    [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]

    [[Page 423]]

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                     BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

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    [[Page 425]]

                  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 agencies of the Federal Government. 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 that 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 2003.
    (Fiscal year 2003 will begin on October 1, 2002 and end on September 30,
    2003.) 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 2002, 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 2001, so that the
    reader can compare budget estimates to actual accounting data.
      The President begins the process of formulating the budget by
    establishing general budget and fiscal policy guidelines, 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 2, ``Economic
    Assumptions,'' in the Analytical Perspectives volume of the budget
    provides more information on this subject.)
      Statutory limitations on changes in receipts and outlays also
    influence budget decisions (see Budget Enforcement below).

    [[Page 426]]

      Thus, the budget formulation process involves the simultaneous
    consideration of the resource needs of individual programs, the
    allocation of resources among the agencies and functions of the Federal
    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 transmitted the Budget of the United States for
    Fiscal Year 2002 on April 9, 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.

                            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) and
    Introduction to the Federal Budget Process (Congressional Research
    Service Report 98-721 GOV, January 2, 2001).
    ---------------------------------------------------------------------------
      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.
      In the report on the budget resolution, the Budget Committees allocate
    the amounts of budget authority and outlays within the functional
    category totals to the House and Senate Appropriations Committees and
    the other committees that have jurisdiction over the programs in the
    functions. The Appropriations Committees are required, in turn, to
    allocate amounts of budget authority and outlays among their respective
    subcommittees. The subcommittees may not exceed their allocations in
    drafting spending bills. The other committees with jurisdiction over
    spending and receipts may make allocations among their subcommittees but
    are not required to. 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 re

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    ceipts 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.
      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.
      For 20 of the last 21 years, including 2002, appropriations bills have
    not been enacted by the beginning of the fiscal year. When Congress does
    not complete action on one or more appropriations bills by the beginning
    of the fiscal year, it usually 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.
      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
    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,

    [[Page 428]]

    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. The BEA expires after 2002. The Administration
    will work with Congress to develop appropriate controls to ensure that
    enacted legislation is consistent with the proposed funding levels.
    Enforcement could include discretionary caps and PAYGO, a joint budget
    resolution that is signed by the President, or some other form of
    controls on legislative action.
      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 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.\2\
    ---------------------------------------------------------------------------
      \2\ In addition to specifying caps for this category, the BEA
    specifies minimum levels of spending for six subcategories. The
    subcategories are not binding and are not enforced by sequestration.
    ---------------------------------------------------------------------------
      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, domestic spending, and violent crime
    reduction. The Historical Tables volume of the budget provides
    comparable data for the major BEA categories for 1962 through 2007.
      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
    adjustment 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 are consistent
    with the level of 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
    Treasury's reestimates of the amount the Government expects to collect
    in the budget year. For 2003, the law requires OMB to make a downward
    adjustment, due to lower than expected collections of receipts. (See
    Chapter 14, ``Preview Report,'' in the Analytical Perspectives volume of
    the budget for additional information.)
      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.
      In order to link the full cost of resources used with results achieved
    in support of budgeting and managing for performance, the Administration
    also proposes to fully accrue pensions and retiree health benefits for
    Federal employees. This additional funding does not

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    constitute additional program level; instead, it ensures that the budget
    recognizes and accurately measures the full costs of existing programs.
    The Administration's budget requests sufficient funding by account for
    this conceptual budget change (see Chapter 1, ``Budget Performance
    Integration'' and Chapter 14, ``Preview Report,'' in the Analytical
    Perspectives volume of the budget).
      The following table shows the adjusted caps for 2000 through 2002. The
    Preview Report (described below) explains the cap adjustments.

