2000. The Transportation Equity Act for the 21st
    Century (TEA-21) (Public Law 105-178) added categories for highway and
    mass transit spending for 1999 through 2003. The Department of Interior
    and Related Agencies Appropriations Act, 2001 (Public Law 106-291) added
    a category for conservation spending for 2002 through 2006. In addition
    to specifying caps for this category, the BEA specifies minimum levels
    of spending for six subcategories. Because the BEA itself expires after
    2002, the categories in later years will apply to budgets for those
    years only if an extension of the BEA is enacted and those categories
    are retained. In some years prior to 2000, the BEA divided discretionary
    spending into the major categories of national defense, international,
    and domestic spending. The Historical Tables volume of the budget
    provides comparable data for these categories for 1962 through 2006.
      The BEA includes general requirements for OMB to adjust the caps up or
    down for changes in concepts and definitions, to accommodate
    appropriations designated by the President and the Congress as emergency
    spending, and to allow a limited amount of leeway when the level of
    budget authority does not exceed the budget authority cap but the
    estimate of outlays resulting from the budget authority exceeds the
    outlay cap.
      The BEA also specifies cap adjustments for certain programs for
    various reasons. For example, the caps must be increased up to a
    specified dollar limit to accommodate appropriations for continuing
    disability reviews by the Social Security Administration. This ad

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    justment was included in the BEA because it was determined that the
    reviews reduce overall spending by eliminating benefit payments to
    ineligible individuals.
      The caps adjustments required for the highways and mass transit
    categories are designed to ensure that spending levels match the
    receipts that are earmarked for those programs. The highways and mass
    transit caps on outlays 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 cap adjustments required for the conservation spending category
    are designed to encourage Congress to appropriate up to the cap level.
    If appropriations for a given year in the conservation spending category
    are less than the caps, the BEA requires OMB to increase the caps for
    the following year by the shortfall. And, if appropriations for a given
    year in a subcategory of the conservation spending category are less
    than the specified level for that category, the BEA requires OMB to
    increase the minimum level for the following year by the shortfall.
      The following table shows the adjusted caps. The Preview Report
    (described below) explains the cap adjustments and new cap levels
    proposed in this budget.

                          DISCRETIONARY SPENDING LIMITS
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                       2000    2001    2002
    ------------------------------------------------------------------------
    Violent crime reduction:
      Budget Authority..............................     5     N/A     N/A
       Outlays......................................     6     N/A     N/A
    Highways:
      Budget Authority..............................   N/A     N/A     N/A
       Outlays......................................    25      27      29
    Mass transit:
      Budget Authority..............................   N/A     N/A     N/A
       Outlays......................................     4       5       5
    Conservation spending:
      Budget Authority..............................   N/A     N/A       2
      Outlays.......................................   N/A     N/A       1
      Outlays.......................................
    Other discretionary:
      Budget Authority..............................   580     641     547
       Outlays......................................   569     618     537
    Total discretionary:
      Budget Authority..............................   585     641     549
      Outlays.......................................   604     649     572
    ------------------------------------------------------------------------
     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. However, in some years (including 2001), the caps have been
    circumvented by designating funds as emergency spending (such as
    spending for the decennial census) and by using advance appropriations
    to spread budget authority over more than one year, when there is no
    programmatic purpose for doing so. For 2001, Congress and the Clinton
    Administration enacted appropriations well above the discretionary
    spending levels set in the BEA and legislated a $95.5 billion increase
    in the cap for that year to accommodate the increase. This
    Administration proposes to extend the caps at appropriate levels and to
    end the practices designed to evade them (see A Blueprint for New
    Beginnings, pp. 171-174).
      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
    unemployment benefits. A special rule limits the sequestration of
    Medicare spending to no more than four percent, and special rules for
    some other programs limit the size of a sequestration for those
    programs. As a result of exemptions and special rules, only about three
    percent of all mandatory spending is subject to sequestration, including
    the maximum amounts allowed under special rules. The PAYGO constraints
    have been skirted in recent years. For example, in 2001 Congress and the
    Clinton Administration waived the PAYGO requirements for $18 billion in
    spending. This Administration proposes to extend the PAYGO requirements.
    The President's budget sets aside the Social Security surplus and
    additional on-budget surpluses for debt reduction and contingencies.
    These levels ensure the President's tax plan and his Medicare Helping
    Hand and modernization reforms are fully financed by the surplus. The
    Administration will work with Congress to set new PAYGO requirements
    that accommodate these proposals.
      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 spend

