[Analytical Perspectives]
[Budget System and Concepts and Glossary]
[24. Budget System and Concepts and Glossary]
[From the U.S. Government Printing Office, www.gpo.gov]
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BUDGET SYSTEM AND CONCEPTS AND GLOSSARY
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ANALYTICAL PERSPECTIVES
24. BUDGET SYSTEM AND CONCEPTS AND GLOSSARY
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24. BUDGET SYSTEM AND CONCEPTS AND GLOSSARY
The budget system of the United States Government provides the means
for the President and Congress to decide how much money to spend, what
to spend it on, and how to raise the money they have decided to spend.
Through the budget system, they determine the allocation of resources
among the 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 proposed 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 2004.
(Fiscal year 2004 will begin on October 1, 2003 and end on September 30,
2004.) 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 2003, so that the reader can compare the President's
budget proposals to the most recently enacted levels, and it includes
data on the most recently completed fiscal year, in this case 2002, 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,
reactions to the last proposed budget (which Congress is considering
when the process of preparing the upcoming budget begins), and how
programs are actually performing 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,'' provides more information on this subject.)
Statutory limitations on changes in receipts and outlays also
influence budget decisions (see Budget Enforcement below).
Thus, the budget formulation process involves the simultaneous
consideration of the resource needs of individual programs, the
allocation of resources among the agencies and functions of the Federal
Government, the total outlays and receipts that are appropriate in rela
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tion 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, December 24, 2002).
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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 is permanent. 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 receipts and this type of spending to the levels specified in the
budget resolution.
The congressional timetable calls for the whole Congress to adopt the
budget resolution by April 15 of each year, but Congress regularly
misses this deadline.
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For 2003, Congress did not enact a budget resolution. 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.
Once Congress approves the budget resolution, it turns its attention
to enacting appropriations bills and authorizing legislation.
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 21 of the last 22 years, including 2003, 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. A distinctive feature of these laws is that they provide
agencies with the authority to collect or to spend money without first
requiring the Appropriations Committees to enact funding. This category
of spending includes interest the Government pays on the public debt and
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.
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Budget Enforcement
The Budget Enforcement Act (BEA), first enacted in 1990 and extended
in 1993 and 1997, significantly amended the laws pertaining to the
budget process, including the Congressional Budget Act, the Balanced
Budget and Emergency Deficit Control Act, and the law pertaining to the
President's budget (see PRINCIPAL BUDGET LAWS, later in the chapter).
The BEA constrained legislation enacted through 2002 that would increase
spending or decrease receipts. The BEA expired at the end of 2002. The
Administration proposes to extend the BEA's mechanisms for limiting
discretionary spending for 2004 and 2005 consistent with the levels
proposed in the 2004 Budget and plans to announce a comprehensive
discretionary cap proposal at a later date. The Administration also
proposes to extend the pay-as-you-go requirements for two years. This
chapter describes the BEA requirements under the Balanced Budget and
Emergency Deficit Control Act.
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 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. Laws enacted since the 1997 revision of the
BEA added categories. The Transportation Equity Act for the 21st Century
(TEA-21, Public Law 105-178) added categories for highways 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.
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Because the BEA itself expired 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 2008.
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 cap 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
reestimates of the amount the Government expects to collect in the
budget year.
The cap adjustments required for the conservation spending category
are designed to encourage Congress to appropriate up to the cap level.
If appropriations for a given year in the conservation spending category
are less than the caps, the BEA requires OMB to increase the caps for
the following year by the shortfall. And, if appropriations for a given
year in a subcategory of the conservation spending category are less
than the specified level for that category, the BEA requires OMB to
increase the minimum level for the following year by the shortfall.
If the BEA is extended, the Administration will support a number of
cap adjustments to reserve additional spending for specific purposes.
These potential adjustments would include funds to develop the nuclear
waste repository at Yucca Mountain, continuation of adjust
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ments for Social Security Administration's program integrity activities
and the earned income tax credit compliance initiative, as well as an
adjustment for fully accruing pensions and retiree health benefits for
Federal employees. (See BASIS FOR BUDGET FIGURES, later in this chapter,
for more information on the accrual proposal.)