                   Table 25-1.  DISCRETIONARY SPENDING LIMITS
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                       2001    2002    2003
    ------------------------------------------------------------------------
    Highways:
      Budget Authority..............................   N/A     N/A     N/A
      Outlays.......................................    27      29      28
    Mass transit:
      Budget Authority..............................   N/A     N/A     N/A
      Outlays.......................................     5       5       6
    Conservation spending:
      Budget Authority..............................   N/A       2       2
      Outlays.......................................   N/A       1       2
    Other discretionary:
      Budget Authority..............................   661     706     N/A
      Outlays.......................................   652     731     N/A
    Total discretionary:
      Budget Authority..............................   661     708       2
      Outlays.......................................   684     767      35
    ------------------------------------------------------------------------
     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 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. In some years (including 2002),
    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.
      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 rules do not apply to increases in mandatory spending or
    decreases in receipts that are not the result of new laws. For example,
    mandatory spending for benefit programs, such as unemployment insurance,
    rises when the population of eligible beneficiaries rises, and many
    benefit payments are automatically increased for inflation under
    existing laws. Likewise, tax receipts decrease when the profits of
    private businesses decline as the result of economic conditions.
      The BEA requires OMB to make the estimates and calculations that
    determine whether there is to be a sequestration and report them to the
    President and Congress. It requires the Congressional Budget Office
    (CBO) to make the same estimates and calculations, and the Director of
    OMB to explain any differences between the OMB and CBO estimates. The
    BEA requires the President to issue a sequestration order without
    changing any of the particulars of the OMB report. It requires the
    General Accounting Office to prepare compliance reports.
      The BEA requires OMB and CBO to publish three sequestration reports--a
    ``preview''' report at the time the President submits the budget, an
    ``update'' report in August, and a ``final'' report at the end of a
    session of Congress (usually in the fall of each year). The preview
    report discusses the status of discretionary and PAYGO sequestration,
    based on current law. This report also explains the adjustments that are
    required by law to the discretionary caps and publishes the revised
    caps. (See Chapter 14, ``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' en

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    forcement of the budget resolution within Congress. OMB provides
    advisory estimates on bills that might have significant consequences as
    they move through Congress.
      From the end of a session of Congress through the following June 30th,
    discretionary sequestrations take place whenever an appropriations act
    for the current fiscal year causes a cap to be exceeded. Because a
    sequestration in the last quarter of a fiscal year might be too
    disruptive, the BEA specifies that a sequestration that otherwise would
    be required then is to be accomplished by reducing the cap for the next
    fiscal year. These requirements ensure that supplemental appropriations
    enacted during the fiscal year are subject to the budget enforcement
    provisions.

                                                     Budget Calendar

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

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

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

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

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

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

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

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

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

    October 1......................................  Fiscal year begins.
    15 days after the end of a session of Congress.  OMB issues final sequestration report, and the President issues
                                                      a sequestration order, if necessary.

                                Budget Execution

      Government agencies may not spend more than Congress has appropriated,
    and they may use funds only for purposes specified in law. The
    Antideficiency Act prohibits them from spending or obligating the
    Government to spend in advance of an appropriation, unless specific
    authority to do so has been provided in law. Additionally, the Act
    requires the President to apportion the budgetary resources available
    for 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 supplemental
    appropriation.
      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 2001, over $1.9 billion in
    deferrals were proposed, 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 2001, no rescissions were proposed.

    [[Page 431]]

                             COVERAGE OF THE BUDGET

                      Federal Government and Budget Totals

          Table 25-2.  TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                                Estimate
                                                     2001  -----------------
                                                    actual    2002     2003
    ------------------------------------------------------------------------
    Budget authority
      Unified....................................    1,960    2,085    2,163
      On-budget..................................    1,604    1,721    1,789
      Off-budget.................................      356      364      374
    Receipts:
      Unified....................................    1,991    1,946    2,048
      On-budget..................................    1,484    1,429    1,503
      Off-budget.................................      508      517      545
    Outlays:
      Unified....................................    1,864    2,052    2,128
      On-budget..................................    1,517    1,691    1,762
      Off-budget.................................      347      362      367
    Surplus/Deficit (-):
      Unified....................................      127     -106      -80
      On-budget..................................      -33     -262     -259
      Off-budget.................................      161      156      179
    ------------------------------------------------------------------------

      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 within the Government. 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.
        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.
      Chapter 26, ``Detailed Functional Tables,'' in the Analytical
    Perspectives volume of the budget provides detailed 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 27 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 fund also includes the proceeds of general
    borrowing. General fund appropriation

    [[Page 432]]

    accounts record general fund expenditures. General fund appropriations
    draw from general fund receipts and borrowing 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 16, ``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 7,
    ``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
        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 4, ``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 Admin

    [[Page 433]]

              istration 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 21, ``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 offsetting collections and offsetting receipts both offset
    gross budget authority and outlays, the budget accounts for them
    differently, 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 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 are classified as
              undistributed offsetting receipts. They 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.

