Budget Concepts and Budget Process

BUDGET CONCEPTS AND BUDGET PROCESS

11. BUDGET CONCEPTS

The budget system of the United States Government these amounts and more detailed amounts in greater provides the means for the President and the Congress depth. to decide how much money to spend, what to spend it The following section discusses the budget process, on, and how to raise the money they have decided to covering formulation of the President’s Budget, action spend. Through the budget system, they determine the by the Congress, and execution of enacted budget laws. allocation of resources among the agencies of the Federal The next section provides information on budget cover- Government and between the Federal Government and age, including a discussion of on-budget and off-budget the private sector. The budget system focuses primar- amounts, functional classification, presentation of budget ily on dollars, but it also allocates other resources, such data, types of funds, and full-cost budgeting. Subsequent as Federal employment. The decisions made in the bud- sections discuss the concepts of receipts and collections, get process affect the Nation as a whole, State and local budget authority, and outlays. These sections are followed governments, and individual Americans. Many budget by discussions of Federal credit; surpluses, deficits, and decisions have worldwide significance. The Congress and means of financing; Federal employment; and the basis the President enact budget decisions into law. The budget for the budget figures. A glossary of budget terms appears system ensures that these laws are carried out. at the end of the chapter. This chapter provides an overview of the budget system Various laws, enacted to carry out requirements of the and explains some of the more important budget concepts. Constitution, govern the budget system. The chapter re- It includes summary dollar amounts to illustrate major fers to the principal ones by title throughout the text and concepts. Other chapters of the budget documents discuss gives complete citations in the section just preceding the glossary.

THE BUDGET PROCESS The budget process has three main phases, each of and fiscal policy guidelines, usually by the spring of each which is related to the others: year, at least nine months before the President transmits the budget to the Congress and at least 18 months before 1. Formulation of the President’s Budget; the fiscal year begins. (See the “Budget Calendar” later in this chapter.) Based on these guidelines, the Office of 2. Action by the Congress; and Management and Budget (OMB) works with the Federal agencies to establish specific policy directions and plan- 3. Execution of enacted budget laws. ning levels to guide the preparation of their budget requests. During the formulation of the budget, the President, Formulation of the President’s Budget the Director of OMB, and other officials in the Executive Office of the President continually exchange information, The Budget of the United States Government consists proposals, and evaluations bearing on policy decisions of several volumes that set forth the President’s fiscal with the Secretaries of the departments and the heads policy goals and priorities for the allocation of resources of the other Government agencies. Decisions reflected in by the Government. The primary focus of the Budget is previously enacted budgets, including the one for the fis- on the budget year—the next fiscal year for which the cal year in progress, reactions to the last proposed budget Congress needs to make appropriations, in this case 2020. (which the Congress is considering at the same time the (Fiscal year 2020 will begin on October 1, 2019, and end process of preparing the forthcoming budget begins), and on September 30, 2020.) The Budget also covers the nine evaluations of program performance all influence deci- years following the budget year in order to reflect the effect sions concerning the forthcoming budget, as do projections of budget decisions over the longer term. It includes the of the economic outlook, prepared jointly by the Council of funding levels provided for the current year, in this case Economic Advisers, OMB, and the Treasury Department. 2019, which allows the reader to compare the President’s In early fall, agencies submit their budget requests to Budget proposals with the most recently enacted levels. OMB, where analysts review them and identify issues The Budget also includes data on the most recently com- that OMB officials need to discuss with the agencies. pleted fiscal year, in this case 2018, so that the reader can OMB and the agencies resolve many issues themselves. compare budget estimates to actual accounting data. Others require the involvement of White House policy of- In a normal year, the President begins the process of ficials and the President. This decision-making process formulating the budget by establishing general budget is usually completed by late December. At that time, the

101 102 ANALYTICAL PERSPECTIVES final stage of developing detailed budget data and the appropriations acts and these other laws are discussed in preparation of the budget documents begins. the following paragraphs. The decision-makers must consider the effects of eco- In making appropriations, the Congress does not vote nomic and technical assumptions on the budget estimates. on the level of outlays (spending) directly, but rather on Interest rates, economic growth, the rate of inflation, the budget authority, or funding, which is the authority pro- unemployment rate, and the number of people eligible vided by law to incur financial obligations that will result for various benefit programs, among other factors, affect in outlays. In a separate process, prior to making appro- Government spending and receipts. Small changes in priations, the Congress usually enacts legislation that these assumptions can alter budget estimates by many authorizes an agency to carry out particular programs, billions of dollars. (Chapter 2, “Economic Assumptions and authorizes the appropriation of funds to carry out those Overview,’’ provides more information on this subject.) programs, and, in some cases, limits the amount that Thus, the budget formulation process involves the can be appropriated for the programs. Some authorizing simultaneous consideration of the resource needs of in- legislation expires after one year, some expires after a dividual programs, the allocation of resources among the specified number of years, and some is permanent. The agencies and functions of the Federal Government, and Congress may enact appropriations for a program even the total outlays and receipts that are appropriate in light though there is no specific authorization for it or its au- of current and prospective economic conditions. thorization has expired. The law governing the President’s budget requires The Congress begins its work on its budget resolution its transmittal to the Congress on or after the first shortly after it receives the President’s budget. Under Monday in January but not later than the first Monday the procedures established by the Congressional Budget in February of each year for the following fiscal year, Act of 1974, the Congress decides on budget targets be- which begins on October 1. The budget is usually sched- fore commencing action on individual appropriations. uled for transmission to the Congress on the first Monday The Act requires each standing committee of the House in February, giving the Congress eight months to act on and Senate to recommend budget levels and report leg- the budget before the fiscal year begins. In years when islative plans concerning matters within the committee’s a Presidential transition has taken place, this timeline jurisdiction to the Budget Committee in each body. The for budget release is commonly extended to allow the new House and Senate Budget Committees then each design Administration sufficient time to take office and formu- and report, and each body then considers, a concurrent late its budget policy. While there is no specific timeline resolution on the budget—a congressional budget plan, set for this circumstance, the detailed budget is usually or budget resolution. The budget resolution sets targets completed and released in April or May. However, in order for total receipts and for budget authority and outlays, to aid the congressional budget process (discussed below), both in total and by functional category (see “Functional new Administrations often release a budget blueprint Classification’’ later in this chapter). It also sets targets that contains broad spending outlines and descriptions of for the budget deficit or surplus and for Federal debt sub- major policies and priorities in February or March. ject to statutory limit. The congressional timetable calls for the House and Congressional Action1 Senate to resolve differences between their respective versions of the congressional budget resolution and adopt The Congress considers the President’s budget pro- a single budget resolution by April 15 of each year. posals and approves, modifies, or disapproves them. It In the report on the budget resolution, the Budget can change funding levels, eliminate programs, or add Committees allocate the total on-budget budget au- programs not requested by the President. It can add or thority and outlays set forth in the resolution to the eliminate taxes and other sources of receipts or make Appropriations Committees and the other committees other changes that affect the amount of receipts collected. that have jurisdiction over spending. These committee al- The Congress does not enact a budget as such. Through locations are commonly known as “302(a)” allocations, in the process of adopting a planning document called a bud- reference to the section of the Congressional Budget Act get resolution (described below), the Congress agrees on that provides for them. The Appropriations Committees targets for total spending and receipts, the size of the defi- are then required to divide their 302(a) allocations of cit or surplus, and the debt limit. The budget resolution budget authority and outlays among their subcommit- provides the framework within which individual congres- tees. These subcommittee allocations are known as sional committees prepare appropriations bills and other “302(b)” allocations. There are procedural hurdles spending and receipts legislation. The Congress provides associated with considering appropriations bills (“discre- spending authority—funding—for specified purposes in tionary” spending) that would breach or further breach an appropriations acts each year. It also enacts changes each Appropriations subcommittee’s 302(b) allocation. Similar year in other laws that affect spending and receipts. Both procedural hurdles exist for considering legislation that would cause the 302(a) allocation for any committee to be breached or further breached. The Budget Committees’ 1 For a fuller discussion of the congressional budget process, see Bill Heniff Jr., Introduction to the Federal Budget Process (Congressional reports may discuss assumptions about the level of fund- Research Service Report 98–721), and Robert Keith and Allen Schick, ing for major programs. While these assumptions do not Manual on the Federal Budget Process (Congressional Research Service Report 98–720, archived). Budget Concepts 103 .11 bind the other committees and subcommittees, they may ed by a subcommittee, the full committee and the whole influence their decisions. House, in turn, must approve the bill, sometimes with Budget resolutions may include “reserve funds,” which amendments to the original version. The House then permit adjustment of the resolution allocations as nec- forwards the bill to the Senate, where a similar review essary to accommodate legislation addressing specific follows. If the Senate disagrees with the House on par- matters, such as health care or tax reform. Reserve funds ticular matters in the bill, which is often the case, the two are most often limited to legislation that is deficit neutral, bodies form a conference committee (consisting of some including increases in some areas offset by decreases in Members of each body) to resolve the differences. The con- others. ference committee revises the bill and returns it to both The budget resolution may also contain “reconciliation bodies for approval. When the revised bill is agreed to, directives’’ (discussed below) to the committees respon- first in the House and then in the Senate, the Congress sible for tax laws and for mandatory spending—programs sends it to the President for approval or veto. not controlled by annual appropriation acts—in order to Since 1977, when the start of the fiscal year was estab- conform the level of receipts and this type of spending to lished as October 1, there have been only three fiscal years the targets in the budget resolution. (1989, 1995, and 1997) for which the Congress agreed to Since the concurrent resolution on the budget is not a and enacted every regular appropriations bill by that law, it does not require the President’s approval. However, date. When one or more appropriations bills has not been the Congress considers the President’s views in prepar- agreed to by this date, Congress usually enacts a joint ing budget resolutions, because legislation developed to resolution called a “continuing resolution’’ (CR), which is meet congressional budget allocations does require the an interim or stop-gap appropriations bill that provides President’s approval. In some years, the President and authority for the affected agencies to continue operations the joint leadership of Congress have formally agreed on at some specified level until a specific date or until the plans to reduce the deficit or balance the budget. These regular appropriations are enacted. Occasionally, a CR agreements were then reflected in the budget resolution has funded a portion or all of the Government for the en- and legislation passed for those years. tire year. If the Congress does not pass a budget resolution, the The Congress must present these CRs to the President House and Senate typically adopt one or more “deeming for approval or veto. In some cases, Congresses have failed resolutions” in the form of a simple resolution or as a pro- to pass a CR or Presidents have rejected CRs because vision of a larger bill. A deeming resolution may serve they contained unacceptable provisions. Left without nearly all functions of a budget resolution, except it may funds, Government agencies were required by law to shut not trigger reconciliation procedures in the Senate. down operations—with exceptions for some limited activi- Once the Congress approves the budget resolution, it ties—until the Congress passed a CR the President would turns its attention to enacting appropriations bills and approve. Shutdowns have lasted for periods of a day to authorizing legislation. Appropriations bills are initiated several weeks. in the House. They provide the budgetary resources for The Congress also provides budget authority in laws the majority of Federal programs, but only a minority of other than appropriations acts. In fact, while annual ap- Federal spending. The Appropriations Committee in each propriations acts fund the majority of Federal programs, body has jurisdiction over annual appropriations. These they account for only about a third of the total spend- committees are divided into subcommittees that hold ing in a typical year. Authorizing legislation controls the hearings and review detailed budget justification materi- rest of the spending, which is commonly called “manda- als prepared by the Executive Branch agencies within the tory spending.” A distinctive feature of these authorizing subcommittee’s jurisdiction. After a bill has been draft- laws is that they provide agencies with the authority or