    [[Page 442]]

    ing 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 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 Execution

      Government agencies may not spend more than Congress has appropriated,
    and they may use funds only for purposes specified in law. The
    Antideficiency Act prohibits them from spending or obligating the
    Government to spend in advance of an appropriation, unless specific
    authority to do so has been provided in law. Additionally, the Act
    requires the President to apportion the funds available to most
    executive branch agencies. The President has delegated this authority to
    OMB, which usually apportions by time periods (usually by quarter of the
    fiscal year) and sometimes by activities. Agencies may request OMB to
    reapportion funds during the year to accommodate changing circumstances.
    This system helps to ensure that funds are available to cover operations
    for the entire year.
      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 sup

                                    Budget Calendar

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

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

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

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

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

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

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

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

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

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

    15 days after the end of a
      session of Congress.......  OMB issues final sequestration report, and
                                  the President issues a sequestration order,
                                  if necessary.
    [[Page 443]]

    plemental appropriation. However, this Administration proposes an
    approach to funding emergency spending that would avoid the need for
    supplemental appropriations, except in the most dire circumstances (see
    A Blueprint for New Beginnings, ``Budgeting for Emergencies--The
    National Emergency Reserve,'' p. 173).
      On the other hand, changing circumstances may reduce the need for
    certain spending for which Congress has appropriated funds. Under the
    requirements of the Impoundment Control Act of 1974, the President
    cannot simply decline to spend appropriations. 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 2000, President Clinton
    proposed a total of $1.6 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 2000, President Clinton proposed
    rescissions totaling $128 million, but Congress did not rescind any of
    this amount.

                             COVERAGE OF THE BUDGET

                       Federal Government and Budget Totals

                TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                                Estimate
                                                     2000  -----------------
                                                    actual    2001     2002
    ------------------------------------------------------------------------
    Budget authority:
      Unified....................................    1,825    1,894    2,005
      On-budget..................................    1,490    1,542    1,644
      Off-budget.................................      335      352      360

    Receipts:
      Unified....................................    2,025    2,137    2,192
      On-budget..................................    1,545    1,633    1,661
      Off-budget.................................      481      504      531

    Outlays:
      Unified....................................    1,789    1,856    1,961
      On-budget..................................    1,458    1,509    1,601
      Off-budget.................................      331      348      359

    Surplus:
      Unified....................................      236      281      231
      On-budget..................................       87      125       59
      Off-budget.................................      150      156      172
    ------------------------------------------------------------------------

      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.
      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 Appendix  to the budget and in some detailed tables.
      The Appendix includes a presentation for the Board of Governors of the
    Federal Reserve System for information only. The amounts are not
    included in either the on-budget or off-budget totals because of the
    independent status of the System. However, the Federal Reserve System
    transfers its net earnings to the Treasury, and the budget records them
    as receipts.

                            Functional Classification

      The functional classification arrays budget authority, outlays, and
    other budget data according to the major purpose served--such as
    agriculture, income security, and national defense. There are nineteen
    major functions, most of which are divided into subfunctions. For
    example, the Agriculture function comprises the subfunctions Farm Income
    Stabilization and Agricultural Research and Services. The functional
    classification is an integral part of the congressional budget process,
    and the functional array meets the Congressional Budget Act requirement
    for a presentation in the budget by national needs and agency missions
    and programs.
      The following criteria are used in 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.

    [[Page 444]]

        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 III, ``Creating a Better Government,'' in the main Budget
    volume of the 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
    budget provide information on budget authority, outlays, and offsetting
    collections and receipts arrayed by Federal agency. Chapter 26 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 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 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 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 research, development, education, and training. (Chapter 6,
    ``Federal Investment Spending and Capital Budgeting,'' in the Analytical
    Perspectives volume of the budget provides more information on capital
    investment.)

            RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS

                                   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

    [[Page 445]]

        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 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 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. 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. Similarly, intragovernmental collections authorized by some
    laws may be recorded as offsetting collections and budget authority in
    revolving funds or in general fund expenditure accounts.
      Sometimes appropriations acts or provisions in other laws limit the
    obligations that can be financed by 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.''

