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

      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.
      The following section discusses the budget process, covering
    formulation of the President's budget, Congressional action, and budget
    execution. The next section provides information on budget coverage,
    including a discussion of on-budget and off-budget amounts, functional
    classification, how budget data is arrayed, types of funds, and full
    cost budgeting. Subsequent sections discuss the concepts of collections,
    budget authority, and outlays. These sections are followed by
    discussions of Federal credit; surpluses, deficits, and means of
    financing; Federal employment; and the basis for the budget figures. 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 2005.
    (Fiscal year 2005 will begin on October 1, 2004 and end on September 30,
    2005.) 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 2004, 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 2003, 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 esti

    [[Page 376]]

    mates by billions of dollars. (Chapter 11, ``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
    relation to current and prospective economic conditions, and statutory
    constraints.
      The law governing the President's budget specifies that the President
    is to transmit the budget to Congress on or after the first Monday in
    January but not later than the first Monday in February of each year for
    the following fiscal year, which begins on October 1. The budget is
    routinely sent to Congress on the first Monday in February, giving it
    eight months to act on the budget before the fiscal year begins.
      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 impracticable 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
    Government for Fiscal Year 2002 on April 9, 2001.
      In some years, the late or pending enactment of appropriations acts,
    other spending legislation, and tax laws considered in the previous
    budget cycle have delayed preparation and transmittal of complete
    budgets. For this reason, for example, President Reagan submitted his
    budget for 1988 forty-five days after the date specified in law. In
    other years, Presidents have submitted abbreviated budget documents on
    the due date, sending the more detailed documents weeks later. For
    example, President Clinton transmitted an abbreviated budget document to
    Congress on February 5, 1996, because of uncertainty over 1996
    appropriations as well as possible changes in mandatory programs and tax
    policy. He transmitted a budget supplement and other budget volumes in
    March 1996.

                            Congressional Action \1\
    ---------------------------------------------------------------------------

      \1\ For a fuller discussion of the congressional budget process, see
    Robert Keith and Allen Schick, Manual on the Federal Budget Process
    (Congressional Research Service Report 98-720 GOV, August 28, 1998) and
    Introduction to the Federal Budget Process (Congressional Research
    Service Report 98-721 GOV, December 31, 2003).
    ---------------------------------------------------------------------------
      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 total budget authority and outlays provided in the resolution to the
    Appropriations Committees and the other committees that have
    jurisdiction over spending. The Appropriations Committees are required,
    in turn, to divide their allocations 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

    [[Page 377]]

    discuss assumptions about the level of funding for major programs. While
    these assumptions do not bind the other committees and subcommittees,
    they may influence their decisions. The budget resolution may contain
    ``reconciliation directives'' (discussed below) to the committees
    responsible for tax laws and for spending not controlled by annual
    appropriation acts, in order to conform the level of receipts and this
    type of spending to the levels specified in the budget resolution.
      The congressional timetable calls for the whole Congress to adopt the
    budget resolution by April 15 of each year, but Congress regularly
    misses this deadline. Once Congress passes a budget resolution, a member
    of Congress can raise a point of order to block a bill that would exceed
    a committee's allocation.
      Since the concurrent resolution on the budget is not a law, it 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. 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 this authority to
    be unconstitutional.
      For 21 of the last 23 fiscal years, including 2004, some or all of the
    appropriations bills were not enacted by the beginning of the year. When
    this occurs, Congress usually enacts a joint resolution called a
    ``continuing resolution,'' which is an interim appropriations bill, to
    provide authority for the affected agencies to continue operations at
    some specified level up to a specific date or until the 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.
    Article I, Section 7, of the Constitution provides that all bills for
    raising revenue shall originate in the House of Representatives. In the
    House, the Ways and Means Committee initiates tax bills; 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 which laws are to
    be changed or the changes to be made. However, the Budget Committees'
    reports on the budget resolution frequently 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

    [[Page 378]]

    to cover some of their costs. In some years, Congress has enacted an
    omnibus budget reconciliation act, which combines the amendments to
    implement reconciliation directives in a single act. These acts,
    together with appropriations acts for the year, often implement
    agreements between the President and the Congress. They may include
    other matters, such as laws providing the means for enforcing these
    agreements, as described below.