BUDGET CALENDAR The following timetable highlights the scheduled dates for significant budget events during a normal budget year: Between the 1st Monday in January and the 1st Monday in February �� President transmits the budget 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 even if the budget resolution has not been agreed to. June 10...... House Appropriations Committee to report the last of its annual appropriations bills.

June 15...... Action to be completed on “reconciliation bill” by the Congress.

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 104 ANALYTICAL PERSPECTIVES requirement to spend money without first requiring the usually used to implement broad agreements between Appropriations Committees to enact funding. This cat- the President and the Congress on those occasions where egory of spending includes interest the Government pays the two branches have negotiated a comprehensive bud- on the public debt and the spending of several major get plan. Reconciliation acts have sometimes included programs, such as Social Security, Medicare, Medicaid, un- other matters, such as laws providing the means for en- employment insurance, and Federal employee retirement. forcing these agreements, as described under “Budget This chapter discusses the control of budget authority and Enforcement.” outlays in greater detail under “Budget Authority and Other Budgetary Resources, Obligations, and Outlays.” Budget Enforcement Almost all taxes and most other receipts also result from authorizing laws. Article I, Section 7, of the Constitution The Federal Government uses three primary enforce- provides that all bills for raising revenue shall originate ment mechanisms to control revenues, spending, and in the House of Representatives. In the House, the Ways deficits. First, the Statutory Pay-As-You-Go Act of 2010, and Means Committee initiates tax bills; in the Senate, enacted on February 12, 2010, reestablished a statutory the Finance Committee has jurisdiction over tax laws. procedure to enforce a rule of deficit neutrality on new The budget resolution often includes reconciliation revenue and mandatory spending legislation. Second, the directives, which require authorizing committees to Budget Control Act of 2011 (BCA), enacted on August recommend changes in laws that affect receipts or man- 2, 2011, amended the Balanced Budget and Emergency datory spending. They direct each designated committee Deficit Control Act of 1985 (BBEDCA) by reinstating to report amendments to the laws under the committee’s limits (“caps”) on the amount of discretionary budget jurisdiction that would achieve changes in the levels of authority that can be provided through the annual ap- receipts or reductions in mandatory spending controlled propriations process. Third, the BCA also created a Joint by those laws. These directives specify the dollar amount Select Committee on Deficit Reduction that was instruct- of changes that each designated committee is expected to ed to develop a bill to reduce the Federal deficit by at least achieve, but do not specify which laws are to be changed or $1.5 trillion over a 10-year period and imposed automatic the changes to be made. However, the Budget Committees’ spending cuts to achieve $1.2 trillion of deficit reduction reports on the budget resolution frequently discuss as- over 9 years after the Joint Committee process failed to sumptions about how the laws would be changed. Like achieve its deficit reduction goal. other assumptions in the report, they do not bind the com- BBEDCA divides spending into two types—discre- mittees of jurisdiction but may influence their decisions. tionary spending and direct or mandatory spending. A reconciliation instruction may also specify the total Discretionary spending is controlled through annual amount by which the statutory limit on the public debt is appropriations acts. Funding for salaries and other op- to be changed. erating expenses of government agencies, for example, The committees subject to reconciliation directives is generally discretionary because it is usually provided draft the implementing legislation. Such legislation may, by appropriations acts. Direct spending is more common- for example, change the tax code, revise benefit formulas ly called mandatory spending. Mandatory spending is or eligibility requirements for benefit programs, or autho- controlled by permanent laws. Medicare and Medicaid rize Government agencies to charge fees to cover some payments, unemployment insurance benefits, and farm of their costs. Reconciliation bills are typically omnibus price supports are examples of mandatory spending, legislation, combining the legislation submitted by each because permanent laws authorize payments for those reconciled committee in a single act. purposes. Receipts are included under the same statutory Such a large and complicated bill would be difficult enforcement rules that apply to mandatory spending be- to enact under normal legislative procedures because it cause permanent laws generally control receipts. usually involves changes to tax rates or to popular so- Discretionary cap enforcement. BBEDCA speci- cial programs, generally to reduce projected deficits. The fies spending limits (“caps”) on discretionary budget Senate considers such omnibus reconciliation acts under authority for 2012 through 2021. Similar enforcement expedited procedures that limit total debate on the bill. mechanisms were established by the Budget Enforcement To offset the procedural advantage gained by expedited Act of 1990 and were extended in 1993 and 1997, but ex- procedures, the Senate places significant restrictions on pired at the end of 2002. The caps originally established the substantive content of the reconciliation measure by the BCA were divided between security and nonsecu- itself, as well as on amendments to the measure. Any rity categories for 2012 and 2013, with a single cap for material in the bill that is extraneous or that contains all discretionary spending established for 2014 through changes to the Federal Old-Age and Survivors Insurance 2021. The security category included discretionary bud- and the Federal Disability Insurance programs is not in get authority for the Departments of Defense, Homeland order under the Senate’s expedited reconciliation proce- Security, and Veterans Affairs, the National Nuclear dures. Non-germane amendments are also prohibited. Security Administration, the Intelligence Community The House does not allow reconciliation bills to increase Management account, and all budget accounts in the mandatory spending in net, but does allow such bills to international affairs budget function (budget function increase deficits by reducing revenues. Reconciliation 150). The nonsecurity category included all discretionary acts, together with appropriations acts for the year, are budget authority not included in the security category. Budget Concepts 105 .11