                               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

    [[Page 446]]

              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 of
              payments 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 Charges and Fees

       User charges are fees assessed for the provision of Government
    services and for the sale or use of Government goods or resources. The
    payers of the user charge must be limited in the authorizing legislation
    to those receiving special benefits from, or subject to regulation by,
    the program or activity beyond the benefits received by the general
    public or broad segments of the public (such as those who pay income
    taxes or customs duties). User charges are defined and the policy
    regarding user charges is established in OMB Circular A-25, ``User
    Charges'' (July 8, 1993). The term encompasses proceeds from the sale or
    use of government goods and services, including the sale of natural
    resources (such as timber, oil, and minerals) and proceeds from asset
    sales (such as property, plant, and equipment).
       User fees are a subset of user charges that are authorized to be
    utilized solely to support the program or activity for which it was
    levied. User fees are more limited in coverage than user charges and
    must be earmarked for the activity they finance by crediting them to
    special or trust receipts accounts (as receipts or offsetting receipts)
    or to expenditure accounts (as offsetting collections). User charges
    that are credited to the general fund of the Treasury are not user fees
    by definition, because they are not utilized solely to support the
    program or activity for which they were levied.
       The terms user charges and user fees do not refer to separate budget
    categories for collections. The budget records user charges and user
    fees as receipts or as offsetting collections or offsetting 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 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 legal
    obligations that will result in immediate or future outlays of
    Government funds. In other words, it is the amount of money that the law
    allows the Government to commit to be spent in current or future years.
    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 a major exception to this rule, the budget authority
    recorded for the highway and mass transit programs financed by the
    Highway Trust Fund is the amount of budget authority (in the form of
    contract authority, which is described below) provided in authorizing
    statutes, even though the obligation limitations enacted in annual
    appropriations acts restrict 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,

    [[Page 447]]

    or activities being financed. For current operating expenditures, the
    amount requested usually covers needs for the year. For major
    procurement programs and construction projects, the Government generally
    applies a full funding policy. Under this policy, agencies must request
    an amount to be appropriated in the first year that they estimate will
    be adequate to complete an economically useful segment of a procurement
    or project, even though it may be obligated over several years. This
    policy is intended to ensure that the decision-makers take into account
    all costs and benefits fully at the time decisions are made to provide
    resources. It also avoids sinking money into a procurement or project
    without being certain if or when future funding will be available to
    complete the procurement or project.
       Budget authority takes several forms:
        appropriations, provided in annual appropriations acts or
              permanent laws, permit agencies to incur obligations and make
              payment;authority to borrow, usually provided in permanent
              laws, permits agencies to incur obligations but requires them
              to borrow funds, usually from the general fund of the
              Treasury, to make payment;
        contract authority, usually provided in permanent law,
              permits agencies to incur obligations in advance of a separate
              appropriation of the cash for payment or in anticipation of
              the collection of receipts that can be used for payment; and
        spending authority from offsetting collections, usually
              provided in permanent law, permits agencies to credit
              offsetting collections to an expenditure account, incur
              obligations, and make payment using the offsetting
              collections.
      Because offsetting collections 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. \2\
    ---------------------------------------------------------------------------
      \2\ 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

    [[Page 448]]