Chapter 14, ``The President's Budget Reform Proposals,'' provides more
information on the Administration's principles for new discretionary
spending limits and cap adjustments.
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 recent years, 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 most mandatory spending, including Social
Security, interest on the public debt, Federal employees 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
other special rules limit the size of a sequestration for other
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. Since the BEA reporting requirements have expired, a Preview
Report is not included in this budget. Instead, Chapter 14, ``The
President's Budget Reform Proposals'' provides a number of policy ideas
to reform the budget process and outlines a framework for BEA extension.
The Administration plans to submit comprehensive legislation for BEA
extension at a later date.
The update and final reports revise the preview report estimates to
reflect the effects of newly enacted discretionary and PAYGO laws. The
BEA requires OMB and CBO to estimate the effects of appropriations acts
and PAYGO laws immediately after each one is enacted and to include
these estimates, without change, in the update and final reports. OMB's
final report estimates trigger a sequestration if the appropriations
enacted for the current year exceed the caps or if the cumulative effect
of PAYGO legislation is estimated to increase a deficit or reduce a
surplus. In addition, CBO estimates the effects of bills as they move
through Congress for the purpose of the Budget Committees' enforcement
of the budget resolution within Congress. OMB provides advisory
estimates on bills that might have significant consequences as they move
through Congress.
From the end of a session of Congress through the following June 30th,
discretionary sequestrations take place whenever an appropriations act
for the current fiscal year causes a cap to be exceeded. Because a
sequestration in the last quarter of a fiscal year might be too
disruptive, the BEA specifies that a sequestration that otherwise would
be required then is to be accomplished by reducing the cap for the next
fiscal year. These requirements ensure that supplemental appropriations
enacted during the fiscal year are subject to the budget enforcement
provisions.
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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 2002, 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 2002, no rescissions were proposed.
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.
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COVERAGE OF THE BUDGET
Federal Government and Budget Totals
Table 24-1. TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
(In billions of dollars)
------------------------------------------------------------------------
Estimate
2002 -----------------
actual 2003 2004
------------------------------------------------------------------------
Budget authority:
Unified.................................... 2,090 2,154 2,243
On-budget.................................. 1,725 1,781 1,856
Off-budget................................. 365 374 387
Receipts:
Unified.................................... 1,853 1,836 1,922
On-budget.................................. 1,338 1,305 1,366
Off-budget................................. 515 532 556
Outlays:
Unified.................................... 2,011 2,140 2,229
On-budget.................................. 1,655 1,772 1,848
Off-budget................................. 356 368 382
Surplus:
Unified.................................... -158 -304 -307
On-budget.................................. -318 -468 -482
Off-budget................................. 160 164 175
------------------------------------------------------------------------
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.
The on-budget totals include the transactions of the Public Company
Accounting Oversight Board (PCAOB), which was established this year
pursuant to the Sarbanes-Oxley Act of 2002 (P.L. 107-204). Even though
the statute says the PCAOB is not an agency or establishment of the
Government, its sources of funding and activities are governmental in
nature. The PCAOB has the authority to assess and collect mandatory fees
from accounting firms and public companies to cover the costs of its
operations. All public accounting firms are required to be registered
with the PCAOB, pay its fees, and follow its regulations. The PCAOB is
allowed to conduct investigations, bring charges, and levy sanctions
against public accounting firms under the authority of the U.S.
Government. These actions are reinforced by the Board's ability to
request the Securities and Exchange Commission (SEC) to issue subpoenas
on its behalf. The PCAOB's Board members are appointed by governmental
officials, the SEC Commissioners, and all fundamental decisions by the
PCAOB are subject to approval by the SEC. The classification of the
PCAOB as budgetary is therefore based on substance, not arbitrary
designations.
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 25, ``Detailed Functional Tables,'' 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 re
[[Page 464]]
ceipts arrayed by Federal agency. Chapter 26, ``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 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,''
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,'' 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.
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, regulatory fees, 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 Table 24-1, ``Federal Government and Budget
Totals,'' which appears
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earlier in this chapter.) Chapter 4, ``Federal Receipts,'' provides more
information on receipts.
Offsetting Collections and Receipts
Offsetting collections and receipts result from either of two kinds of
transactions:
Business-like or market-oriented activities with the public.