                               Budget Enforcement

      The Budget Enforcement Act (BEA), first enacted in 1990 and extended
    in 1993 and 1997, significantly amended the laws pertaining to the
    budget process, including the Congressional Budget Act, the Balanced
    Budget and Emergency Deficit Control Act, and the law pertaining to the
    President's budget (see PRINCIPAL BUDGET LAWS, later in the chapter).
    The BEA constrained legislation enacted through 2002 that would increase
    spending or decrease receipts.
      The BEA divided spending into two types-discretionary spending and
    direct spending. Discretionary spending is controlled through annual
    appropriations acts. Direct spending, which is more commonly referred to
    as mandatory spending, is controlled by permanent laws. The BEA required
    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 classified it as
    mandatory.
      The BEA defined categories of discretionary spending and specified
    dollar limits known as ``caps'' on the amount of spending in each
    category. If the amount of budget authority or outlays provided in
    appropriations acts for a given year exceeded the cap for that category,
    the BEA required a procedures, called sequestration, for reducing the
    spending in the category.
      The BEA did not cap mandatory spending. Instead, it required that all
    laws that affected mandatory spending or receipts be enacted on a ``pay-
    as-you-go'' (PAYGO) basis. That means that if such a law increased the
    deficit or reduced a surplus in the budget year or any of the four
    following years, another law had to be enacted with an offsetting
    reduction in spending or increase in receipts for each year that was
    affected. Otherwise, a sequestration would be triggered in the fiscal
    year in which the deficit would be increased.
      Chapter 24, ``Budget System and Concepts and Glossary,'' pages 460-461
    in the Analytical Perspectives volume of the 2004 budget, discusses the
    Budget Enforcement Act in more detail.
      The BEA expired at the end of 2002. The Administration proposes to
    extend the BEA's mechanisms for limiting discretionary spending for
    2004-2009 that would be adhered to throughout the budget process. The
    Administration also proposes to establish mandatory spending controls
    and a new mechanism to measure the Federal Government's long-term
    unfunded obligations and to prohibit increases in those obligations.
    These proposals are discussed in more detail in the Ensuring Fiscal
    Responsibility chapter of the budget and in Chapter 14. ``Budget Reform
    Proposals,'' of the Analytical Perspectives volume.

                                Budget Execution

      Government agencies may not spend or obligate 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. Some apportionments are by time periods (usually by
    quarter of the fiscal year), some are by projects or activities, and
    others are by a combination of both. 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 sometimes finds that
    it needs to spend more money than Congress has appropriated for the
    fiscal year because of unanticipated circumstances. For example, more
    money might be needed to respond to a severe natural disaster. Under
    such circumstances, Congress may enact a supplemental appropriation.
      On the other hand, changing circumstances may reduce the need to spend
    appropriated funds. Under the requirements of the Impoundment Control
    Act of 1974, the President cannot simply decline to spend
    appropriations. The President may defer spending or propose 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 2003, no deferrals were proposed. 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 2003, no rescissions were proposed by the President although Congress
    initiated and enacted rescissions.

    [[Page 379]]

                                                     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.
     Monday in February............................

    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.

    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.

                             COVERAGE OF THE BUDGET

                      Federal Government and Budget Totals

          Table 25-1.  TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
                            (In billions of dollars)
    ------------------------------------------------------------------------
                                                                Estimate
                                                     2003  -----------------
                                                    actual    2004     2005
    ------------------------------------------------------------------------
    Budget authority
      Unified....................................    2,266    2,345    2,355
      On-budget..................................    1,891    1,956    1,958
      Off-budget.................................      376      389      397

    Receipts:
      Unified....................................    1,782    1,798    2,036
      On-budget..................................    1,258    1,264    1,461
      Off-budget.................................      524      534      575

    Outlays:
      Unified....................................    2,158    2,319    2,400
      On-budget..................................    1,795    1,939    2,004
      Off-budget.................................      363      380      396