    appropriations, the appropriation provides for advance funding--budget
    authority that is to be charged to the appropriation in the succeeding
    year but which authorizes obligations to be incurred in the last quarter
    of the current fiscal year if necessary to meet benefit payments in
    excess of the specific amount appropriated for the year.
      Provisions of law that extend the availability of unobligated amounts
    that have expired or would otherwise expire are called reappropriations.
    Reappropriations count as new budget authority in the fiscal year in
    which the balances become newly available. For example, if a 2002
    appropriations act extends the availability of unobligated budget
    authority that otherwise would expire at the end of 2001, new budget
    authority would be recorded for 2002.
      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. They are payments that
    liquidate obligations (other than the repayment of debt). The budget
    records them when obligations are paid, in the amount that is paid.
      Function, subfunction, and agency outlay totals are stated net of
    related refunds to the Government, offsetting collections, and
    offsetting receipts for most budget presentations. (Offsetting receipts
    from a few sources do not offset any specific function, subfunction, or
    agency but only offset Government-wide totals.) Outlay totals for
    accounts with offsetting collections are stated both gross and net of
    the offsetting collections credited to the account. However, the outlay
    totals for special and trust funds with offsetting receipts are not
    stated net of the offsetting receipts.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.) When debt instruments (bonds, debentures,
    notes, or monetary credits) are used to pay obligations, the budget
    records outlays, as well as an increase in debt. For example, the budget
    records the acquisition of physical assets through certain types of
    lease-purchase arrangements as though an outlay were made for an
    outright purchase. Because no cash is paid up front to the nominal owner
    of the asset, the transaction creates a Government debt. In such cases,
    the cash lease payments are treated as repayments of principal and
    interest.
      The measurement of interest varies. The budget records outlays for the
    interest on the public issues of Treasury debt securities as the
    interest accrues, not when the cash is paid. Treasury issues a kind of
    security that features monthly adjustments to principal for inflation
    and semiannual payments of interest on the inflation-adjusted principal.
    As with fixed-rate securi

    [[Page 449]]

    ties, 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 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 a given year to the amount of that budget authority
    is referred to as the spendout rate for that year.
      As described 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 ($615 billion in 2000) of total outlays for a fiscal year are
    discretionary and the rest ($1,174 billion in 2000) consists of
    mandatory spending and net interest payments. Such a large portion of
    total spending is nondiscretionary because authorizing legislation
    determines net interest payments ($223 billion in 2000) and the spending
    for a few programs with large amounts of spending each year, such as
    Social Security ($406 billion in 2000) and Medicare ($194 billion in
    2000).
      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 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 Government programs 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 (FCRA) 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. \3\ 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.
    ---------------------------------------------------------------------------
      \3\ 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

    [[Page 450]]

    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 FCRA 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 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 of 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 FCRA grandfathered direct loan obligations and loan guarantee
    commitments made prior to 1992. The budget records the transactions
    associated with these direct loans and loan guarantees on a cash flow
    basis in credit liquidating accounts, which, in most cases, are the
    accounts that were used for the programs prior to the enactment of the
    FCRA. However, this exception ceases to apply if the direct loans or
    loan guarantees are modified as described above. In that case, the
    budget records a modification subsidy cost or savings, as appropriate,
    and begins to account for the associated transactions as the FCRA
    prescribes for direct loan obligations and loan guarantee commitments
    made in 1992 or later.

                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 the surplus 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 2000, the Government repaid $223
    billion of debt held by the public. This was the result of a $281
    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 2000, the debt held by the public was $3,410
    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 budget for a fuller discussion of this
    topic.)

                       Debt Buyback Premiums and Discounts

      In 2000 and 2001, the Treasury Department bought back outstanding U.S.
    Treasury bonds as part of its efforts to manage efficiently the
    reduction of the publicly held debt. Because interest rates at the time
    were lower than the coupon rates on the bonds that Treasury bought back,
    the government had to pay a premium over the book value of these
    securities. However, because any new securities issued to finance these
    pur

    [[Page 451]]

    chases carried a lower coupon rate than the old securities, these
    transactions involved no net long-term cost to the taxpayer; in fact, if
    the liquidity of new issues of Treasury securities is enhanced by the
    buybacks, as expected, total interest costs should be reduced.
      There is no precise precedent for the budget treatment of debt
    buybacks, in that the Treasury had not entered into the market to buy
    outstanding Federal securities for cash during the past 70 years or so.
    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. If the budget recorded outlays at the time of the premium
    payment, this would show the cost at a time different from when it was
    incurred and would make it appear that the buyback itself resulted in an
    additional cost to the government. It would also have 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.
      Before any buybacks occurred, OMB considered several alternatives to
    recording buyback premiums and discounts in the year of the buyback.
    Like scoring the buyback premiums immediately, each had advantages and
    disadvantages. After consulting with the Congressional Budget Office and
    the House and Senate Budget Committees, OMB concluded that, on balance,
    the best option was 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 avoids the perverse
    incentives associated with recording outlays or receipts all in the
    buyback year. It does not require repeated changes to the historical
    data. It does 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 does not record buyback premiums as interest outlays or
    buyback receipts as interest receipts in any period, and thus the budget
    permanently misstates the cumulative interest outlays over time.
      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).
      Chapter 24, ``Budget System and Concepts and Glossary,'' in the
    Analytical Perspectives volume of the 2001 budget discusses the basis
    for this conclusion in more detail, including an examination of the
    alternatives that were considered. All of the buybacks that have
    occurred to date required premium payments. This budget records them as
    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 profits
    resulting from the sale of gold as a means of financing, since the value
    of gold is determined by its value as a monetary asset rather than as a
    commodity.