    [[Page 434]]

                              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. They
    do not include the sale of natural resources and assets, and they must
    be earmarked for the activity they finance by being credited 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 (unless the law
    requires governmental receipts to be classified as offsetting).
      See Chapter 5, ``User Fees and Other Collections,'' in the Analytical
    Perspectives volume of the budget, for a more detailed discussion of
    user charges, user fees, 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, 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 ex

    [[Page 435]]

              penditure account, incur obligations, and make payment using
              the offsetting collections.
      Because offsetting collections and receipts are deducted from gross
    budget authority, they are referred to as negative budget authority for
    some purposes, such as Congressional Budget Act provisions that pertain
    to budget authority.
      Authorizing statutes usually determine the form of budget authority
    for a program. The authorizing statute may authorize a particular type
    of budget authority to be provided in annual appropriations acts, or it
    may provide one of the forms of budget authority directly, without the
    need for further appropriations. Most programs are funded by
    appropriations. An appropriation may make funds available from the
    general fund, special funds, or trust funds, or authorize the spending
    of offsetting collections credited to expenditure accounts, including
    revolving funds. Borrowing authority is usually authorized for business-
    like activities where the activity being financed is expected to produce
    income over time with which to repay the borrowing with interest.
    Contract authority is a traditional form of budget authority for certain
    programs, particularly transportation programs.
      Annual appropriations acts generally make budget authority available
    for obligation only during the fiscal year to which the act applies.
    However, they specify many exceptions that allow budget authority for a
    particular purpose to remain available for obligation for a longer
    period or indefinitely (that is, until expended or until the program
    objectives have been attained). Typically, appropriations acts make
    budget authority for current operations available for only one year, and
    budget authority for construction and some research projects available
    for a specified number of years or indefinitely. Many appropriations of
    trust fund receipts make the budget authority available indefinitely.
    Only another law can extend a limited period of availability (see
    Reappropriation below). Budget authority provided in authorizing
    statutes usually remains available until expended.
      Budget authority that is available for more than one year and that is
    not obligated in the year it becomes available is carried forward for
    obligation in a following year. In some cases, an account may have
    carried forward unobligated budget authority from more than one year.
    The sum of such amounts constitutes the account's unobligated balance.
    Budget authority that has been obligated but not paid constitutes the
    account's obligated balance. For example, in the case of salaries and
    wages, one to three weeks elapse between the time of obligation and the
    time of payment. In the case of major procurement and construction,
    payments may occur over a period of several years after the obligation
    is made. Obligated balances of budget authority at the end of the year
    are carried forward until the obligations are paid or the balances are
    canceled. (A general law cancels the obligated balances of budget
    authority that was made available for a definite period five years after
    the end of the period, and then other resources must be used to pay the
    obligations.) Due to such flows, a change in the amount of obligations
    incurred from one year to the next does not necessarily result from an
    equal change in the amount of budget authority available for that year
    and will not necessarily result in an equal change in the level of
    outlays in that year. Conversely, a change in the amount of budget
    authority available in any one year may change the level of obligations
    and outlays for several years to come. \3\
    ---------------------------------------------------------------------------
      \3\ A separate report, ``Balances of Budget Authority,'' provides
    additional information on balances. The National Technical Information
    Service, Department of Commerce, makes the report available shortly
    after the budget is transmitted.
    ---------------------------------------------------------------------------
      Congress usually makes budget authority available on the first day of
    the fiscal year for which the appropriations act is passed.
    Occasionally, the appropriations language specifies a different timing.
    The language may provide an advance appropriation budget authority that
    does not become available until one year or more beyond the fiscal year
    for which the appropriations act is passed. Forward funding refers to
    budget authority that is made available for obligation beginning in the
    last quarter of the fiscal year (beginning on July 1st) for the
    financing of ongoing grant programs during the next fiscal year. This
    kind of funding is used mostly for education programs, so that
    obligations for grants can be made prior to the beginning of the next
    school year. For certain benefit programs funded by annual
    appropriations, the appropriation provides for advance funding--budget
    authority that is to be charged to the appropriation in the succeeding
    year but which authorizes obligations to be incurred in the last quarter
    of the current fiscal year if necessary to meet benefit payments in
    excess of the specific amount appropriated for the year.
      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 2003
    appropriations act extends the availability of unobligated budget
    authority that otherwise would expire at the end of 2002, new budget
    authority would be recorded for 2003.
      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

    [[Page 436]]

    and mandatory classification applies to the outlays that flow from
    budget authority, according to the classification of the budget
    authority.
      The amount of budget authority recorded in the budget depends on
    whether the law provides budget authority in a specific amount or
    specifies a variable factor that determines the amount. It is considered
    definite if the legislation that provides it specifies a dollar amount
    (which may be an amount not to be exceeded). It is considered 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.
      Agency, function, and subfunction, and 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. A small portion of this
    debt consists of inflation-indexed securities, which feature monthly
    adjustments to principal for inflation and semiannual payments of
    interest on the inflation-adjusted principal. As with fixed-rate
    securities, the budget records the interest payments on these securities
    as outlays as the interest accrues. The monthly adjustment to principal
    is recorded, simultaneously, as an increase in debt outstanding and an
    outlay of interest.
      Most Treasury debt securities held by trust funds and other Government
    accounts are in Government account series (special issues). The budget
    normally states the interest on these securities 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

