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



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                 BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

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              25.  BUDGET SYSTEM AND CONCEPTS AND GLOSSARY

  The budget system of the United States Government provides the means 
for the President and Congress to decide how much money to spend, what 
to spend it on, and how to raise the money they have decided to spend. 
Through the budget system, they determine the allocation of resources 
among the 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).

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  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\
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  \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).
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  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,

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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\
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  \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.

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                         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

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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

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          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-

[[Page 443]]

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.)