The budget records the proceeds from the sale of postage
stamps, the fees charged for admittance to recreation areas,
and the proceeds from the sale of Government-owned land, for
example, as offsetting collections or receipts. They are
deducted from gross budget authority and outlays, rather than
added to receipts. This treatment produces budget totals for
receipts, budget authority, and outlays that represent
governmental rather than market activity.
Intragovernmental transactions. The budget also records
collections by one Government account from another as
offsetting collections or receipts. For example, the General
Services Administration records payments it receives from
other Government agencies for the rent of office space as
offsetting collections in the Federal Buildings Fund. These
transactions are completely offsetting and do not affect the
surplus or deficit. However, they are an important accounting
mechanism for allocating costs to the programs and activities
that cause the Government to incur the costs.
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,'' shows
the effect of offsetting collections and receipts on gross outlays for
each major Federal agency.
Although offsetting collections and offsetting receipts 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 misclassified 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.
[[Page 466]]
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. However, in two
cases, agencies' payments as employers into employee
retirement trust funds and interest received by trust funds,
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. This
special treatment is necessary because the amounts are large
and would distort 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
misclassified as offsetting and are not authorized to be
credited to expenditure accounts.
User Charges
User charges are fees assessed on individuals or organizations 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 charges are
not necessarily earmarked for the activity they finance and may be
credited to the general fund of the Treasury.
The term ``user charge''does not refer to a separate budget category
for collections. User charges are classified in the budget as receipts,
offsetting receipts, or offsetting collections according to the
principles explained above.
See Chapter 5, ``User Charges and Other Collections,'' for a more
detailed discussion of user charges, offsetting collections, and
offsetting receipts.
BUDGET AUTHORITY AND OTHER BUDGETARY RESOURCES, OBLIGATIONS, AND OUTLAYS
Budget authority, obligations, and outlays are the primary benchmarks
and measures of the budget control system. Congress enacts laws that
provide agencies with spending authority in the form of budget
authority. Before agencies can use the resources, OMB must approve their
spending plans. After the plans are approved, agencies can enter into
binding agreements to purchase items or services. These agreements are
recorded as obligations of the United States and deducted from the
amount of budgetary resources available to the agency. When payments are
made, the obligations are liquidated and outlays recorded. These
concepts are discussed more fully below.
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. A major exception to this rule is for the highway and mass
transit programs financed by the Highway Trust Fund, where budget
authority is measured as the amount of contract authority (described
below) provided in authorizing statutes, even though the obligation
limitations enacted in annual appropriations acts restrict the amount of
contract authority that can be obligated.
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, agencies generally must request sufficient budget authority in
the first year to fully fund an economically useful segment of a
procurement or project, even though it may be obligated over several
years. This full funding policy is intended to ensure that the decision-
makers take into account all costs and benefits fully at the time
decisions are made to
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provide resources. It also avoids sinking money into a procurement or
project without being certain if or when future funding will be
available to complete the procurement or project.
Budget authority takes several forms:
Appropriations, provided in annual appropriations acts or
permanent laws, permit agencies to incur obligations and make
payment;
Authority to borrow, usually provided in permanent laws,
permits agencies to incur obligations but requires them to
borrow funds, usually from the general fund of the Treasury,
to make payment;
Contract authority, usually provided in permanent law,
permits agencies to incur obligations in advance of a separate
appropriation of the cash for payment or in anticipation of
the collection of receipts that can be used for payment; and
Spending authority from offsetting collections, usually
provided in permanent law, permits agencies to credit
offsetting collections to an expenditure account, incur
obligations, and make payment using the offsetting
collections.
Because offsetting collections and receipts are deducted from gross
budget authority, they are referred to as negative budget authority for
some purposes, such as Congressional Budget Act provisions that pertain
to budget authority.
Authorizing statutes usually determine the form of budget authority
for a program. The authorizing statute may authorize a particular type
of budget authority to be provided in annual appropriations acts, or it
may provide one of the forms of budget authority directly, without the
need for further appropriations. Most programs are funded by
appropriations. An appropriation may make funds available from the
general fund, special funds, or trust funds, or authorize the spending
of offsetting collections credited to expenditure accounts, including
revolving funds. Borrowing authority is usually authorized for business-
like activities where the activity being financed is expected to produce
income over time with which to repay the borrowing with interest. The
use of contract authority is traditionally limited to transportation
programs.