As part of the enforcement mechanisms triggered by the changes in concepts and definitions, and publishes the failure of the BCA’s Joint Committee process, the security revised caps. The preview report may also provide a sum- and nonsecurity categories were redefined and estab- mary of policy changes, if any, proposed by the President lished for all years through 2021. The “revised security in the Budget to those caps. The update and final reports category” includes discretionary budget authority in the revise the preview report estimates to reflect the effects of defense budget function 050, which primarily consists newly enacted discretionary laws. In addition, the update of the Department of Defense. The “revised nonsecurity report must contain a preview estimate of the adjustment category” includes all discretionary budget authority not for disaster funding for the upcoming fiscal year. included in the defense budget function 050. The rede- If OMB’s final sequestration report for a given fiscal fined categories are commonly referred to as the “defense” year indicates that the amount of discretionary budget and “non-defense” categories, respectively, to distinguish authority provided in appropriations acts for that year ex- them from the original categories. ceeds the cap for that category in that year, the President Since the Joint Committee sequestration that was or- must issue a sequestration order canceling budgetary re- dered on March 1, 2013, the Congress and the President sources in nonexempt accounts within that category by have enacted three agreements to increase the caps on the amount necessary to eliminate the breach. Under se- discretionary programs over what would have been questration, each nonexempt account within a category is available under the Joint Committee enforcement mech- reduced by a dollar amount calculated by multiplying the anisms. The Bipartisan Budget Act (BBA) of 2013 set enacted level of sequestrable budgetary resources in that new discretionary caps for 2014 at $520.5 billion for the account by the uniform percentage necessary to eliminate defense category and $491.8 billion for the non-defense a breach within that category. BBEDCA specifies spe- category and for 2015 at $521.3 billion for the defense cial rules for reducing some programs and exempts some category and $492.4 billion for the non-defense category. programs from sequestration entirely. For example, any The BBA of 2015 set new discretionary caps for 2016 at sequestration of certain health and medical care accounts $548.1 billion for the defense category and $518.5 for the is limited to 2 percent. Also, if a continuing resolution is non-defense category and for 2017 at $551.1 billion for the in effect when OMB issues its final sequestration report, defense category and $518.5 billion for the non-defense the sequestration calculations will be based on the an- category. The BBA of 2018 set new discretionary caps for nualized amount provided by that continuing resolution. 2018 at $629.0 billion for the defense category and $579.0 During the 1990s and so far under the BCA caps, the for the non-defense category and for 2019 at $647.0 bil- threat of sequestration proved sufficient to ensure com- lion for the defense category and $597.0 billion for the pliance with the discretionary spending limits. In that non-defense category. These increases to the caps in the respect, discretionary sequestration can be viewed first as 2013 and 2015 agreements were paid for while the 2018 an incentive for compliance and second as a remedy for agreement only partially offset the increases. The offsets noncompliance. for these cap increases largely came from savings in man- Supplemental appropriations can also trigger spend- datory spending. ing reductions. From the end of a session of the Congress BBEDCA requires OMB to adjust the caps each year through the following June 30th, a within-session discre- for: changes in concepts and definitions; appropriations tionary sequestration of current-year spending is imposed designated by the Congress and the President as emer- if appropriations for the current year cause a cap to be gency requirements; and appropriations designated by breached. In contrast, if supplemental appropriations the Congress and the President for Overseas Contingency enacted in the last quarter of a fiscal year (i.e., July 1 Operations/Global War on Terrorism. BBEDCA also spec- through September 30) cause the caps to be breached, the ifies cap adjustments (which are limited to fixed amounts) required reduction is instead achieved by reducing the for: appropriations for continuing disability reviews and applicable spending limit for the following fiscal year by redeterminations by the Social Security Administration; the amount of the breach, because the size of the potential the health care fraud and abuse control program at the sequestration in relation to the unused funding remain- Department of Health and Human Services; appropria- ing for the current year could severely disrupt agencies’ tions designated by Congress as being for disaster relief; operations. appropriations for reemployment services and eligibility Direct spending enforcement. The Statutory Pay- assessments; and appropriations for wildfire suppression As-You-Go Act of 2010 requires that new legislation at the Department of Agriculture and the Department of changing mandatory spending or revenue must be enact- the Interior. ed on a “pay-as-you-go” (PAYGO) basis; that is, that the BBEDCA requires OMB to provide cost estimates of cumulative effects of such legislation must not increase each appropriations act in a report to the Congress within projected on-budget deficits. Unlike the budget enforce- 7 business days after enactment of such act and to pub- ment mechanism for discretionary programs, PAYGO is a lish three discretionary sequestration reports: a “preview” permanent requirement, and it does not impose a cap on report when the President submits the budget; an “up- spending or a floor on revenues. Instead, PAYGO requires date” report in August, and a “final” report within 15 days that legislation reducing revenues must be fully offset after the end of a session of the Congress. by cuts in mandatory programs or by revenue increases, The preview report explains the adjustments that are and that any bills increasing mandatory spending must required by law to the discretionary caps, including any 106 ANALYTICAL PERSPECTIVES be fully offset by revenue increases or cuts in mandatory Joint Committee reductions. The failure of the Joint spending. Select Committee on Deficit Reduction to propose, and the This requirement of deficit neutrality is not enforced Congress to enact, legislation to reduce the deficit by at on a bill-by-bill basis, but is based on two cumulative least $1.2 trillion triggered automatic reductions to dis- scorecards that tally the cumulative budgetary effects cretionary and mandatory spending in fiscal years 2013 of PAYGO legislation as averaged over rolling 5- and 10- through 2021. The reductions are implemented through year periods starting with the budget year. Any impacts of a combination of sequestration of mandatory spending PAYGO legislation on the current year deficit are counted and reductions in the discretionary caps. These reduc- as budget year impacts when placed on the scorecard. tions have already been ordered to take effect for 2013 Like the discretionary caps, PAYGO is enforced by seques- through 2019, with some modifications as provided for tration. Within 14 business days after a congressional in the American Taxpayer Relief Act of 2012, the BBA session ends, OMB issues an annual PAYGO report and of 2013, the BBA of 2015, and the BBA of 2018. Unless determines whether a violation of the PAYGO require- any legislative changes are enacted, further reductions ment has occurred. If either the 5- or 10-year scorecard will be implemented by pro rata reductions to the discre- shows net costs in the budget year column, the President tionary caps in 2020 and 2021, which would be reflected is required to issue a sequestration order implementing in OMB’s discretionary sequestration preview report for across-the-board cuts to nonexempt mandatory pro- those years, and by a sequestration of non-exempt man- grams by an amount sufficient to offset those net costs. datory spending for 2020 onward, which would be ordered The PAYGO effects of legislation may be directed in when the President’s Budget is transmitted to Congress legislation by reference to statements inserted into the and would take effect beginning October 1 of the upcom- Congressional Record by the chairmen of the House and ing fiscal year. Senate Budget Committees. Any such estimates are de- OMB is required to calculate the amount of the deficit termined by the Budget Committees and are informed by, reduction required for 2020 onward as follows: but not required to match, the cost estimates prepared by • The $1.2 trillion savings target is reduced by 18 per- the Congressional Budget Office (CBO). If this procedure cent to account for debt service. is not followed, then the PAYGO effects of the legislation are determined by OMB. During the first year of statu- • The resulting net savings of $984 billion is divided tory PAYGO, nearly half the bills included congressional by nine to spread the reductions in equal amounts estimates. Subsequently, OMB estimates were used for all across the nine years, 2013 through 2021. but one of the enacted bills due to the absence of a con- • The annual spending reduction of $109.3 billion is gressional estimate. Provisions of mandatory spending or divided equally between the defense and non-de- receipts legislation that are designated in that legislation fense functions. as an emergency requirement are not scored as PAYGO budgetary effects. • The annual reduction of $54.7 billion for each func- The PAYGO rules apply to the outlays resulting from tional category of spending is divided proportionally outyear changes in mandatory programs made in ap- between discretionary and direct spending programs, propriations acts and to all revenue changes made in using as the base the discretionary cap, redefined as appropriations acts. However, outyear changes to man- outlined in the discretionary cap enforcement sec- datory programs as part of provisions that have zero net tion above, and the most recent baseline estimate of outlay effects over the sum of the current year and the non-exempt mandatory outlays. next five fiscal years are not considered PAYGO. • The resulting reductions in defense and non-defense The PAYGO rules do not apply to increases in man- direct spending are implemented through a seques- datory spending or decreases in receipts that result tration order released with the President’s Budget automatically under existing law. For example, mandato- and taking effect the following October 1st. The re- ry spending for benefit programs, such as unemployment ductions in discretionary spending are applied as re- insurance, rises when the number of beneficiaries rises, ductions in the discretionary caps, and are enforced and many benefit payments are automatically increased through the discretionary cap enforcement proce- for inflation under existing laws. dures discussed earlier in this section. The Senate imposes points of order against consideration of tax or mandatory spending legislation that would Subsequent to the enactment of the BCA, the mandato- violate the PAYGO principle, although the time periods ry sequestration provisions were extended beyond 2021 by covered by the Senate’s rule and the treatment of previ- the BBA of 2013, which extended sequestration through ously enacted costs or savings may differ in some respects 2023, P.L. 113-82, commonly referred to as the Military from the requirements of the Statutory Pay-As-You-Go Retired Pay Restoration Act, which extended seques- Act of 2010. The House, in contrast, imposes points of or- tration through 2024, the BBA of 2015, which extended der on legislation increasing mandatory spending in net, sequestration through 2025, and the BBA of 2018, which whether or not those costs are offset by revenue increases, extended sequestration through 2027. Sequestration dur- but the House rule does not constrain the size of tax cuts ing these years will use the same percentage reductions or require them to be offset. Budget Concepts 107 .11 for defense and non-defense as calculated for 2021 under be needed to respond to a severe natural disaster. Under the procedures outlined above.2 such circumstances, the Congress may enact a supplemental appropriation. Budget Execution On the other hand, the President may propose to reduce a previously enacted appropriation, through a “rescission” Government agencies may not spend or obligate or “cancellation” of those funds. How the President pro- more than the Congress has appropriated, and they poses this reduction determines whether it is considered may use funds only for purposes specified in law. The a rescission or a cancellation. A rescission is a reduction Antideficiency Act prohibits them from spending or obli- in previously enacted appropriations proposed following gating the Government to spend in advance or in excess the requirements of the Impoundment Control Act (ICA). of an appropriation, unless specific authority to do so has The ICA allows the President, using the specific authori- been provided in law. Additionally, the Act requires the ties in that Act, to transmit a “special message” to the President to apportion the budgetary resources available Congress to inform them of these proposed rescissions, at for most executive branch agencies. The President has which time the funding can be withheld from obligation delegated this authority to OMB. Some apportionments for up to 45 days on the OMB-approved apportionment. are by time periods (usually by quarter of the fiscal year), Agencies are instructed not to withhold funds without the some are by projects or activities, and others are by a prior approval of OMB. If Congress does not act to rescind combination of both. Agencies may request OMB to reap- these funds within the 45 day period, the funds are made portion funds during the year to accommodate changing available for obligation. In May of 2018, the President circumstances. This system helps to ensure that funds do proposed the largest single ICA rescissions package by not run out before the end of the fiscal year. sending a request to permanently reduce approximately During the budget execution phase, the Government $15 billion of budget authority. sometimes finds that it needs more funding than the The President can also propose reductions to previ- Congress has appropriated for the fiscal year because of ously enacted appropriations outside of the ICA; in these unanticipated circumstances. For example, more might cases, these reductions are referred to as cancellations. 2 The BBA of 2018 specified that, notwithstanding the 2 percent Cancellation proposals are not subject to the require- limit on Medicare sequestration in the BCA, in extending sequestration ments and procedures of the ICA and amounts cannot be into 2027 the reduction in the Medicare program should be 4.0 percent withheld from obligation. The 2020 President’s Budget for the first half of the sequestration period and zero for the second half includes $31 billion in proposed cancellations. of the period.