    Surplus:
      Unified....................................     -375     -521     -364
      On-budget..................................     -536     -675     -543
      Off-budget.................................      161      154      179
    ------------------------------------------------------------------------

      The budget documents provide information on all Federal agencies and
    programs. However, because the laws governing Social Security (the
    Federal Old-Age and Survivors Insurance and the Federal Disability
    Insurance trust funds) and the Postal Service Fund exclude the receipts
    and outlays for those activities from the budget totals and from the
    calculation of the deficit or surplus, 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.
      It is not always obvious whether a transaction or activity should be
    included in the budget. Where there is a question, we normally follow
    the recommendation of the 1967 President's Commission on Budget Concepts
    to be comprehensive of the full range of Federal agencies, programs, and
    activities. In recent years, for example, the budget has included the
    transactions of the Universal Service Fund, the Public Company
    Accounting Oversight Board, Guaranty Agencies Reserves, the National
    Railroad Retirement Investment Trust, and the United Mine Workers
    Combined Benefits Fund.
      Beginning in 2003, the budget includes the transactions of the
    Telecommunications Development Fund (TDF), which was established in 1996
    pursuant to the Telecommunications Act of 1996, starting in 2003. The
    statute states that the TDF is a private corporation. However, its
    funding and activities are governmental in nature and its policies and
    operations are largely controlled by the Federal government. The TDF has
    the authority to spend the interest earned on deposits required of
    bidders by the Federal Communications Commission (FCC) as part of the
    spectrum auction process. The interest earnings are used as venture
    capital for small businesses and spent on other activities related to
    telecommunications services. The TDF's board members are appointed by
    the Chairman of the FCC and include representatives of the FCC,
    Treasury, and Small Business Administration. Treasury must report
    annually to the President and Congress on the operations and financial
    condition of the fund. Despite its designation as a private corporation,
    it has no publicly owned shares.
      In contrast, the budget excludes tribal trust funds that are owned by
    Indian tribes and held and managed by the Government in a fiduciary
    capacity on the tribes' behalf. These funds are not owned by the
    Government, the Government is not the source of their capital, and the
    Government's control is limited to the exercise of fiduciary duties.
    Similarly, the transactions of Government-sponsored enterprises, such as
    the Federal National Mortgage Association (Fannie Mae) are not included
    in the on-budget or off-budget totals. Federal laws established these
    enterprises for public policy pur

    [[Page 380]]

    poses, 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 budget Appendix 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.
      Detailed functional tables, which provide information on government
    activities by function and subfunction, appear this year on the
    Analytical Perspectives CD ROM as Table 26.

             Agencies, Accounts, Programs, Projects, and Activities

      Various summary tables in the Analytical Perspectives volume of the
    budget provide information on budget authority, outlays, and offsetting
    collections and receipts arrayed by Federal agency. 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 appears this year on the
    Analytical Perspectives CD ROM as Table 27-1. 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 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 of assets that are owned or held for the
    benefit of others. For example, it maintains accounts on behalf of
    individual Federal employees in the Thrift Savings Fund, investing them
    as directed

    [[Page 381]]

    by the individual employee. The Government accounts for such funds in
    deposit funds, which are not included in the budget. (Chapter 21,
    ``Trust Funds and Federal Funds,'' provides more information on this
    subject.)

