[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

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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

[[Page 467]]

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\
---------------------------------------------------------------------------
  \3\ A separate report, ``Balances of Budget Authority,'' provides 
additional information on balances. The National Technical Information 
Service, Department of Commerce, makes the report available shortly 
after the budget is transmitted.
---------------------------------------------------------------------------
  Congress usually makes budget authority available on the first day of 
the fiscal year for which the appropriations act is passed. 
Occasionally, the appropriations language specifies a different timing. 
The language may provide an advance appropriation--budget authority that 
does not become available until one year or more beyond the fiscal year 
for which the appropriations act is passed. Forward funding refers to 
budget authority that is made available for obligation beginning in the 
last quarter of the fiscal year (beginning on July 1st) for the 
financing of ongoing grant programs during the next fiscal year. This 
kind of funding is used mostly for education programs, so that 
obligations for grants can be made prior to the beginning of the next 
school year. For certain benefit programs funded by annual 
appropriations, the appropriation provides for advance funding--budget 
authority that is to be charged to the appropriation in the succeeding 
year but which authorizes obligations to be incurred in the last quarter 
of the current fiscal year if necessary to meet benefit payments in 
excess of the specific amount appropriated for the year.
  Provisions of law that extend the availability of unobligated amounts 
that have expired or would otherwise expire are called reappropriations. 
Reappropriations count as new budget authority in the fiscal year in 
which the balances become newly available. For example, if a 2004 
appropriations act extends the availability of unobligated budget 
authority that otherwise would

[[Page 468]]

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

[[Page 469]]

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.
---------------------------------------------------------------------------
  \4\ Present value is a standard financial concept that allows for the 
time value of money, that is, for the fact that a given sum of money is 
worth more at present than in the future because interest can be earned 
on it.
---------------------------------------------------------------------------
  When a Federal agency disburses a direct loan or when a non-Federal 
lender disburses a loan guaranteed by a Federal agency, the program 
account outlays an amount equal to the cost to a non-budgetary credit 
financing account. 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.

[[Page 472]]

            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:

[[Page 474]]

    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

[[Page 475]]

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).