COVERAGE OF THE BUDGET

Federal Government and Budget Totals Agencies Reserves, the National Railroad Retirement Investment Trust, the United Mine Workers Combined The budget documents provide information on all Benefits Fund, the Federal Financial Institutions Federal agencies and programs. However, because the Examination Council, Electric Reliability Organizations laws governing Social Security (the Federal Old-Age and (EROs) established pursuant to the Energy Policy Act Survivors Insurance and the Federal Disability Insurance of 2005, the Corporation for Travel Promotion, and the trust funds) and the Postal Service Fund require that National Association of Registered Agents and Brokers. the receipts and outlays for those activities be excluded In contrast, the budget excludes tribal trust funds from the budget totals and from the calculation of the that are owned by Indian tribes and held and man- deficit or surplus, the budget presents on-budget and off- aged by the Government in a fiduciary capacity on budget totals. The off-budget totals include the Federal the tribes’ behalf. These funds are not owned by the transactions excluded by law from the budget totals. The Government, the Government is not the source of their on-budget and off-budget amounts are added together to capital, and the Government’s control is limited to the derive the totals for the Federal Government. These are exercise of fiduciary duties. Similarly, the transactions of sometimes referred to as the unified or consolidated bud- Government-sponsored enterprises, such as the Federal get totals. Home Loan Banks, are not included in the on-budget or It is not always obvious whether a transaction or ac- off-budget totals. Federal laws established these enter- tivity should be included in the budget. Where there is prises for public policy purposes, but they are privately a question, OMB normally follows the recommendation owned and operated corporations. Nevertheless, because of the 1967 President’s Commission on Budget Concepts of their public charters, the budget discusses them and to be comprehensive of the full range of Federal agencies, reports summary financial data in the budgetAppendix programs, and activities. In recent years, for example, the and in some detailed tables. budget has included the transactions of the Affordable The budget also excludes the revenues from copyright Housing Program funds, the Universal Service Fund, royalties and spending for subsequent payments to copy- the Public Company Accounting Oversight Board, the right holders where (1) the law allows copyright owners Securities Investor Protection Corporation, Guaranty and users to voluntarily set the rate paid for the use of 108 ANALYTICAL PERSPECTIVES protected material, and (2) the amount paid by users of needs and agency missions and programs. The remaining copyrighted material to copyright owners is related to the three functions—Net Interest, Undistributed Offsetting frequency or quantity of the material used. The budget Receipts, and Allowances—enable the functional classifi- excludes license royalties collected and paid out by the cation system to cover the entire Federal budget. Copyright Office for the retransmission of network broad- The following criteria are used in establishing func- casts via cable collected under 17 U.S.C. 111 because tional categories and assigning activities to them: these revenues meet both of these conditions. The budget • A function encompasses activities with similar pur- includes the royalties collected and paid out for license poses, emphasizing what the Federal Government fees for digital audio recording technology under 17 U.S.C. seeks to accomplish rather than the means of ac- 1004, since the amount of license fees paid is unrelated to complishment, the objects purchased, the clientele usage of the material. or geographic area served (except in the cases of The Appendix includes a presentation for the Board functions 450 for Community and Regional Devel- of Governors of the Federal Reserve System for infor- opment, 570 for Medicare, 650 for Social Security, mation only. The amounts are not included in either the and 700 for Veterans Benefits and Services), or the on-budget or off-budget totals because of the independent Federal agency conducting the activity (except in status of the System within the Government. However, the case of subfunction 051 in the National Defense the Federal Reserve System transfers its net earnings to function, which is used only for defense activities the Treasury, and the budget records them as receipts. under the Department of Defense—Military). Chapter 12 of this volume, “Coverage of the Budget,” provides more information on this subject. • A function must be of continuing national impor- tance, and the amounts attributable to it must be significant. Table 11–1. TOTALS FOR THE BUDGET AND • Each basic unit being classified (generally the ap- THE FEDERAL GOVERNMENT propriation or fund account) usually is classified ac- (In billions of dollars) cording to its primary purpose and assigned to only Estimate one subfunction. However, some large accounts that serve more than one major purpose are subdivided 2018 Actual 2019 2020 into two or more functions or subfunctions. Budget authority Unified �� 4,466 4,661 4,944 In consultation with the Congress, the functional clas- On-budget �� 3,614 3,745 3,971 sification is adjusted from time to time as warranted. Off-budget �� 852 916 973 Detailed functional tables, which provide information on Government activities by function and subfunction, are Receipts: available online at https://www.whitehouse.gov/omb/ Unified �� 3,330 3,438 3,645 analytical-perspectives/ and on OMB’s website. On-budget �� 2,475 2,527 2,695 Off-budget �� 855 911 949 Agencies, Accounts, Programs, Outlays: Unified �� 4,109 4,529 4,746 Projects, and Activities On-budget �� 3,260 3,620 3,778 Various summary tables in the Analytical Perspectives Off-budget �� 849 909 968 volume of the Budget provide information on budget au- Deficit (–) / Surplus (+): thority, outlays, and offsetting collections and receipts Unified �� –779 –1,092 –1,101 arrayed by Federal agency. A table that lists budget au- On-budget �� –785 –1,094 –1,082 thority and outlays by budget account within each agency Off-budget �� 6 2 –18 and the totals for each agency of budget authority, outlays, and receipts that offset the agency spending totals is available online at: https://www.whitehouse.gov/ omb/analytical-perspectives/ and on OMB’s website. The Functional Classification Appendix provides budgetary, financial, and descriptive The functional classification is used to organize bud- information about programs, projects, and activities by get authority, outlays, and other budget data according account within each agency. to the major purpose served—such as agriculture, transportation, income security, and national defense. There Types of Funds are 20 major functions, 17 of which are concerned with broad areas of national need and are further divided Agency activities are financed through Federal funds into subfunctions. For example, the Agriculture function and trust funds. comprises the subfunctions Farm Income Stabilization Federal funds comprise several types of funds. Receipt and Agricultural Research and Services. The functional accounts of the general fund, which is the greater part of classification meets the Congressional Budget Act re- the budget, record receipts not earmarked by law for a spe- quirement for a presentation in the budget by national cific purpose, such as income tax receipts. The general fund Budget Concepts 109 .11 also includes the proceeds of general borrowing. General ual employee. The Government accounts for such funds fund appropriations accounts record general fund expendi- in deposit funds, which are not included in the budget. tures. General fund appropriations draw from general fund (Chapter 27 of this volume, “Trust Funds and Federal receipts and borrowing collectively and, therefore, are not Funds,” provides more information on this subject.) specifically linked to receipt accounts. Special funds consist of receipt accounts for Federal Budgeting for Full Costs fund receipts that laws have designated for specific purposes and the associated appropriation accounts for the A budget is a financial plan for allocating resourc- expenditure of those receipts. es—deciding how much the Federal Government should Public enterprise funds are revolving funds used for spend in total, program by program, and for the parts of programs authorized by law to conduct a cycle of busi- each program and deciding how to finance the spending. ness-type operations, primarily with the public, in which The budgetary system provides a process for proposing outlays generate collections. policies, making decisions, implementing them, and re- Intragovernmental funds are revolving funds that porting the results. The budget needs to measure costs conduct business-type operations primarily within and accurately so that decision makers can compare the cost between Government agencies. The collections and the of a program with its benefits, the cost of one program outlays of revolving funds are recorded in the same bud- with another, and the cost of one method of reaching a get account. specified goal with another. These costs need to be fully Trust funds account for the receipt and expenditure included in the budget up front, when the spending deci- of monies by the Government for carrying out specific sion is made, so that executive and congressional decision purposes and programs in accordance with the terms of makers have the information and the incentive to take a statute that designates the fund as a trust fund (such the total costs into account when setting priorities. as the Highway Trust Fund) or for carrying out the stip- The budget includes all types of spending, including ulations of a trust where the Government itself is the both current operating expenditures and capital invest- beneficiary (such as any of several trust funds for gifts and ment, and to the extent possible, both are measured on donations for specific purposes). Trust revolving funds the basis of full cost. Questions are often raised about the are trust funds credited with collections earmarked by measure of capital investment. The present budget pro- law to carry out a cycle of business-type operations. vides policymakers the necessary information regarding The Federal budget meaning of the term “trust,” as ap- investment spending. It records investment on a cash plied to trust fund accounts, differs significantly from its basis, and it requires the Congress to provide budget au- private-sector usage. In the private sector, the beneficiary thority before an agency can obligate the Government of a trust usually owns the trust’s assets, which are man- to make a cash outlay. However, the budget measures aged by a trustee who must follow the stipulations of the only costs, and the benefits with which these costs are trust. In contrast, the Federal Government owns the as- compared, based on policy makers’ judgment, must be sets of most Federal trust funds, and it can raise or lower presented in supplementary materials. By these means, future trust fund collections and payments, or change the the budget allows the total cost of capital investment purposes for which the collections are used, by changing to be compared up front in a rough way with the total existing laws. There is no substantive difference between expected future net benefits. Such a comparison of total a trust fund and a special fund or between a trust revolv- costs with benefits is consistent with the formal method ing fund and a public enterprise revolving fund. of cost-benefit analysis of capital projects in government, However, in some instances, the Government does in which the full cost of a capital asset as the cash is paid act as a true trustee of assets that are owned or held for out is compared with the full stream of future benefits (all the benefit of others. For example, it maintains accounts in terms of present values). (Chapter 20 of this volume, on behalf of individual Federal employees in the Thrift “Federal Investment,’’ provides more information on capi- Savings Fund, investing them as directed by the individ- tal investment.)