                            Budgeting for Full Costs

      A budget is a financial plan for allocating resources-deciding how
    much the Federal Government should spend in total, program by program,
    and for the parts of each program. The budgetary system provides a
    process for proposing policies, making decisions, implementing them, and
    reporting the results. The budget needs to measure costs accurately so
    that decision makers can compare the cost of a program with its benefit,
    the cost of one program with another, and the cost of alternative
    methods of reaching a specified goal. These costs need to be fully
    included in the budget up front, when the spending decision is made, so
    that executive and congressional decision makers have the information
    and the incentive to take the total costs into account for setting
    priorities.
      The budget includes all types of spending, including both current
    operating expenditures and capital investment, and to the extent
    possible, both are measured on the basis of full cost. Questions are
    often raised about the measure of capital investment. The present budget
    provides policymakers the necessary information regarding investment
    spending. It records investment on a cash basis, and it requires
    Congress to provide budget authority before an agency can obligate the
    Government to make a cash outlay. By these means, it causes the total
    cost of capital investment to be compared up front in a rough and ready
    way with the total expected future net benefits. Since the budget
    measures only cost, the benefits with which these costs are compared,
    based on policy makers' judgment, must be presented in supplementary
    materials. Such a comparison of total costs with benefits is consistent
    with the formal method of cost-benefit analysis of capital projects in
    government, in which the full cost of a capital asset as the cash is
    paid out is compared with the full stream of future benefits (all in
    terms of present values). (Chapter 6, ``Federal Investment,'' provides
    more information on capital investment.)
      There have been a number of proposals to change the basis for
    measuring capital investment in the budget. Many of these would
    undermine effective consideration and control of costs by spreading the
    real cost of the project over time and record as a current operating
    expense the annual depreciation for each year of an asset's life. No
    depreciation would be recorded until after the asset was put into
    service. This could be several years after the initial expenditure, in
    which case the budget would record no expenses at all in the budget year
    or several years thereafter, even though the Government is obligated to
    buy the asset. Recording the annual depreciation in the budget each year
    would provide little control over the decision about whether to invest
    in the first place. Control can only be exercised up front when the
    Government commits itself to the full sunk cost. Spreading the costs
    over time would make the cost of a capital asset appear very cheap when
    decisions were being made that compared it to alternative expenditures.
    As a result, the Government would have an incentive to purchase capital
    assets with little regard for need, and also with little regard for the
    least-cost method of acquisition. Chapter 7, ``Federal Investment
    Spending and Capital Budgeting,'' pages 157-165 in the Analytical
    Perspectives volume of the 2004 Budget, discusses alternative capital
    budget and capital expenditure presentations in more detail.

            RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS

                                   In General

      The budget records money collected by Government agencies two
    different ways. Depending on the nature of the activity generating the
    collection, they are recorded as either:
        Receipts, which are compared in total to outlays (net of
              offsetting collections and receipts) in calculating the
              surplus or deficit; or
        Offsetting collections or offsetting receipts, which are
              deducted from gross outlays to produce net outlay figures.

                                    Receipts

      Receipts are collections that result from the Government's exercise of
    its sovereign power to tax or otherwise compel payment and gifts of
    money to the Government. Sometimes they are called governmental receipts
    to distinguish them from offsetting receipts and sometimes they are
    called Federal receipts or Federal revenues. 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 25-
    1, ``Totals for the Budget and the Federal Government,'' which appears
    earlier in this chapter.) Chapter 16, ``Federal Receipts,'' provides
    more information on receipts.

                 Offsetting Collections and Offsetting Receipts

      Offsetting collections and offsetting receipts are recorded as offsets
    to (deductions from) spending, not as additions on the receipt side of
    the budget. As explained below, they are recorded as offsets to spending
    so that the budget totals represent governmental rather than market
    activity and reflect the Government's net transactions with the public.
    They are recorded in one of

    [[Page 382]]

    two ways, based on interpretation of laws and longstanding budget
    concepts and practice. They are offsetting collections when the
    collections are authorized by law to be credited to expenditure
    accounts. Otherwise, they are deposited in receipt accounts and called
    offsetting receipts.
      Offsetting collections and offsetting receipts result from one of the
    following types of transactions:
        Business-like transactions or market-oriented activities
              with the public--collections from the public in exchange for
              goods or services. 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
              from non-Federal sources or as proprietary receipts. The
              amounts 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--collections from other
              Federal Government accounts. The budget records collections by
              one Government account from another as offsetting collections
              from Federal sources or as intragovernmental receipts. For
              example, the General Services Administration rents office
              space to other Government agencies and records their rental
              payments 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.
        Offsetting governmental transactions--collections from the
              public that are governmental in nature (e.g., tax receipts,
              regulatory fees, compulsory user charges, custom duties,
              license fees) but required by law to be misclassified as
              offsetting. The budget records amounts from non-Federal
              sources that are governmental in nature as offsetting
              governmental collections or as offsetting governmental
              receipts.
      A table in Chapter 20, ``Outlays to the Public, Net and Gross,'' shows
    the effect of offsetting collections and receipts on gross outlays for
    each major Federal agency.