Annual appropriations acts generally make budget authority available
for obligation only during the fiscal year to which the act applies.
However, they frequently 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, budget authority for current operations is made
available for only one year, and budget authority for construction and
some research projects is available for a specified number of years or
indefinitely. Budget authority provided in authorizing statutes, such as
for most trust funds, is available indefinitely. Only another law can
extend a limited period of availability (see Reappropriation below).
Budget authority that is available for more than one year and not
obligated in the year it becomes available is carried forward for
obligation in a following year. In some cases, an account may carry
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\
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\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.
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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 2004
appropriations act extends the availability of unobligated budget
authority that otherwise would
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expire at the end of 2003, new budget authority would be recorded for
2004.
For purposes of the Budget Enforcement Act (discussed earlier under
``Budget Enforcement''), the budget classifies budget authority as
discretionary or mandatory. Generally, budget authority is discretionary
if provided in an annual appropriations act and mandatory if provided in
authorizing legislation. However, the BEA requires the budget authority
provided in annual appropriations acts for certain specifically
identified programs to be treated as mandatory. This is because the
authorizing legislation in these cases entitles beneficiaries to receive
payment or otherwise obligates the Government to make payment, even
though the payments are funded by a subsequent appropriation. Since the
authorizing legislation effectively determines the amount of budget
authority required, the BEA classifies it as mandatory. As discussed
later, the discretionary and mandatory classification applies to the
outlays that flow from budget authority, according to the classification
of the budget authority.
The 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 a portion 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 action, Government agencies incur obligations to make payments
(see earlier discussion under ``Budget Execution''). 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 Government-wide 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 financed by an increase in
agency debt. For example, the budget records the acquisition of physical
assets through certain types of lease-purchase arrangements as though a
cash disbursement 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, and 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 interest 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
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by the difference between purchase price and par, if any. However, two
trust funds in the Department of Defense, the Military Retirement Trust
Fund and the Education Benefits Trust Fund, routinely have relatively
large differences between purchase price and par. For these funds, the
budget records the holdings of debt at par but records the differences
between purchase price and par as adjustments to the assets of the funds
that are amortized over the life of the security. The budget records
interest as the amortization occurs.
For Federal credit programs, outlays are equal to the subsidy cost of
direct loans and loan guarantees and are recorded as the underlying
loans are disbursed (see FEDERAL CREDIT below).
The budget records refunds of receipts that result from overpayments
(such as income taxes withheld in excess of tax liabilities) as
reductions of receipts, rather than as outlays. The budget records
payments to taxpayers for tax credits (such as earned income tax
credits) that exceed the taxpayer's tax liability as outlays.
Outlays during a fiscal year may liquidate obligations incurred in the
same year or in prior years. Obligations, in turn, may be incurred
against budget authority provided in the same year or against
unobligated balances of budget authority provided in prior years.
Outlays, therefore, flow in part from budget authority provided for the
year in which the money is spent and in part from budget authority
provided in prior years. The ratio of the outlays resulting from budget
authority enacted in a given year to the amount of that budget authority
is referred to as the spendout rate for that year.
As described earlier, the budget classifies budget authority as
discretionary or mandatory for the purposes of the BEA. This
classification indicates whether appropriations acts or authorizing
legislation control the amount of budget authority that is available.
Outlays are classified as discretionary or mandatory according to the
classification of the budget authority from which they flow. This
classification of outlays measures the extent to which actual spending
is controlled through the annual appropriations process. Typically, only
one-third ($734 billion in 2002) of total outlays for a fiscal year are
discretionary and the rest ($1,277 billion in 2002) consists of
mandatory spending and net interest. Such a large portion of total
spending is nondiscretionary because authorizing legislation determines
net interest ($171 billion in 2002) and the spending for a few programs
with large amounts of spending each year, such as Social Security ($452
billion in 2002) and Medicare ($228 billion in 2002).