    [[Page 437]]

    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 ($657 billion in 2001) of total outlays for a fiscal year are
    discretionary and the rest ($1,207 billion in 2001) consists of
    mandatory spending and net interest. Such a large portion of total
    spending is nondiscretionary because authorizing legislation determines
    net interest ($206 billion in 2001) and the spending for a few programs
    with large amounts of spending each year, such as Social Security ($429
    billion in 2001) and Medicare ($214 billion in 2001).
      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 21,
    ``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. \4\ 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.
    ---------------------------------------------------------------------------
      \4\ 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 a Federal agency disburses a direct loan or when a non-Federal
    lender disburses a loan guaranteed by a Federal 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 program's receipt account in
    the Treasury general fund, where it is recorded as an offsetting
    receipt. 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

    [[Page 438]]

    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
    interest from the public, the receipt of subsidy cost payments from
    program accounts, and interest paid to or received from Treasury.
    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, which was enacted in 1990, grandfathered direct loan
    obligations and loan guarantee commitments made prior to fiscal year
    1992. The budget records the transactions associated with these direct
    loans and loan guarantees on a cash flow basis in credit liquidating
    accounts, which is the same way they were recorded before FCRA was
    enacted. 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 fiscal year 1992 or later.

                BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING

      When outlays exceed receipts, the difference is a deficit. The
    Government finances deficits primarily by borrowing. When receipts
    exceed outlays, the difference is a surplus, and the Government uses the
    surplus to reduce debt. The Government's debt (debt held by the public)
    is approximately the cumulative amount of borrowing to finance deficits,
    less repayments from surpluses. Borrowing is not exactly equal to the
    deficit, and debt repayment is not exactly equal to the surplus, because
    of the other means of financing such as those discussed under this
    heading. Some, such as the premium on debt buybacks, normally increase
    the Government's borrowing needs or decrease its ability to repay debt;
    others normally have the opposite effect or may be either positive or
    negative. In some years the net effect of the other means of financing
    may be significant relative to the borrowing or debt repayment.

                          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 2001, the Government repaid $90.1
    billion of debt held by the public. This was the result of a $127.1
    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 2001, the debt held by the public was $3,320.0
    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 13, ``Federal Borrowing and Debt,'' in the Analytical
    Perspectives volume of the budget for a fuller discussion of this
    topic.)

                       Debt Buyback Premiums and Discounts

      Since 2000, the Treasury Department has bought back outstanding U.S.
    Treasury bonds as part of its efforts to manage efficiently the publicly
    held debt. Because interest rates are lower than the coupon rates on the
    bonds that Treasury bought back, the government has had to pay a premium
    over the book value of these securities.
      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. However, while interest payments are normally recorded as
    budget outlays over the period in which the debt is outstanding, buyback
    premiums would have to be recorded in full when the debt was repaid.
    This would show the cost in a later year than when it was incurred and
    would make it appear that the buyback itself resulted in an additional
    cost to the government. It would also reduce 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.
      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 dis

    [[Page 439]]

    counts not as outlays or receipts, but as a means of financing the
    surplus or deficit, in the year of the buyback. This treatment clearly
    would not be appropriate for any non-financial Federal transaction or
    for most Federal financial transactions, which impose a cost on the
    government and allocate resources. Chapter 24, ``Budget System and
    Concepts and Glossary,'' pages 457-58 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.

                           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 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. 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 in lieu of borrowing from
    other parts of 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 (SDR's) 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.

                      Railroad Retirement Board Investments

      The budget includes a special treatment for investments in equities
    and other private securities by the National Railroad Retirement
    Investment Trust. The Railroad Retirement and Survivors' Improvement Act
    of 2001 (Public Law 107-90) requires purchases or sales of non-Federal
    assets by the National Railroad Retirement Investment Trust to be
    treated as a means of financing in the budget.
      Under longstanding rules, the budget treats investments in non-Federal
    securities as a purchase of an asset, recording an obligation and an
    outlay in an amount equal to the purchase price in the year of the
    purchase. Since investments in non-Federal securities consume cash, fund
    balances normally exclude the value of non-Federal securities. However,
    the investments in non-Federal securities by the National Railroad
    Retirement Investment Trust are required by law to be included in the
    fund balances reported in the budget. Earnings on investments are
    estimated as described below.
      Investments by National Railroad Retirement Investment Trust in
    private assets pose some challenges for budget projections. Equities and
    private bonds earn a higher return on average than the Treasury rate,
    but that return is subject to greater uncertainty. Sound budgeting
    principles require that estimates of future trust fund balances reflect
    both the average return and the cost of risk associated with the
    uncertainty of that return. (The latter is particularly true in cases
    where

