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The Budget Process


The budget process begins in the Executive Branch and then moves to Congress.


Part One: In the Executive Branch

Each year, the Federal Government spends trillions of dollars to carry out is responsibilities. It is a long and complicated process that begins with the creation and submission to Congress of the President's proposed spending plan for the Federal Government in the coming fiscal year. The documents containing the President's plan is known as the Budget of the U.S. Government.

The President's Budget is basically a series of goals with price tags attached. It allows the President to provide a suggested spending framework to Congress for use in deciding (1) how much money to spend, (2) what to spend it on, and (3) how to raise the money they have decided to spend. According to the Budget and Accounting Act of 1921, the President must annually submit a budget to Congress by the first Monday in February. In addition to the proposed spending plan, the President's Budget must show:

• The condition of the Treasury at the end of the last completed fiscal year.
• The estimated condition of the Treasury at the end of the current fiscal year.
• The estimated condition of the Treasury at the end of the next fiscal year if the budget proposals are carried out.

The Office of Management and Budget (OMB) assists the President in the creation of the President's Budget by gathering data from agencies and compiling it into the final plan to be approved by the President. As part of this process, OMB also studies Government services in detail and then recommends changes to the President intended to increase the economy and efficiency of Government operations.

The process of creating the President's Budget starts about a year before it is due to be submitted to Congress. It begins with the development of the President's an overall budget strategy in the spring and by summer Federal agencies submit their budget estimates based on that strategy. During the fall, the estimates provided by the agencies are reviewed by OMB and by the winter, the President's budget is reviewed, finalized, and submitted to Congress as required.

The process of creating the budget for the United States Government is known as the budget process. The framework used by Congress to formulating the budget was originally established by the Budget and Accounting Act of 1921.

The President's Budget Request

Congressional consideration of the federal budget begins once the President submits a budget request, which is formulated over a period of months with the assistance of the Office of Management and Budget, (OMB) the largest office within the Executive Office of the President. The budget request includes funding requests for all federal executive departments and independent agencies.

The President submits the budget request each year to Congress for the following fiscal year, as required by the Budget and Accounting Act of 1921. Current law requires the President to submit a budget no earlier than the first Monday in January, and no later than the first Monday in February. Typically, Presidents submit budgets on the first Monday in February.

The President's budget request constitutes an extensive proposal of the administration's intended spending and revenue plans for the following fiscal year. The budget proposal includes volumes of supporting information intended to persuade Congress of the necessity and value of the budget provisions. In addition, each federal executive department and independent agency provides additional detail and supporting documentation to Congress on its own funding requests.

The Budget Resolution

The next step is the drafting of a budget resolution. The United States House Committee on the Budget and the United States Senate Committee on the Budget are responsible for drafting budget resolutions. Following the traditional calendar, by early April both committees finalize their drafts and submit it to their respective floors for consideration and adoption.

A budget resolution, which is one form of a concurrent resolution binds Congress, but is not a law, and so does not require the President's signature. The budget resolution serves as a blueprint for the actual appropriation process, and provides Congress with some control over the appropriations process. No new spending authority, however, is provided until appropriation bills are enacted.

Once both houses pass the resolution, selected Representatives and Senators negotiate a conference report to reconcile differences between the House and the Senate versions. The conference report, in order to become binding, must be approved by both the House and Senate.

Fiscal Year

The federal government's fiscal year currently begins on October 1st and ends on September 30th of the next calendar year. 

Structure of the Budget

Fundamentally, the budget resolution is structured along 20 budget functions, or categories of spending. Functional categories often cut across agency lines. For example, the National Defense function includes certain Department of Energy programs as well as Department of Defense programs. Functions are further subdivided into "subfunctions." In addition, though these functions and subfunctions are included in a budget resolution, which determines how Congress considers budget related legislation, they have little correspondence to any committee jurisdictions. Functions are, however, useful in understanding the placement of any given account in the federal government: Each account number has a series of numbers, the last three will indicate the function and subfunction; for example an account ending in "151" will indicate function 150 (Defense) and subfunction 151, which indicates a type of spending within the Defense category.

A listing of the budget functions can be found below.

In addition to these functions, during the 110th Congress, in S. Con. Res. 21and S. Con. Res 70, an additional function was included: Function 970, indicating spending on the global war on terrorism(Overseas Deployments and Other Activities (970)).

Note 1: Estimated budget authority as presented in the President's budget (in million USD)

Discretionary Vs. Mandatory Spending

Each function within the budget may include "budget authority" and "outlays" that fall within the broad categories of discretionary spending or direct spending.

Discretionary spending requires an annual appropriation bill, which is a piece of legislation. Discretionary spending is typically set by the House and Senate Appropriations Committee and their various subcommittees. Since the spending is typically for a fixed period (usually a year), it is said to be under the discretion of the Congress. Some appropriations last for more than one year. In particular, multi-year appropriations are often used for housing programs and military procurement programs.

Direct Spending

Direct spending refers to spending enacted by law, but not dependent on an annual or periodic appropriation bill. Most "mandatory" spending consists of entitlement programs such as Social Security benefits, Medicare, and Medicaid. These programs are called "entitlements" because individuals satisfying given eligibility requirements set by past legislation are entitled to Federal government benefits or services. Many other expenses, such as salaries of Federal judges, are mandatory, but account for a relatively small share of federal spending. The Congressional Budget Office (CBO) estimates costs of mandatory spending programs on a regular basis^. Congress can affect spending on entitlement programs by changing eligibility requirements or the structure of programs. Certain entitlement programs, because the language authorizing them are included in appropriation bills, are termed "appropriated entitlements." This is a convention rather than a substantive distinction, since the programs, such as Food Stamps, would continue to be funded even were the appropriation bill to be vetoed or otherwise not enacted.

Authorization and Appropriations

In general, funds for Federal Government programs must be authorized by an "authorizing committee" through enactment of legislation. Then, through subsequent acts by Congress, budget authority is then appropriated by the Appropriations Committees of the House and Senate. In principle, committees with jurisdiction to authorize programs make policy decisions, while the Appropriations Committees decide on funding levels, limited to a program's authorized funding level, though the amount may be any amount less than the limit.

In practice, the separation between policy making and funding, and the division between appropriations and authorization activities are imperfect. Authorizations for many programs have long lapsed, yet still receive appropriated amounts. Other programs that are authorized receive no funds at all.  In addition, policy language -- that is legislative text changing permanent law -- is included in appropriation measures.

When ready, continue on to State Government.