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 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. Under this treatment, the
budget records the net cost to the Government (subsidy cost) 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\ As for most other kinds of programs, agencies
can make loans or guarantee loans only if Congress has appropriated
funds sufficient to cover the subsidy costs in annual appropriations
acts.
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\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.
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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. The financing accounts record the actual transactions
with the public. For a few programs, the estimated cost is negative,
because the present value of expected collections exceeds the present
value of expected disbursements over the term of the loan. In such
cases, the financing account makes a payment to the program's receipt
account, 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, each year. If the
estimated cost increases, the program account makes an additional
payment to the financing account. If the estimated cost decreases, the
financing account makes a payment to the program's receipt account,
where it is recorded as an offsetting receipt. The FCRA provides
permanent indefinite appropriations to pay for upward 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
program account records obligations for an additional amount equal to
the increased cost and outlays the amount to the financing account. As
with the original
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cost, agencies may incur modification costs only if Congress has
appropriated funds to cover them. Modification may also reduce costs, in
which case the financing account makes a payment 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 provide both types of credit. 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 these on a cash basis in credit liquidating
accounts, the same as 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, which the
Government finances 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, such as 2002, 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 2002, the Government borrowed $221
billion from the public. This was primarily to finance the $158 billion
deficit in that year. The rest of the borrowing was mainly needed to
finance direct loans disbursed in credit financing accounts, which are
discussed below, and the accumulation of operating cash balances and
compensating balances in financial institutions. At the end of 2002, the
debt held by the public was $3,540 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,'' for a fuller discussion of this
topic.)
Debt Buyback Premiums
From 2000 through April 2002, the Treasury Department bought back
outstanding U.S. Treasury bonds as part of its efforts to manage
efficiently the publicly held debt. Because interest rates were lower
than the coupon rates on the bonds that Treasury bought back, the
government had to pay a premium over the book value of these securities.
This buyback premium is recorded as a means of financing, not as
outlays. 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 treatment 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 and the public's desire to
hold financial assets in the form of coins. Therefore, the budget
excludes seigniorage from receipts and treats it as a means of financing
other than borrowing from the public. The budget also treats profits
resulting from the sale of
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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. They are excluded from the budget because they are
not allocations of resources by the Government (see FEDERAL CREDIT
above). However, even though they do not affect the surplus or deficit,
they can either increase or decrease the Government's need to borrow.
Therefore, they are recorded as a means of financing.
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 non-budgetary accounts, called deposit funds, to
record cash 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 they
are not invested, changes in the balances are available to finance
expenditures and are recorded as a means of financing other than
borrowing from the public. To the extent that they 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 (IMF)
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, where the government exchanges one type
of financial asset (cash) for another (bank deposit), with no change in
total financial assets. Following a recommendation of the 1967
President's Commission on Budget Concepts, the budget excludes these
transfers from budget outlays or receipts. In contrast, the budget
records interest paid by the IMF on U.S. deposits as an offsetting
receipt in the General Fund of the Treasury. It also records outlays for
foreign currency exchanges to the extent there is a realized loss in
dollars terms and offsetting receipts to the extent there is a realized
gain in dollar terms.
Railroad Retirement Board Investments
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 (of funds available for obligation) normally exclude the value
of non-Federal securities. However, 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.
Earnings on investments by National Railroad Retirement Investment
Trust in private assets pose special 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 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 current market value 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.
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Federal Communications Commission Monetary Credit
In June 2000, the Federal Communications Commission (FCC) issued a
transferrable monetary credit of $125 million in the form of an Auction
Discount Voucher to Qualcomm, Incorporated in satisfaction of the
court's ruling in litigation brought by Qualcomm against the FCC. The
monetary credit was structured to work in a manner similar to that of an
auction bidding credit and could be used to bid on spectrum licenses in
future FCC auctions. Consistent with the budgetary treatment of other
monetary credits, the budget recorded an outlay and borrowing from the
public in 2000.
Qualcomm transferred $11 million of the monetary credit in 2002, and
the transferee used it as an auction bidding credit. In November 2002,
the FCC revised its Order governing the ADV to allow Qualcomm to
transfer the remaining $114 million to a debtor to repay outstanding
direct loans issued for the purpose of purchasing spectrum licenses at
previous FCC auctions. Qualcomm is expected to redeem the voucher in
this manner before June 2003, when the voucher will expire.
