[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]


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                       BUDGET SYSTEM AND CONCEPTS
                              AND GLOSSARY

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              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

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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

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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

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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

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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.)

[[Page 455]]

  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.)