                             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 and usually to spend the collections without further action by
    Congress. 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, not in the amount of the collections.
      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.Offsetting Receipts
      Collections that are offset against gross outlays but are not
    authorized to be credited to expenditure accounts are credited to
    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.
      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.
      Similarly, two kinds of intragovernmental transactions--agencies'
    payments as employers into Federal employees retirement trust funds and
    interest received by trust funds--are classified as undistributed
    offsetting receipts. They appear instead 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.

    [[Page 383]]

                                  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 17, ``User Charges and Other Collections,'' for more
    information on the classification of user charges.

    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 the
    Government. In other words, it is the amount of money that agencies are
    allowed 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 new budget
    authority as a dollar amount in the year when it first becomes
    available. When permitted by law, unobligated balances of budget
    authority may be carried over and used in 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 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 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.

    [[Page 384]]

      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.
      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.
      New budget authority for most Federal programs is normally provided in
    13 annually enacted appropriations acts. However, new budget authority
    for more than half of all outlays is made available through permanent
    appropriations under existing laws. These permanent appropriations take
    three main forms. The first is budget authority for trust funds, which
    for most trust funds is automatically appropriated under existing law
    from the available balance of their receipts and equals the estimated
    annual obligations of the funds. The second is interest on the public
    debt, for which budget authority is automatically provided under a
    permanent appropriation enacted in 1847 and equals interest outlays. The
    third is the authority to spend offsetting collections credited to
    appropriation or fund accounts. 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. Most of this
    budget authority is earmarked for specific uses and is not available for
    new programs. A small part may never by obligated or spent, primarily
    amounts provided for contingencies that do not occur or reserves that
    never have to be used.
      Budget authority that has been obligated but not paid constitutes the
    account's unpaid obligations. 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. Unpaid obligations net of the accounts receivable and unfilled
    customers orders are defined by law as the obligated balances. 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 budget authority available in any
    one year may change the level of obligations and outlays for several
    years to come. Conversely, 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. \2\
    ---------------------------------------------------------------------------
      \2\ A separate report, ``Balances of Budget Authority,'' provides
    additional information on balances. The National Technical Information
    Service, Department of Commerce, makes the report available shortly
    after the budget is transmitted.
    ---------------------------------------------------------------------------
      Congress usually makes budget authority available on the first day of
    the fiscal year for which the appropriations act is passed.
    Occasionally, the appropriations language specifies a different timing.
    The language may provide an advance appropriation--budget authority that
    does not become available until one year or more beyond the fiscal year
    for which the appropriations act is passed. Forward funding is 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 of expired balances that are newly available for
    obligation in the current or budget year 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

    [[Page 385]]

    authority that expired 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. This classification indicates whether
    appropriations acts or authorizing legislation control the amount of
    budget authority that is available. Outlays are also classified as
    discretionary or mandatory according to the classification of the budget
    authority from which they flow (see ``Outlays'' below).
      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
    classified as mandatory. This is because the authorizing legislation for
    these programs entitles beneficiaries to receive payment or otherwise
    obligates the Government to make payment and effectively determines the
    amount of budget authority required, even though the payments are funded
    by a subsequent appropriation.
      The amount of budget authority recorded in the budget depends on
    whether the law provides a specific amount or specifies a variable
    factor that determines the amount. It is considered definite if the law
    specifies a dollar amount (which may be an amount not to be exceeded).
    It is considered indefinite if, instead of specifying an amount, the law
    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.