The $11 million used as an auction bidding credit in 2002 was recorded
as an offsetting collection in FCC's Pioneer's Preference Account and
then applied to extinguish $11 million of the $125 million FCC debt that
was recorded when the Qualcomm voucher was originally issued. The $114
million that is expected to be used to repay outstanding loans will be
recorded as offsetting collections in the Spectrum Auction Direct Loan
Financing Account and then applied to repay outstanding debt of the
financing account to Treasury. Simultaneously, $114 million in general
fund auction receipts will be applied to extinguish the remaining
outstanding FCC debt to the public.
Reclassification of Guaranty Agencies Reserves
Beginning in the late 1960's and continuing into the 1980's, about
$800 million was appropriated to the Department of Health, Education,
and Welfare (later the Department of Education) and then outlayed to
public and non-profit guaranty agencies participating in the Guaranteed
Student Loan program (now called the Federal Family Education Loan
program). The guaranty agencies invested the funds and used them as
reserves for default claims.
The Higher Education Amendments of 1998 (20 U.S.C. 1072(g)(1))
clarified that these reserve funds, along with any accumulated interest,
are Federal assets, even though they were being held and invested
outside Treasury. As such, the budget should not have recorded outlays
when the funds were disbursed to the guaranty agencies; it should have
recorded receipts each year as the reserves earned interest; and it
should have recorded outlays when payments for default claims were made.
Correcting the actual data for these errors would require significant
investment of resources with little value. Alternatively, an adjustment
to outlays for all past errors could be recorded in a single year, but
this would distort that year's reported outlays. OMB and Treasury agreed
that correcting for the past errors should not distort current year
budget totals. In 2000, these amounts (about $2.2 billion) were
presented in the budget as Federal assets (unobligated balances).
Treasury made a corresponding accounting adjustment and recorded the
same amount as funds held by the Government outside Treasury. This
adjustment is reflected as a means of financing in 2000 and as an
adjustment to balances, without any outlay or deficit impact.
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 2,096 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,'' provides more information on this
subject.)
BASIS FOR BUDGET FIGURES
Data for the Past Year
The past year column (2002) 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 2002'' for a summary of these
differences).
Data for the Current Year
The current year column (2003) generally includes estimates of
transactions and balances based on the amounts of budgetary resources
that were available when the budget was transmitted, including amounts
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appropriated for the year. This column also reflects any supplemental
appropriations or rescissions proposed in the budget.
At the time this budget was prepared, only two of the regular fiscal
year 2003 thirteen appropriations bills had been enacted (Department of
Defense and Military Construction), and funding for programs covered by
the other appropriations acts was provided by a continuing resolution
(P.L. 107-229, as amended). For discretionary accounts funded by
continuing resolution, the current year policy amounts reflect the
Administration's 2003 policy proposals. The baseline amounts for
discretionary accounts were calculated based on the continuing
resolution rates, except for appropriated entitlements, which are
reported at the current law level. (See Baseline below.)
Data for the Budget Year
The budget year column (2004) includes estimates of transactions and
balances based on the amounts of budgetary resources that are estimated
to be available, including new budget authority requested under current
authorizing legislation, and amounts estimated to result from changes in
authorizing legislation and tax laws.
The budget Appendix generally includes the appropriations language for
the amounts proposed to be appropriated under current authorizing
legislation. In a few cases, this language is transmitted later because
the exact requirements are unknown when the budget is transmitted. The
Appendix generally does not include appropriations language for the
amounts that will be requested under proposed legislation; that language
is usually transmitted later, after the legislation is enacted. Some
tables in the budget identify the items for later transmittal and the
related outlays separately. Estimates of the total requirements for the
budget year include both the amounts requested with the transmittal of
the budget and the amounts planned for later transmittal.
Data for the Outyears
The budget presents estimates for each of the four years beyond the
budget year (2005 through 2008) in order to reflect the effect of budget
decisions on longer term objectives and plans.