RECEIPTS, OFFSETTING COLLECTIONS, AND OFFSETTING RECEIPTS

In General Offsetting collections or offsetting receipts, which are deducted from gross outlays to calculate net outlay The budget records amounts collected by Government figures. agencies two different ways. Depending on the nature of the activity generating the collection and the law that es- Governmental Receipts tablished the collection, they are recorded as either: Governmental receipts, which are compared in total Governmental receipts are collections that result from to outlays (net of offsetting collections and offsetting re- the Government’s exercise of its sovereign power to tax ceipts) in calculating the surplus or deficit; or or otherwise compel payment. Sometimes they are called receipts, budget receipts, Federal receipts, or Federal revenues. They consist mostly of individual and corporation 110 ANALYTICAL PERSPECTIVES income taxes and social insurance taxes, but also include costs to the programs and activities that cause the excise taxes, compulsory user charges, regulatory fees, Government to incur the costs. customs duties, court fines, certain license fees, and de- Voluntary gifts and donations—gifts and dona- posits of earnings by the Federal Reserve System. Total • tions of money to the Government, which are treated receipts for the Federal Government include both on- as offsets to budget authority and outlays. budget and off-budget receipts (see Table 11–1, “Totals for the Budget and the Federal Government,” which ap- • Offsetting governmental transactions—collec- pears earlier in this chapter.) Chapter 14 of this volume, tions from the public that are governmental in na- “Governmental Receipts,’’ provides more information on ture and should conceptually be treated like Federal governmental receipts. revenues and compared in total to outlays (e.g., tax receipts, regulatory fees, compulsory user charges, Offsetting Collections and Offsetting Receipts custom duties, license fees) but required by law or longstanding practice to be misclassified as offset- Offsetting collections and offsetting receipts are record- ting. The budget records amounts from non-Federal ed as offsets to (deductions from) spending, not as additions sources that are governmental in nature as offset- on the receipt side of the budget. These amounts are record- ting governmental collections (for offsetting collec- ed as offsets to outlays so that the budget totals represent tions) or as offsetting governmental receipts (for off- governmental rather than market activity and reflect the setting receipts). Government’s net transactions with the public. They are recorded in one of two ways, based on interpretation of laws and longstanding budget concepts and practice. They Offsetting Collections are offsetting collections when the collections are authorized by law to be credited to expenditure accounts and are Some laws authorize agencies to credit collections direct- generally available for expenditure without further legisla- ly to the account from which they will be spent and, usually, tion. Otherwise, they are deposited in receipt accounts and to spend the collections for the purpose of the account with- called offsetting receipts; many of these receipts are avail- out further action by the Congress. Most revolving funds able for expenditure without further legislation. operate with such authority. For example, a permanent law Offsetting collections and offsetting receipts result authorizes the Postal Service to use collections from the from any of the following types of transactions: sale of stamps to finance its operations without a require- • Business-like transactions or market-oriented ment for annual appropriations. The budget records these activities with the public—these include vol- collections in the Postal Service Fund (a revolving fund) untary collections from the public in exchange for and records budget authority in an amount equal to the goods or services, such as the proceeds from the sale collections. In addition to revolving funds, some agencies of postage stamps, the fees charged for admittance are authorized to charge fees to defray a portion of costs for to recreation areas, and the proceeds from the sale a program that are otherwise financed by appropriations of Government-owned land; and reimbursements from the general fund and usually to spend the collections for damages. The budget records these amounts as without further action by the Congress. In such cases, the offsetting collections from non-Federal sources (for budget records the offsetting collections and resulting bud- offsetting collections) or as proprietary receipts (for get authority in the program’s general fund expenditure offsetting receipts). account. Similarly, intragovernmental collections authorized by some laws may be recorded as offsetting collections • Intragovernmental transactions—collections and budget authority in revolving funds or in general fund from other Federal Government accounts. The bud- expenditure accounts. get records collections by one Government account Sometimes appropriations acts or provisions in other from another as offsetting collections from Federal laws limit the obligations that can be financed by offset- sources (for offsetting collections) or as intragov- ting collections. In those cases, the budget records budget ernmental receipts (for offsetting receipts). For ex- authority in the amount available to incur obligations, not ample, the General Services Administration rents in the amount of the collections. office space to other Government agencies and re- Offsetting collections credited to expenditure accounts cords their rental payments as offsetting collections automatically offset the outlays at the expenditure ac- from Federal sources in the Federal Buildings Fund. count level. Where accounts have offsetting collections, These transactions are exactly offsetting and do the budget shows the budget authority and outlays of not affect the surplus or deficit. However, they are the account both gross (before deducting offsetting col- an important accounting mechanism for allocating lections) and net (after deducting offsetting collections). Totals for the agency, subfunction, and overall budget are net of offsetting collections. Budget Concepts 111 .11

Offsetting Receipts This special treatment is necessary because the amounts are so large they would distort measures of the agency’s Collections that are offset against gross outlays but activities if they were attributed to the agency. are not authorized to be credited to expenditure accounts are credited to receipt accounts and are called offsetting User Charges receipts. Offsetting receipts are deducted from budget authority and outlays in arriving at total net budget au- User charges are fees assessed on individuals or orga- thority and outlays. However, unlike offsetting collections nizations for the provision of Government services and for credited to expenditure accounts, offsetting receipts do the sale or use of Government goods or resources. The pay- not offset budget authority and outlays at the account ers of the user charge must be limited in the authorizing level. In most cases, they offset budget authority and out- legislation to those receiving special benefits from, or sub- lays at the agency and subfunction levels. ject to regulation by, the program or activity beyond the Proprietary receipts from a few sources, however, are benefits received by the general public or broad segments not offset against any specific agency or function and are of the public (such as those who pay income taxes or cus- classified as undistributed offsetting receipts. They are toms duties). Policy regarding user charges is established deducted from the Government-wide totals for net bud- in OMB Circular A–25, “User Charges.” The term encom- get authority and outlays. For example, the collections of passes proceeds from the sale or use of Government goods rents and royalties from outer continental shelf lands are and services, including the sale of natural resources (such undistributed because the amounts are large and for the as timber, oil, and minerals) and proceeds from asset sales most part are not related to the spending of the agency (such as property, plant, and equipment). User charges are that administers the transactions and the subfunction not necessarily dedicated to the activity they finance and that records the administrative expenses. may be credited to the general fund of the Treasury. Similarly, two kinds of intragovernmental transac- The term “user charge” does not refer to a separate bud- tions—agencies’ payments as employers into Federal get category for collections. User charges are classified in employee retirement trust funds and interest received the budget as receipts, offsetting receipts, or offsetting col- by trust funds—are classified as undistributed offsetting lections according to the principles explained previously. receipts. They appear instead as special deductions in See Chapter 15, “Offsetting Collections and Offsetting computing total net budget authority and outlays for the Receipts,” for more information on the classification of Government rather than as offsets at the agency level. user charges.