                              Obligations Incurred

      Following the enactment of budget authority and the completion of
    required apportionment 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 immediate or future outlays. 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 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 the equivalent method. 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 in
    place of cash 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. 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 the Government account series (special issues). The
    budget normally states the interest on these securities on a cash basis.
    When a Government account is invested in Federal debt securities, the
    purchase price is usually close or identical to the par (face) value of
    the security. The budget records the investment at par value and adjusts
    the interest paid by Treasury and collected by the account by the
    difference between purchase price and par, if any. However, two trust
    funds in the Department of Defense, the Military Retirement Trust Fund
    and the Education Benefits Trust Fund, routinely have relatively large
    differences between purchase price and

    [[Page 386]]

    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. However, the budget
    records payments to taxpayers for refundable tax credits (such as earned
    income tax credits) that exceed the taxpayer's tax liability as outlays.
    Refunds of overpayments by the Government are recorded as offsetting
    collections or offsetting receipts.
      Not all of the new budget authority for 2005 will be obligated or
    spent in 2005. 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 shown in the following chart, $521 billion of outlays in 2005 (22
    percent of the total) will be made from budget authority enacted in
    previous years. At the same time, $476 billion of the new budget
    authority proposed for 2005 (20 percent of the total amount proposed)
    will not lead to outlays until future years. In general, the total
    budget authority for a particular year is not directly indicative of
    that year's outlays since it combines various types of budget authority
    that have different short-term and long-term implications for budget
    obligations and outlays.

      As described earlier, the budget classifies budget authority and
    outlays as discretionary or mandatory for the purposes of the BEA. This
    classification of outlays measures the extent to which actual spending
    is controlled through the annual appropriations process. Typically, only
    one-third ($826 billion in 2003) of total outlays for a fiscal year are
    discretionary and the remaining two-thirds ($1,332 billion in 2003)
    consists of mandatory spending and net interest. Such a large portion of
    total spending is nondiscretionary because authorizing legislation
    determines net interest ($153 billion in 2003) and the spending for a
    few programs with large amounts of spending each year, such as Social
    Security ($470 billion in 2003) and Medicare ($246 billion in 2003).

    [[Page 387]]

      The bulk of mandatory outlays flows from an equal amount of budget
    authority recorded in the same fiscal year. This is not the case for
    discretionary budget authority and outlays. For most major construction
    and procurement projects and long-term contracts, for example, the
    budget authority covers the entire cost estimated when the projects are
    initiated even though the work wil take place and outlays will be made
    over a period extending beyond the year for which the budget authority
    is enacted. Similarly, discretionary budget authority for most education
    and job training activities is appropriated for school or program years
    that begin in the fourth quarter of the fiscal year. most of these funds
    result in outlays in the year after the appropriation.

                                 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 year-by-year 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 cost of direct loans and loan guarantees, sometimes called the
    ``subsidy 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.
    ---------------------------------------------------------------------------
      The budget records the estimated long-term cost to the Government
    arising from direct loans and loan guarantees in credit program
    accounts. 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 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. However, since financing accounts
    record cash flows to and from the Government, they 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.

    [[Page 388]]

      The FCRA, which was enacted in 1990, grandfathered direct loan
    obligations and loan guarantee commitments made prior to 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 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 primarily 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 net disbursements of the
    direct loan financing account, 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 2003, the net effect of the other means of financing is
    minor relative to the borrowing or debt repayment; in other years, such
    as 2002, the net effect may be significant.

                          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 2003, the Government borrowed $373
    billion from the public. This financed nearly all of the $375 billion
    deficit in that year. The rest of the deficit was financed by the net
    effect of the other means of financing, such as changes in cash balances
    and other accounts discussed below. At the end of 2003, the debt held by
    the public was $3,914 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
    15, ``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
    457-458 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 from 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 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

    [[Page 389]]

    by bidders for mineral leases) or cash 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 or the Thrift Savings Fund, a defined contribution pension
    fund held and managed in a fiduciary capacity by the 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 and are not reflected as a separate means of
    financing.

               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 the 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 are recorded in
    subfunction 909, other investment income. The actual year returns
    include interest, dividends, and capital gains and losses on private
    equities and other securities. The Fund's portfolio of these assets is
    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
    reflects the current market value of resources available to the
    Government to finance benefits. Earnings for the current and future
    years are estimated using the 10-year Treasury rate and the value of the
    Fund's portfolio at the end of the actual year. No estimates are made of
    gains and losses for the current year or subsequent years.