                            Credit Financing Accounts

      The budget records the net cash flows of credit programs in credit
    financing accounts, which are excluded from the budget totals and are
    called net financing disbursements. (See FEDERAL CREDIT above.) Net
    financing disbursements are defined in the same way as the outlays of a
    budgetary account and are therefore a means of financing 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

    [[Page 452]]

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

                            TOTAL FEDERAL EMPLOYMENT
    ------------------------------------------------------------------------
                                                                     Percent
                                      2000       2001       2002     change
                                     actual   estimated  estimated   2000 to
                                                                      2002
    ------------------------------------------------------------------------
     Total FTE's.................  4,141,691  4,071,827  4,066,541    -1.8
     Federal Executive Branch            9.7        9.4        9.3    -4.1
     civilian employees per 1000
     U.S. population.............
    ------------------------------------------------------------------------

                            BASIS FOR BUDGET FIGURES

                             Data for the Past Year

      The past year column (2000) generally presents the actual transactions
    and balances as recorded in agency accounts and as summarized in the
    central financial reports prepared by the Treasury Department for the
    most recently completed fiscal year. Occasionally the budget reports
    corrections to data reported erroneously to Treasury but not discovered
    in time to be reflected in Treasury's published data. The budget usually
    notes the sources of such differences.

                            Data for the Current Year

      The current year column (2001) 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 (2002) 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 trans

    [[Page 453]]

    mittal 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 (2003 through 2006) 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 surpluses that would occur if no changes were made to
    current laws during 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.

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

        Budget Enforcement Act of 1990 (Title XIII, Public Law 101-
              508), which 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.

    [[Page 454]]

                            GLOSSARY OF BUDGET TERMS

      Advance appropriation means appropriations of new budget authority
    that become available one or more fiscal years beyond the fiscal year
    for which the appropriation act was passed.
      Advance funding means appropriations of budget authority provided in
    an appropriations act to be used, if necessary, to cover obligations
    incurred late in the fiscal year for benefit payments in excess of the
    amount specifically appropriated in the act for that year, where the
    budget authority is charged to the appropriation for the program for the
    fiscal year following the fiscal year for which the appropriations act
    is passed.
      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.
      Current services estimate--see baseline.
      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 appropriation means budgetary resources (except those
    provided to fund mandatory 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.)

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      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.
      Forward funding means appropriations of budget authority that are made
    for obligation in the last quarter of the fiscal year for the financing
    of ongoing grant programs during the next fiscal year.
      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.)
      Means of financing refers to borrowing and certain other transactions
    involved in financing a deficit. The term is also used to refer to the
    financing of debt repayment and certain other transactions by a surplus.
    By definition, the means of financing are not treated as receipts or
    outlays.
      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
    authorized to 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. The authority
    to spend offsetting collections is a form of budget authority. (Cf.
    receipts and offsetting receipts.)
      Offsetting receipts mean collections that are deducted from gross
    budget authority and outlays, rather than added to receipts, and that
    are not authorized to be credited to expenditure accounts. Instead of
    being credited to expenditure accounts, 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.
      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).
      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.
      Public enterprise fund--See revolving fund.
      Receipts mean 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. Thet are compared to outlays in calculating a
    surplus or deficit. (Cf. offsetting collections and offsetting
    receipts.)
      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

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    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 charges are fees assessed for the provision of Government
    services and for the sale or use of Government goods or resources, where
    the payers of the user charge are limited in the authorizing legislation
    to those receiving special benefits from, or subject to regulation by,
    the program or activity beyond the benefits received by the general
    public or broad segments of the public. (Cf. user fees.)
      User fees are a subset of user charges (as defined above) that are
    authorized to be utilized solely to support the program or activity for
    which it was levied. (Cf. user charges.)