Federal Employee Pensions and Annuitant Health Benefits
In order to link the full cost of resources used with results achieved
in support of budgeting and managing for performance, the Administration
proposes to pay the full share of accruing employee pensions and
annuitant health benefits for Federal employees. The additional funding
for this conceptual change would not constitute additional program level
and would not change total budget outlays and the deficit; instead, it
would ensure that the budget recognizes and accurately measures the full
costs of employees. The budget presents information by account on the
net budget authority and outlay impact of this change. The data are
displayed as memoranda entries in the budget Appendix on a three-year
comparable basis (i.e., for 2002 through 2004). Unlike the 2003 budget,
the amounts are not included in the budget request and baseline
estimates. (See Chapter 1, ``Budget Performance Integration'' and
Chapter 14, ``The President's Budget Reform Proposals'' for more
information on this topic.)
Department of Homeland Security
On November 25, 2002, the President signed into law the Homeland
Security Act of 2002. The Act merges twenty-two Federal agencies and
programs to create the new Department of Homeland Security (DHS). The
budget presents the DHS as a freestanding agency with comparable
estimates for all years including 2002 and 2003. All budget data
associated with the DHS components are displayed in the DHS chapter of
the budget Appendix. The other budget volumes treat DHS similarly, with
the data for and discussion of DHS components included in the DHS
sections. The only exception is the Management Scorecard, which displays
the most recent agency scores including the DHS components.
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. For
accounts that are funded by a continuing resolution for fiscal year
2003, the baseline amounts for discretionary programs were calculated
based on the amounts provided by the continuing resolution, except for
appropriated entitlements, which are reported at the current law level.
This is required by section 257(b) of the BEA.
The baseline represents the amount of resources, in real terms, 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,'' provides more information on the baseline.)
The baseline serves several useful purposes:
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It may warn of future problems, either for Government fiscal
policy as a whole or for individual tax and spending programs.
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. The BEA expired at the end
of 2002.
Federal Credit Reform Act of 1990 (as amended by the Budget
Enforcement Act of 1997), a part of the Budget Enforcement Act
of 1990, which amended the Congressional Budget Act to
prescribe the budget treatment for Federal credit programs.
Government Performance and Results Act of 1993, which
emphasizes managing for results. It requires agencies to
prepare strategic plans, annual performance plans, and annual
performance reports.
GLOSSARY OF BUDGET TERMS
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
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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 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 through accounts other than those designated as trust funds.
Federal funds include general, special, public enterprise, and
intragovernmental funds. (Cf. trust funds.)
Financing account means a non-budgetary account (its transactions are
excluded from the budget totals) that records all of the cash flows
resulting from post-1991 direct loan obligations or loan guarantee
commitments. At least one financing account is associated with each
credit program account. For programs that make both direct loans and
loan guarantees, there are separate financing accounts for the direct
loans and the loan guarantees. (Cf. liquidating account.)
Fiscal year means the Government's accounting period. It begins on
October 1st and ends on September 30th, and is designated by the
calendar year in which it ends.
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
uses 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.
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Offsetting collections mean collections that, by law, are credited
directly to expenditure accounts and deducted from gross budget
authority and outlays of the expenditure account, rather than added to
receipts. 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 credited to offsetting
receipt accounts and deducted from gross budget authority and outlays,
rather than added to receipts. They are not authorized to be credited to
expenditure accounts. The legislation that authorizes the offsetting
receipts may earmark them for a specific purpose and either appropriate
them for expenditure for that purpose or 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 principal). Outlays generally are equal to cash
disbursements but also are recorded for cash-equivalent transactions,
such as the issuance of debentures to pay insurance claims, and in a few
cases are recorded on an accrual basis such as interest on public issues
of the public 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 set by the Budget Enforcement Act or in response to net costs
resulting from the combined result of legislation affecting mandatory
spending or receipts (referred to as a ``pay-as-you-go'' sequestration).
Special fund means a Federal fund account for receipts or offsetting
receipts earmarked for specific purposes and the expenditure of these
receipts. (Cf. trust fund.)
Subsidy means the estimated long-term cost to the Government of a
direct loan or loan guarantee, calculated on a net present value basis,
excluding administrative costs and any incidental effects on
governmental receipts or outlays.
Surplus means the amount by which receipts exceed outlays in a fiscal
year. It may refer to the on-budget, off-budget, or unified budget
surplus.
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.
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User charges are charges 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 custom duties).