                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 (ADV) to Qualcomm, Incorporated, in satisfaction of a
    court ruling. 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 by
    using 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. In
    April of 2003, the FCC again revised its Order to grant Qualcomm until
    June of 2004 to use the remainder of its ADV. During 2003, $59 million
    was transferred and used against the voucher, leaving an outstanding
    balance of $56 million.

    [[Page 390]]

      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 $59
    million that was used to repay outstanding loans in 2003 was recorded as
    offsetting collections in the Spectrum Auction Direct Loan Financing
    Account and applied to repay outstanding debt of the financing account
    to Treasury. At the same time, $59 million auction receipts collected by
    the FCC were reported as offsetting collections in FCC's Pioneer's
    Preference Account, rather than as general fund receipts, and were
    applied to extinguish $59 million of the outstanding FCC debt that was
    recorded when the Qualcomm voucher was issued. The remaining $56 million
    of vouchers are estimated to be used in 2004, and their use will be
    recorded in the same way.

                               FEDERAL EMPLOYMENT

      The budget includes information on civilian and military employment.
    It also includes information on related personnel compensation and
    benefits. Chapter 23, ``Federal Employment and Compensation,'' provides
    two different measures of Federal employment levels-actual positions
    filled and full-time equivalents (FTE). Agency FTEs are the measure of
    the total number of hours worked by an agency's Federal employees
    divided by the total number of workhours in one fiscal year. In the
    budget Appendix, only the FTE measure is used because it takes into
    account part-time employment, temporary employment, and vacancies during
    the year. (Chapter 23, ``Federal Employment and Compensation,'' provides
    more information on this subject.)

                            BASIS FOR BUDGET FIGURES

                             Data for the Past Year

      The past year column (2003) 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 19, ``Comparison of
    Actual to Estimated Totals'' for a summary of these differences).

                            Data for the Current Year

      The current year column (2004) includes estimates of transactions and
    balances based on the amounts of budgetary resources that were available
    when the budget was transmitted, including amounts appropriated for the
    year.

                            Data for the Budget Year

      The budget year column (2005) 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 (2006 through 2009) in order to reflect the effect of budget
    decisions on longer term objectives and plans.

                    Medicare Advantage and Drug Plan Premiums

      The Medicare Prescription Drug, Improvement, and Modernization Act of
    2003 creates two new programs, Medicare Advantage and a prescription
    drug benefit, which will charge premiums set by private plans.
    Beneficiaries have the option of paying the premiums through withholding
    from Social Security benefit payments or by using an electronic funds
    transfer from their personal bank accounts. Regardless of the method of
    payment, all premium payments for basic benefits are reported in the
    budget as offsetting receipts, budget authority and outlays.

                         Department of Homeland Security

      Although resources for the agencies and programs that merged into the
    Department of Homeland Security were transferred at different points
    during 2003, the budget presents data for the Department of Homeland
    Security (DHS) on a three-year comparable basis (i.e., for 2003 through
    2005). All the data associated with the DHS components are displayed in
    the DHS chapter of the budget Appendix. The other budget volumes treat
    DHS similarly.

    [[Page 391]]

                                   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.

                                    Baseline

      The budget baseline is an estimate of the receipts, outlays, and
    deficits or surpluses that would occur if no changes were made to
    current laws during the period covered by the budget. The baseline
    assumes that receipts and mandatory spending, which generally are
    authorized on a permanent basis, will continue in the future as required
    by current law. The baseline assumes that the future funding for
    discretionary programs, which generally are funded annually, will equal
    the most recently enacted appropriation, adjusted for inflation.
      The baseline represents the amount of 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 24, ``Current Services
    Estimates,'' provides more information on the baseline.)
      The baseline serves several useful purposes:
        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.

                              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 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 other establishment of the Government.