BUDGET AUTHORITY, OBLIGATIONS, AND OUTLAYS Budget authority, obligations, and outlays are the pri- year. The budget does not record these balances as budget mary benchmarks and measures of the budget control authority again. They do, however, constitute a budgetary system. The Congress enacts laws that provide agencies resource that is available for obligation. In some cases, with spending authority in the form of budget authority. a provision of law (such as a limitation on obligations or Before agencies can use these resources—obligate this a benefit formula) precludes the obligation of funds that budget authority—OMB must approve their spending would otherwise be available for obligation. In such cases, plans. After the plans are approved, agencies can enter the budget records budget authority equal to the amount into binding agreements to purchase items or services of obligations that can be incurred. A major exception to or to make grants or other payments. These agreements this rule is for the highway and mass transit programs are recorded as obligations of the United States and de- financed by the Highway Trust Fund, where budget au- ducted from the amount of budgetary resources available thority is measured as the amount of contract authority to the agency. When payments are made, the obligations (described later in this chapter) provided in authorizing are liquidated and outlays recorded. These concepts are statutes, even though the obligation limitations enacted discussed more fully below. in annual appropriations acts restrict the amount of contract authority that can be obligated. Budget Authority and Other Budgetary Resources In deciding the amount of budget authority to request for a program, project, or activity, agency officials estimate Budget authority is the authority provided in law to the total amount of obligations they will need to incur to enter into legal obligations that will result in immediate achieve desired goals and subtract the unobligated balances or future outlays of the Government. In other words, it is available for these purposes. The amount of budget author- the amount of money that agencies are allowed to commit ity requested is influenced by the nature of the programs, to be spent in current or future years. Government offi- projects, or activities being financed. For current operat- cials may obligate the Government to make outlays only ing expenditures, the amount requested usually covers the to the extent they have been granted budget authority. needs for the fiscal year. For major procurement programs The budget records new budget authority as a dollar and construction projects, agencies generally must request amount in the year when it first becomes available for ob- sufficient budget authority in the first year to fully fund an ligation. When permitted by law, unobligated balances of economically useful segment of a procurement or project, budget authority may be carried over and used in the next even though it may be obligated over several years. This 112 ANALYTICAL PERSPECTIVES full funding policy is intended to ensure that the decision- is provided automatically under a permanent appropria- makers take into account all costs and benefits fully at the tion enacted in 1847 and equals interest outlays. time decisions are made to provide resources. It also avoids Annual appropriations acts generally make budget au- sinking money into a procurement or project without being thority available for obligation only during the fiscal year certain if or when future funding will be available to com- to which the act applies. However, they frequently allow plete the procurement or project. budget authority for a particular purpose to remain avail- Budget authority takes several forms: able for obligation for a longer period or indefinitely (that • Appropriations, provided in annual appropria- is, until expended or until the program objectives have been tions acts or authorizing laws, permit agencies to attained). Typically, budget authority for current operations incur obligations and make payment; is made available for only one year, and budget authority for construction and some research projects is available for • Borrowing authority, usually provided in perma- a specified number of years or indefinitely. Most budget -au nent laws, permits agencies to incur obligations but thority provided in authorizing statutes, such as for most requires them to borrow funds, usually from the gen- trust funds, is available indefinitely. If budget authority is eral fund of the Treasury, to make payment; initially provided for a limited period of availability, an ex- • Contract authority, usually provided in permanent tension of availability would require enactment of another law, permits agencies to incur obligations in advance law (see “Reappropriation” later in this chapter). of a separate appropriation of the cash for payment Budget authority that is available for more than one or in anticipation of the collection of receipts that year and not obligated in the year it becomes available is can be used for payment; and carried forward for obligation in a following year. In some cases, an account may carry forward unobligated budget • Spending authority from offsetting collections, authority from more than one prior year. The sum of such usually provided in permanent law, permits agen- amounts constitutes the account’s unobligated balance. cies to credit offsetting collections to an expenditure Most of these balances had been provided for specific uses account, incur obligations, and make payment using such as the multi-year construction of a major project and the offsetting collections. so are not available for new programs. A small part may never be obligated or spent, primarily amounts provided Because offsetting collections and offsetting receipts for contingencies that do not occur or reserves that never are deducted from gross budget authority, they are re- have to be used. ferred to as negative budget authority for some purposes, Amounts of budget authority that have been obligated such as Congressional Budget Act provisions that pertain but not yet paid constitute the account’s unpaid obliga- to budget authority. tions. For example, in the case of salaries and wages, one Authorizing statutes usually determine the form of to three weeks elapse between the time of obligation and budget authority for a program. The authorizing statute the time of payment. In the case of major procurement and may authorize a particular type of budget authority to be construction, payments may occur over a period of several provided in annual appropriations acts, or it may provide years after the obligation is made. Unpaid obligations one of the forms of budget authority directly, without the (which are made up of accounts payable and undelivered need for further appropriations. orders) net of the accounts receivable and unfilled custom- An appropriation may make funds available from the ers’ orders are defined by law as theobligated balances. general fund, special funds, or trust funds, or authorize Obligated balances of budget authority at the end of the the spending of offsetting collections credited to expen- year are carried forward until the obligations are paid or diture accounts, including revolving funds. Borrowing the balances are canceled. (A general law provides that authority is usually authorized for business-like activities the obligated balances of budget authority that was made where the activity being financed is expected to produce available for a definite period is automatically cancelled income over time with which to repay the borrowing with five years after the end of the period.) Due to such flows, interest. The use of contract authority is traditionally lim- a change in the amount of budget authority available in ited to transportation programs. any one year may change the level of obligations and out- New budget authority for most Federal programs is nor- lays for several years to come. Conversely, a change in the mally provided in annual appropriations acts. However, amount of obligations incurred from one year to the next new budget authority is also made available through per- does not necessarily result from an equal change in the manent appropriations under existing laws and does not amount of budget authority available for that year and require current action by the Congress. Much of the per- will not necessarily result in an equal change in the level manent budget authority is for trust funds, interest on the of outlays in that year. public debt, and the authority to spend offsetting collec- The Congress usually makes budget authority available tions credited to appropriation or fund accounts. For most on the first day of the fiscal year for which the appro- trust funds, the budget authority is appropriated auto- priations act is passed. Occasionally, the appropriations matically under existing law from the available balance of language specifies a different timing. The language may the fund and equals the estimated annual obligations of provide an advance appropriation—budget authority the funds. For interest on the public debt, budget authority that does not become available until one year or more beyond the fiscal year for which the appropriations act Budget Concepts 113 .11 is passed. Forward funding is budget authority that is also classified as discretionary or mandatory according to made available for obligation beginning in the last quarter the classification of the budget authority from which they of the fiscal year (beginning on July 1) for the financing of flow (see “Outlays’’ later in this chapter). ongoing grant programs during the next fiscal year. This The amount of budget authority recorded in the budget kind of funding is used mostly for education programs, so depends on whether the law provides a specific amount that obligations for education grants can be made prior to or employs a variable factor that determines the amount. the beginning of the next school year. For certain benefit It is considered definite if the law specifies a dollar programs funded by annual appropriations, the appropri- amount (which may be stated as an upper limit, for ex- ation provides for advance funding—budget authority ample, “shall not exceed …”). It is considered indefinite that is to be charged to the appropriation in the succeed- if, instead of specifying an amount, the law permits the ing year, but which authorizes obligations to be incurred amount to be determined by subsequent circumstances. in the last quarter of the current fiscal year if necessary For example, indefinite budget authority is provided for to meet benefit payments in excess of the specific amount interest on the public debt, payment of claims and judg- appropriated for the year. When such authority is used, ments awarded by the courts against the United States, an adjustment is made to increase the budget authority and many entitlement programs. Many of the laws that for the fiscal year in which it is used and to reduce the authorize collections to be credited to revolving, special, budget authority of the succeeding fiscal year. and trust funds make all of the collections available for Provisions of law that extend into a new fiscal year the expenditure for the authorized purposes of the fund, and availability of unobligated amounts that have expired such authority is considered to be indefinite budget au- or would otherwise expire are called reappropriations. thority because the amount of collections is not known in Reappropriations of expired balances that are newly avail- advance of their collection. able for obligation in the current or budget year count as new budget authority in the fiscal year in which the Obligations balances become newly available. For example, if a 2018 appropriations act extends the availability of unobligated Following the enactment of budget authority and the budget authority that expired at the end of 2017, new bud- completion of required apportionment action, Government get authority would be recorded for 2018. This scorekeeping agencies incur obligations to make payments (see earlier is used because a reappropriation has exactly the same ef- discussion under “Budget Execution”). Agencies must re- fect as allowing the earlier appropriation to expire at the cord obligations when they enter into binding agreements end of 2017 and enacting a new appropriation for 2018. that will result in immediate or future outlays. Such obli- For purposes of BBEDCA and the Statutory Pay-As- gations include the current liabilities for salaries, wages, You-Go Act of 2010 (discussed earlier under “Budget and interest; and contracts for the purchase of supplies Enforcement’’), the budget classifies budget authority and equipment, construction, and the acquisition of office as discretionary or mandatory. This classification in- space, buildings, and land. For Federal credit programs, dicates whether an appropriations act or authorizing obligations are recorded in an amount equal to the esti- legislation controls the amount of budget authority that is mated subsidy cost of direct loans and loan guarantees available. Generally, budget authority is discretionary if (see “Federal Credit” later in this chapter). provided in an annual appropriations act and mandatory if provided in authorizing legislation. However, the bud- Outlays get authority provided in annual appropriations acts for certain specifically identified programs is also classified Outlays are the measure of Government spending. as mandatory by OMB and the congressional scorekeep- They are payments that liquidate obligations (other than ers. This is because the authorizing legislation for these most exchanges of financial instruments, of which the programs entitles beneficiaries—persons, households, or repayment of debt is the prime example). The budget re- other levels of government—to receive payment, or other- cords outlays when obligations are paid, in the amount wise legally obligates the Government to make payment that is paid. and thereby effectively determines the amount of budget Agency, function and subfunction, and Government- authority required, even though the payments are funded wide outlay totals are stated net of offsetting collections by a subsequent appropriation. and offsetting receipts for most budget presentations. Sometimes, budget authority is characterized as current (Offsetting receipts from a few sources do not offset any or permanent. Current authority requires the Congress to specific function, subfunction, or agency, as explained pre- act on the request for new budget authority for the year viously, but only offset Government-wide totals.) Outlay involved. Permanent authority becomes available pursu- totals for accounts with offsetting collections are stated ant to standing provisions of law without appropriations both gross and net of the offsetting collections credited action by the Congress for the year involved. Generally, to the account. However, the outlay totals for special and budget authority is current if an annual appropriations trust funds with offsetting receipts are not stated net of act provides it and permanent if authorizing legislation the offsetting receipts. In most cases, these receipts off- provides it. By and large, the current/permanent distinc- set the agency, function, and subfunction totals but do tion has been replaced by the discretionary/mandatory not offset account-level outlays. However, when general distinction, which is similar but not identical. Outlays are fund payments are used to finance trust fund outlays to 114 ANALYTICAL PERSPECTIVES the public, the associated trust fund receipts are netted price is usually close or identical to the par (face) value of against the bureau totals to prevent double-counting bud- the security. The budget generally records the investment get authority and outlays at the bureau level. at par value and adjusts the interest paid by Treasury The Government usually makes outlays in the form and collected by the account by the difference between of cash (currency, checks, or electronic fund transfers). purchase price and par, if any. However, in some cases agencies pay obligations without For Federal credit programs, outlays are equal to the disbursing cash, and the budget nevertheless records out- subsidy cost of direct loans and loan guarantees and lays for the equivalent method. For example, the budget are recorded as the underlying loans are disbursed (see records outlays for the full amount of Federal employees’ “Federal Credit” later in this chapter). salaries, even though the cash disbursed to employees is The budget records refunds of receipts that result from net of Federal and State income taxes withheld, retire- overpayments by the public (such as income taxes with- ment contributions, life and health insurance premiums, held in excess of tax liabilities) as reductions of receipts, and other deductions. (The budget also records receipts rather than as outlays. However, the budget records pay- for the amounts withheld from Federal employee payments to taxpayers for refundable tax credits (such as checks for Federal income taxes and other payments to the earned income tax credits) that exceed the taxpayer’s Government.) When debt instruments (bonds, debentures, tax liability as outlays. Similarly, when the Government notes, or monetary credits) are used in place of cash to makes overpayments that are later returned to the pay obligations, the budget records outlays financed by an Government, those refunds to the Government are re- increase in agency debt. For example, the budget records corded as offsetting collections or offsetting receipts, not the acquisition of physical assets through certain types of as governmental receipts. lease-purchase arrangements as though a cash disburse- Not all of the new budget authority for 2020 will be ment were made for an outright purchase. The transaction obligated or spent in 2020. Outlays during a fiscal year creates a Government debt, and the cash lease payments may liquidate obligations incurred in the same year or in are treated as repayments of principal and interest. prior years. Obligations, in turn, may be incurred against The budget records outlays for the interest on the public budget authority provided in the same year or against un- issues of Treasury debt securities as the interest accrues, obligated balances of budget authority provided in prior not when the cash is paid. A small portion of Treasury years. Outlays, therefore, flow in part from budget author- debt consists of inflation-indexed securities, which feature ity provided for the year in which the money is spent and monthly adjustments to principal for inflation and semi in part from budget authority provided for prior years. annual payments of interest on the inflation-adjusted The ratio of a given year’s outlays resulting from budget principal. As with fixed-rate securities, the budget records authority enacted in that or a prior year to the original interest outlays as the interest accrues. The monthly ad- amount of that budget authority is referred to as the out- justment to principal is recorded, simultaneously, as an lay rate for that year. increase in debt outstanding and an outlay of interest. As shown in the accompanying chart, $3,710 billion Most Treasury debt securities held by trust funds and of outlays in 2020 (78 percent of the outlay total) will be other Government accounts are in the Government ac- made from that year’s $4,944 billion total of proposed new count series. The budget normally states the interest on budget authority (a first-year outlay rate of 75 percent). these securities on a cash basis. When a Government ac- Thus, the remaining $1,036 billion of outlays in 2020 count is invested in Federal debt securities, the purchase (22 percent of the outlay total) will be made from bud-

Chart 11-1. Relationship of Budget Authority to Outlays for 2020

(Billions of dollars)

New Authority To be spent in 2020 Outlays in 2020 Recommended for 2020 3,710

To be spent 4,746 4,944 in future years 1,036

t 1,235

To be spen in 2020 Authority written o , Unspent Authority expired, and adjusted Unspent Authority Enacted in -3 (net) for Outlays in Prior Years To be spent in Future Years Future Years 2,818 1,779 3,017 Budget Concepts 115 .11 get authority enacted in previous years. At the same time, amounts of spending each year, such as Social Security $1,235 billion of the new budget authority proposed for ($910 billion in 2018) and Medicare ($588 billion in 2018). 2020 (25 percent of the total amount proposed) will not The bulk of mandatory outlays flow from budget author- lead to outlays until future years. ity recorded in the same fiscal year. This is not necessarily As described earlier, the budget classifies budget au- the case for discretionary budget authority and outlays. thority and outlays as discretionary or mandatory. This For most major construction and procurement projects classification of outlays measures the extent to which and long-term contracts, for example, the budget author- actual spending is controlled through the annual appro- ity covers the entire cost estimated when the projects priations process. About 31 percent of total outlays in 2018 are initiated even though the work will take place and ($1,185 billion) were discretionary and the remaining 69 outlays will be made over a period extending beyond the percent ($2,667 billion in 2018) were mandatory spending year for which the budget authority is enacted. Similarly, and net interest. Such a large portion of total spending discretionary budget authority for most education and job is mandatory because authorizing rather than appropria- training activities is appropriated for school or program tions legislation determines net interest ($240 billion in years that begin in the fourth quarter of the fiscal year. 2018) and the spending for a few programs with large Most of these funds result in outlays in the year after the appropriation.