    [[Page 440]]

    individual beneficiaries have not made a voluntary choice to assume
    additional risk.) Estimating both of these separately is quite
    difficult. While the additional returns that these assets have received
    in the past are known, it is quite possible that these premiums will
    differ in the future. Furthermore, there is no existing procedure for
    the budget to record separately the cost of risk from such an
    investment, even if it could be estimated accurately. Economic theory
    suggests, however, that the difference between the expected return of a
    risky liquid asset and the Treasury rate is equal to the cost of the
    asset's additional risk as priced by the market. Following through on
    this insight, the best way to project the rate of return on the Fund's
    balances is to use a Treasury rate. This will mean that assets with
    equal economic value as measured by market prices will be treated
    equivalently, avoiding the appearance that the budget could benefit if
    the Government bought private sector assets.
      The actual and estimated returns to private securities will be
    recorded in subfunction 909, other investment income. The actual year
    returns will include interest, dividends, and capital gains and losses
    on private equities and other securities. The Fund's portfolio of these
    assets will be revalued at market prices at the end of the actual year
    to determine capital gains or losses. As a result, the Fund's end-of-
    year balance will reflect the amount of resources available to the
    Government to finance benefits. Earnings for the current and future
    years will be estimated using the 10-year Treasury rate and the value of
    the Fund's portfolio at the end of the actual year. No estimates will be
    made of gains and losses for the current year or subsequent years.

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

                            BASIS FOR BUDGET FIGURES

                             Data for the Past Year

      The past year column (2001) 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 (see Chapter 18, ``Comparison of
    Actual to Estimated totals for 2001,'' in the Analytical Perspectives
    volume of the budget for a summary of these differences).

                            Data for the Current Year

      The current year column (2002) 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 (2003) 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. However,
    this year the appropriations language presented in the Appendix includes
    the additional amounts required to implement the Administration's
    proposal to fully accrue pensions and retirees' health benefits for
    Federal employees. Some tables in the budget identify the items for
    later transmittal and the related outlays separately. Estimates of the
    total requirements for the budget year include both the amounts
    requested with the transmittal of the budget and the amounts planned for
    later transmittal.

                              Data for the Outyears

      The budget presents estimates for each of the four years beyond the
    budget year (2004 through 2007) in order to reflect the effect of budget
    decisions on longer term objectives and plans.

    [[Page 441]]

             Federal Employee Pensions and Annuitant Health Benefits

      The budget presents the Administration's proposal to pay the full
    share of accruing employee pensions and annuitant health benefits for
    Federal employees in the regular budget schedules on a three-year
    comparable basis, as if the proposal had been enacted and effective in
    2001 and 2002. However, in the budget Appendix and selected summary and
    other tables, budget totals are displayed that remove the effects of the
    proposed legislation in all years (see Chapter 14, ``Preview Report,''
    in the Analytical Perspectives volume of the budget).

                                   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 15, ``Current Services Estimates,'' in
    the Analytical Perspectives volume of the 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.

    [[Page 442]]

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

                            GLOSSARY OF BUDGET TERMS

      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 for each fiscal year on the budget
    authority and outlays 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 or the cash does not accurately measure the cost of the
    transaction. (For examples, see the section on Outlays earlier in this
    chapter.)
      Collections mean money collected by the Government that the budget
    records as either a receipt, an offsetting collection, or an offsetting
    receipt.
      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 spending 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.)
      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-

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    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.
      Intragovernmental fund--see revolving fund.
      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.
    The term does not include 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 spending.)
      Means of financing refers to borrowing, the change in cash balances,
    and certain other transactions involved in financing a deficit. The term
    is also used to refer to the debt repayment, the change in cash
    balances, and certain other transactions involved in using a surplus. By
    definition, the means of financing are not treated as receipts or
    outlays.
      Obligated balance means the cumulative amount of budget authority that
    has been obligated but not yet outlayed. (Cf. unobligated balance.)
      Obligation means a binding agreement 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, undistributed offsetting
    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. They 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 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).

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      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 or offsetting 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.)
      Undistributed offsetting receipts mean offsetting receipts that are
    deducted from the Government-wide totals for budget authority and
    outlays instead of offset against a specific agency and function. (Cf.
    offsetting receipts.)
      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. 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. (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 they were levied. (Cf. user charges.)