    [[Page 392]]

      Allowance means a lump-sum included in the budget to represent certain
    transactions that are expected to increase or decrease budget authority,
    outlays, or receipts but that are not, for various reasons, reflected in
    the program details.
      Balances of budget authority means the amounts of budget authority
    provided in previous years that have not been outlayed.
      Baseline means an estimate of the receipts, outlays, and deficit or
    surplus that would result from continuing current law through the period
    covered by the budget.
      Budget means the Budget of the United States Government, which sets
    forth the President's comprehensive financial plan for allocating
    resources and indicates the President's priorities for the Federal
    Government.
      Budget authority (BA) means the authority provided by law to incur
    financial obligations that will result in outlays. (For a description of
    the several forms of budget authority, see ``Budget Authority and Other
    Budgetary Resources'' earlier in this chapter.)
      Budget totals mean the totals included in the budget for budget
    authority, outlays, and receipts. Some presentations in the budget
    distinguish on-budget totals from off-budget totals. On-budget totals
    reflect the transactions of all Federal Government entities except those
    excluded from the budget totals by law. The off-budget totals reflect
    the transactions of Government entities that are excluded from the on-
    budget totals by law. Under current law, the off-budget totals include
    the Social Security trust funds (Federal Old-Age and Survivors Insurance
    and Federal Disability Insurance Trust Funds) and the Postal Service
    Fund. The budget combines the on- and off-budget totals to derive
    unified or consolidated totals for Federal activity.
      Budgetary resources mean amounts available to incur obligations in a
    given year. The term comprises new budget authority and unobligated
    balances of budget authority provided in previous years.
      Cap means the legal limits for each fiscal year under the Budget
    Enforcement Act on the budget authority and outlays provided by
    discretionary appropriations.
      Cash equivalent transaction means a transaction in which the
    Government makes outlays or receives collections in a form other than
    cash or the cash does not accurately measure the cost of the
    transaction. (For examples, see the section on ``Outlays'' earlier in
    this chapter.)
      Collections mean money collected by the Government that the budget
    records as either a receipt, an offsetting collection, or an offsetting
    receipt.
      Credit program account means a budget account that receives and
    obligates appropriations to cover the subsidy cost of a direct loan or
    loan guarantee and disburses the subsidy cost to a financing account.
      Current services estimate--see baseline.
      Deficit means the amount by which outlays exceed receipts in a fiscal
    year. It may refer to the on-budget, off-budget, or unified budget
    deficit.
      Direct loan means a disbursement of funds by the Government to a non-
    Federal borrower under a contract that requires the repayment of such
    funds with or without interest. The term includes the purchase of, or
    participation in, a loan made by another lender. The term also includes
    the sale of a Government asset on credit terms of more than 90 days
    duration as well as financing arrangements for other transactions that
    defer payment for more than 90 days. It also includes loans financed by
    the Federal Financing Bank (FFB) pursuant to agency loan guarantee
    authority. The term does not include the acquisition of a federally
    guaranteed loan in satisfaction of default or other guarantee claims or
    the price support loans of the Commodity Credit Corporation. (Cf. loan
    guarantee.)
      Direct spending--see mandatory spending.
      Discretionary spending means budgetary resources (except those
    provided to fund mandatory spending programs) provided in appropriations
    acts. (Cf. mandatory spending.)
      Emergency appropriation means an appropriation that the President and
    the Congress have designated as an emergency requirement. Such spending
    is not subject to the limits on discretionary spending, if it is
    discretionary spending, or the pay-as-you-go rules, if it is mandatory.
      Federal funds group refers to the moneys collected and spent by the
    Government 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,

    [[Page 393]]

    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.
      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 are authorized to be spent for the purposes of
    the account without further action by Congress. They result from
    business-like transactions 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-like transactions 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

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    as trust funds, and these are called trust revolving funds. (Cf. special
    fund and revolving fund.)
      Trust funds group refers to the moneys collected and spent by the
    Government through trust fund accounts. (Cf., Federal funds group.)
      Undistributed offsetting receipts mean offsetting receipts that are
    deducted from the Government-wide totals for budget authority and
    outlays instead of offset against a specific agency and function. (Cf.
    offsetting receipts.)
      Unobligated balance means the cumulative amount of budget authority
    that is not obligated and that remains available for obligation under
    law.
      User charges are 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).