FEDERAL CREDIT Some Government programs provide assistance with the public. For a few programs, the estimated sub- through direct loans or loan guarantees. A direct loan is sidy cost is negative because the present value of expected a disbursement of funds by the Government to a non-Fed- Government collections exceeds the present value of ex- eral borrower under a contract that requires repayment pected payments to the public over the term of the loan. of such funds with or without interest and includes eco- In such cases, the financing account pays the estimated nomically equivalent transactions, such as the sale of subsidy cost to the program’s negative subsidy receipt Federal assets on credit terms. A loan guarantee is any account, where it is recorded as an offsetting receipt. In guarantee, insurance, or other pledge with respect to the a few cases, the offsetting receipts of credit accounts are payment of all or a part of the principal or interest on dedicated to a special fund established for the program any debt obligation of a non-Federal borrower to a non- and are available for appropriation for the program. Federal lender. The Federal Credit Reform Act of 1990, as The agencies responsible for credit programs must amended (FCRA), prescribes the budgetary treatment for reestimate the subsidy cost of the outstanding portfolio Federal credit programs. Under this treatment, the bud- of direct loans and loan guarantees each year. If the es- get records obligations and outlays up front, for the net timated cost increases, the program account makes an cost to the Government (subsidy cost), rather than record- additional payment to the financing account equal to ing the cash flows year by year over the term of the loan. the change in cost. If the estimated cost decreases, the FCRA treatment allows the comparison of direct loans financing account pays the difference to the program’s and loan guarantees to each other, and to other methods downward reestimate receipt account, where it is record- of delivering assistance, such as grants. ed as an offsetting receipt. The FCRA provides permanent The cost of direct loans and loan guarantees, sometimes indefinite appropriations to pay for upward reestimates. called the “subsidy cost,’’ is estimated as the present val- If the Government modifies the terms of an outstand- ue of expected payments to and from the public over the ing direct loan or loan guarantee in a way that increases term of the loan, discounted using appropriate Treasury the cost as the result of a law or the exercise of adminis- interest rates.3 Similar to most other kinds of programs, trative discretion under existing law, the program account agencies can make loans or guarantee loans only if the records obligations for the increased cost and outlays the Congress has appropriated funds sufficient to cover the amount to the financing account. As with the original sub- subsidy costs, or provided a limitation in an appropria- sidy cost, agencies may incur modification costs only if the tions act on the amount of direct loans or loan guarantees Congress has appropriated funds to cover them. A modi- that can be made. fication may also reduce costs, in which case the amounts The budget records the subsidy cost to the Government are generally returned to the general fund, as the financ- arising from direct loans and loan guarantees—the bud- ing account makes a payment to the program’s negative get authority and outlays—in credit program accounts. subsidy receipt account. When a Federal agency disburses a direct loan or when Credit financing accounts record all cash flows arising a non-Federal lender disburses a loan guaranteed by a from direct loan obligations and loan guarantee commit- Federal agency, the program account disburses or outlays ments. Such cash flows include all cash flows to and from an amount equal to the estimated present value cost, or the public, including direct loan disbursements and re- subsidy, to a non-budgetary credit financing account. payments, loan guarantee default payments, fees, and The financing accounts record the actual transactions recoveries on defaults. Financing accounts also record 3 Present value is a standard financial concept that considers the intragovernmental transactions, such as the receipt of time-value of money. That is, it accounts for the fact that a given sum of subsidy cost payments from program accounts, borrowing money is worth more today than the same sum would be worth in the and repayments of Treasury debt to finance program ac- future because interest can be earned. 116 ANALYTICAL PERSPECTIVES tivities, and interest paid to or received from the Treasury. ant to FCRA. For example, the Emergency Economic The cash flows of direct loans and of loan guarantees are Stabilization Act of 2008 (EESA) created the Troubled recorded in separate financing accounts for programs that Asset Relief Program (TARP) under the Department of provide both types of credit. The budget totals exclude the the Treasury, and authorized Treasury to purchase or transactions of the financing accounts because they are guarantee troubled assets until October 3, 2010. Under not a cost to the Government. However, since financing the TARP, Treasury has purchased equity interests in fi- accounts record all credit cash flows to and from the pub- nancial institutions. Section 123 of the EESA provides the lic, they affect the means of financing a budget surplus or Administration the authority to treat these equity invest- deficit (see “Credit Financing Accounts” in the next sec- ments on a FCRA basis, recording outlays for the subsidy tion). The budget documents display the transactions of as is done for direct loans and loan guarantees. The budget the financing accounts, together with the related program reflects the cost to the Government of TARP direct loans, accounts, for information and analytical purposes. loan guarantees, and equity investments consistent with The FCRA grandfathered the budgetary treatment of the FCRA and Section 123 of EESA, which requires an direct loan obligations and loan guarantee commitments adjustment to the FCRA discount rate for market risks. made prior to 1992. The budget records these on a cash Treasury equity purchases under the Small Business basis in credit liquidating accounts, the same as they Lending Fund are treated pursuant to the FCRA, as pro- were recorded before FCRA was enacted. However, this vided by the Small Business Jobs Act of 2010.The 2009 exception ceases to apply if the direct loans or loan guar- increases to the International Monetary Fund (IMF) quo- antees are modified as described above. In that case, the ta and New Arrangements to Borrow (NAB) enacted in budget records the subsidy cost or savings of the modi- the Supplemental Appropriations Act of 2009 were treat- fication, as appropriate, and begins to account for the ed on a FCRA basis through 2015, with a risk adjustment associated transactions under FCRA treatment for direct to the discount rate, as directed in that Act. However, loan obligations and loan guarantee commitments made pursuant to Title IX of the Department of State, Foreign in 1992 or later. Operations, and Related Programs Appropriations Act, Under the authority provided in various acts, cer- 2016, these transactions have been restated on a present tain activities that do not meet the definition in FCRA value basis with a risk adjustment to the discount rate, of a direct loan or loan guarantee are reflected pursu- and the associated FCRA accounts have been closed.

BUDGET DEFICIT OR SURPLUS AND MEANS OF FINANCING When outlays exceed receipts, the difference is a deficit, rowing were defined as receipts and debt repayment as which the Government finances primarily by borrowing. outlays, the budget would always be virtually balanced by When receipts exceed outlays, the difference is a surplus, definition. This rule applies both to borrowing in the form and the Government automatically uses the surplus pri- of Treasury securities and to specialized borrowing in the marily to reduce debt. The Federal debt held by the public form of agency securities. The rule reflects the common- is approximately the cumulative amount of borrowing to sense understanding that lending or borrowing is just finance deficits, less repayments from surpluses, over the an exchange of financial assets of equal value—cash for Nation’s history. Treasury securities—and so is fundamentally different Borrowing is not exactly equal to the deficit, and debt from, say, paying taxes, which involve a net transfer of repayment is not exactly equal to the surplus, because of financial assets from taxpayers to the Government. the other transactions affecting borrowing from the pub- In 2018, the Government borrowed $1,084 billion from lic, or other means of financing, such as those discussed in the public, bringing debt held by the public to $15,750 bil- this section. The factors included in the other means of fi- lion. This borrowing financed the $779 billion deficit in nancing can either increase or decrease the Government’s that year, partly offset by the net impacts of the other borrowing needs (or decrease or increase its ability to means of financing, such as changes in cash balances and repay debt). For example, the change in the Treasury op- other accounts discussed below. erating cash balance is a factor included in other means In addition to selling debt to the public, the Treasury of financing. Holding receipts and outlays constant, in- Department issues debt to Government accounts, pri- creases in the cash balance increase the Government’s marily trust funds that are required by law to invest in need to borrow or reduce the Government’s ability to re- Treasury securities. Issuing and redeeming this debt does pay debt, and decreases in the cash balance decrease the not affect the means of financing, because these transac- need to borrow or increase the ability to repay debt. In tions occur between one Government account and another some years, the net effect of the other means of financing and thus do not raise or use any cash for the Government is minor relative to the borrowing or debt repayment; in as a whole. other years, the net effect may be significant. (See Chapter 4 of this volume, “Federal Borrowing and Debt,” for a fuller discussion of this topic.) Borrowing and Debt Repayment The budget treats borrowing and debt repayment as a means of financing, not as receipts and outlays. If bor- Budget Concepts 117 .11

Exercise of Monetary Power ing from other parts of the public) and are not reflected as a separate means of financing. Seigniorage is the profit from coining money. It is the difference between the value of coins as money and their United States Quota Subscriptions to the cost of production. Seigniorage reduces the Government’s International Monetary Fund (IMF) need to borrow. Unlike the payment of taxes or other receipts, it does not involve a transfer of financial assets The United States participates in the IMF through a from the public. Instead, it arises from the exercise of the quota subscription. Financial transactions with the IMF Government’s power to create money and the public’s de- are exchanges of monetary assets. When the IMF tem- sire to hold financial assets in the form of coins. Therefore, porarily draws dollars from the U.S. quota, the United the budget excludes seigniorage from receipts and treats States simultaneously receives an equal, offsetting, inter- it as a means of financing other than borrowing from the est-bearing, Special Drawing Right (SDR)-denominated public. The budget also treats proceeds from the sale of claim in the form of an increase in the U.S. reserve po- gold as a means of financing, since the value of gold is sition in the IMF. The U.S. reserve position in the IMF determined by its value as a monetary asset rather than increases when the United States makes deposits in its as a commodity. account at the IMF when the IMF temporarily uses members’ quota resources to make loans and decreases when Credit Financing Accounts the IMF returns funds to the United States as borrowing countries repay the IMF (and the cash flows from the re- The budget records the net cash flows of credit programs serve position to the Treasury letter of credit). in credit financing accounts. These accounts include the Other exchanges of monetary assets, such as deposits transactions for direct loan and loan guarantee programs, of cash in Treasury accounts at commercial banks, are not as well as the equity purchase programs under TARP that included in the Budget. However, Congress has historical- are recorded on a credit basis consistent with Section 123 ly expressed interest in showing some kind of budgetary of EESA. Financing accounts also record equity purchas- effect for U.S. transactions with the IMF.4 Most recently, es under the Small Business Lending Fund consistent Title IX of the Department of State, Foreign Operations, with the Small Business Jobs Act of 2010. Credit financ- and Related Programs Appropriations Act, 2016, required ing accounts are excluded from the budget because they the estimated cost of the 2009 and 2016 quota increases are not allocations of resources by the Government (see and the partial rescission of the new arrangements to “Federal Credit” earlier in this chapter). However, even borrow (NAB) authorized by the Act to be recorded on though they do not affect the surplus or deficit, they can a present value basis with a fair value premium added either increase or decrease the Government’s need to bor- to the Treasury discount rate.5 As a result, the Budget row. Therefore, they are recorded as a means of financing. records budget authority and outlays equal to the esti- Financing account disbursements to the public increase mated present value, including the fair value adjustment the requirement for Treasury borrowing in the same way to the discount rate, in the year that the quota increase is as an increase in budget outlays. Financing account re- enacted, i.e., 2016. All concurrent and subsequent trans- ceipts from the public can be used to finance the payment actions between the Treasury and the IMF are treated as of the Government’s obligations and therefore reduce the a non-budgetary means of financing, which do not directly requirement for Treasury borrowing from the public in affect receipts, outlays, or deficits. The only exception is the same way as an increase in budget receipts. that interest earnings on U.S. deposits in its IMF account are recorded as offsetting receipts. For transparency and Deposit Fund Account Balances to support future decisions concerning the U.S. level of participation in the IMF quota and the NAB, the Budget The Treasury uses non-budgetary accounts, called Appendix shows supplementary “below-the-lines” in- deposit funds, to record cash held temporarily until own- formation about dollar value of the IMF quota, divided ership is determined (for example, earnest money paid by between the portion that is held in a Treasury letter bidders for mineral leases) or cash held by the Government of credit and the amount deposited in the U.S. reserve as agent for others (for example, State and local income tranche at the IMF and the NAB. The actual amounts taxes withheld from Federal employees’ salaries and not are updated in the Budget to reflect changes in the dollar yet paid to the State or local government or amounts held value of Special Drawing Rights that serve as the unit of in the Thrift Savings Fund, a defined contribution pen- measure for countries’ level of participation. sion fund held and managed in a fiduciary capacity by the Government). Deposit fund balances may be held in 4 For a more detailed discussion of the history of the budgetary treat- the form of either invested or uninvested balances. To the ment of U.S. participation in the quota and new arrangements to borrow extent that they are not invested, changes in the balances (NAB), see pages 139-141 in the Analytical Perspectives volume of the are available to finance expenditures without a change in 2016 Budget. As discussed in that volume, the budgetary treatment of the U.S. participation in the NAB is similar to the quota. borrowing and are recorded as a means of financing other 5 See pages 85-86 of the Analytical Perspectives volume of the 2018 than borrowing from the public. To the extent that they Budget for a more complete discussion of the changes made to the bud- are invested in Federal debt, changes in the balances are getary presentation of quota increases due to Title IX of the Department reflected as borrowing from the public (in lieu of borrow- of State, Foreign Operations, and Related Programs Appropriations Act, 2016. 118 ANALYTICAL PERSPECTIVES

FEDERAL EMPLOYMENT

The budget includes information on civilian and mili- ment levels measured in full-time equivalents (FTE). tary employment. It also includes information on related Agency FTEs are the measure of total hours worked by an personnel compensation and benefits and on staffing re- agency’s Federal employees divided by the total number quirements at overseas missions. Chapter 7 of this volume, of one person’s compensable work hours in a fiscal year. “Strengthening the Federal Workforce,’’ provides employ-

BASIS FOR BUDGET FIGURES

Data for the Past Year Data for the Outyears

The past year column (2018) generally presents the The budget presents estimates for each of the nine actual transactions and balances as recorded in agency years beyond the budget year (2021 through 2029) in or- accounts and as summarized in the central financial re- der to reflect the effect of budget decisions on objectives ports prepared by the Treasury Department for the most and plans over a longer period. recently completed fiscal year. Occasionally, the budget reports corrections to data reported erroneously to Treasury Allowances but not discovered in time to be reflected in Treasury’s published data. In addition, in certain cases the Budget The budget may include lump-sum allowances to cover has a broader scope and includes financial transactions certain transactions that are expected to increase or de- that are not reported to Treasury (see Chapter 28 of this crease budget authority, outlays, or receipts but are not, volume, “Comparison of Actual to Estimated Totals,” for a for various reasons, reflected in the program details. For summary of these differences). example, the budget might include an allowance to show the effect on the budget totals of a proposal that would af- Data for the Current Year fect many accounts by relatively small amounts, in order to avoid unnecessary detail in the presentations for the The current year column (2019) includes estimates of individual accounts. transactions and balances based on the amounts of budgetary resources that were available when the budget Baseline was prepared. In cases where the budget proposes policy changes effective in the current year, the data will also The budget baseline is an estimate of the receipts, reflect the budgetary effect of those proposed changes. outlays, and deficits or surpluses that would occur if no changes were made to current laws and policies during Data for the Budget Year the period covered by the budget. The baseline assumes that receipts and mandatory spending, which generally The budget year column (2020) includes estimates are authorized on a permanent basis, will continue in of transactions and balances based on the amounts of the future consistent with current law and policy. The budgetary resources that are estimated to be available, baseline assumes that the future funding for most discre- including new budget authority requested under current tionary programs, which generally are funded annually, authorizing legislation, and amounts estimated to result will equal the most recently enacted appropriation, ad- from changes in authorizing legislation and tax laws. justed for inflation. The budget Appendix generally includes the ap- Baseline outlays represent the amount of resources propriations language for the amounts proposed to be that would be used by the Government over the period appropriated under current authorizing legislation. In covered by the budget on the basis of laws currently a few cases, this language is transmitted later because enacted. the exact requirements are unknown when the budget The baseline serves several useful purposes: is transmitted. The Appendix generally does not include • It may warn of future problems, either for Govern- appropriations language for the amounts that will be ment fiscal policy as a whole or for individual tax requested under proposed legislation; that language is and spending programs. usually transmitted later, after the legislation is enacted. Some tables in the budget identify the items for later • It may provide a starting point for formulating the transmittal and the related outlays separately. Estimates President’s Budget. of the total requirements for the budget year include both • It may provide a “policy-neutral’’ benchmark against the amounts requested with the transmittal of the budget which the President’s Budget and alternative pro- and the amounts planned for later transmittal. Budget Concepts 119 .11

posals can be compared to assess the magnitude of rates. Because the resulting funding would exceed the proposed changes. discretionary caps, the Administration’s baseline includes adjustments that reduce overall discretionary funding to The baseline rules in BBEDCA provide that funding levels consistent with the caps. (Chapter 26 of this volume, for discretionary programs is inflated from the most re- “Current Services Estimates,” provides more information cent enacted appropriations using specified inflation on the baseline.)

PRINCIPAL BUDGET LAWS The Budget and Accounting Act of 1921 created the core Congressional Budget and Impoundment Control of the current Federal budget process. Before enactment Act of 1974 (Public Law 93–344), as amended. This Act of this law, there was no annual centralized budgeting in comprises the: the Executive Branch. Federal Government agencies usu- • Congressional Budget Act of 1974, as amended, ally sent budget requests independently to congressional which prescribes the congressional budget process; committees with no coordination of the various requests and in formulating the Federal Government’s budget. The Budget and Accounting Act required the President to co- • Impoundment Control Act of 1974, which con- ordinate the budget requests for all Government agencies trols certain aspects of budget execution. and to send a comprehensive budget to the Congress. The • Federal Credit Reform Act of 1990, as amended Congress has amended the requirements many times and (2 USC 661–661f), which the Budget Enforcement portions of the Act are codified in Title 31, United States Act of 1990 included as an amendment to the Con- Code. The major laws that govern the budget process are gressional Budget Act to prescribe the budget treat- as follows: ment for Federal credit programs. Chapter 31 of Title 31, United States Code, which Article 1, section 8, clause 1 of the Constitution, provides the authority for the Secretary of the Treasury which empowers the Congress to collect taxes. to issue debt to finance the deficit and establishes a statu- Article 1, section 9, clause 7 of the Constitution, tory limit on the level of the debt. which requires appropriations in law before money may Chapter 33 of Title 31, United States Code, which be spent from the Treasury and the publication of a reg- establishes the Department of the Treasury as the author- ular statement of the receipts and expenditures of all ity for making disbursements of public funds, with the public money. authority to delegate that authority to executive agencies Antideficiency Act (codified in Chapters 13 and 15 in the interests of economy and efficiency. of Title 31, United States Code), which prescribes rules Government Performance and Results Act of 1993 and procedures for budget execution. (Public Law 103–62, as amended) which emphasizes Balanced Budget and Emergency Deficit Control managing for results. It requires agencies to prepare Act of 1985, as amended, which establishes limits on strategic plans, annual performance plans, and annual discretionary spending and provides mechanisms for en- performance reports. forcing discretionary spending limits. Statutory Pay-As-You-Go Act of 2010, which es- Chapter 11 of Title 31, United States Code, which tablishes a budget enforcement mechanism generally prescribes procedures for submission of the President’s requiring that direct spending and revenue legislation budget and information to be contained in it. enacted into law not increase the deficit.

GLOSSARY OF BUDGET TERMS Account refers to a separate financial reporting unit in presenting the overall budget of the United States used by the Federal Government to record budget author- Government. ity, outlays and income for budgeting or management Advance appropriation means appropriations of information purposes as well as for accounting purposes. new budget authority that become available one or more All budget (and off-budget) accounts are classified as be- fiscal years beyond the fiscal year for which the appro- ing either expenditure or receipt accounts and by fund priation act was passed. group. Budget (and off-budget) transactions fall within Advance funding means appropriations of budget au- either of two fund group: (1) Federal funds and (2) trust thority provided in an appropriations act to be used, if funds. (Cf. Federal funds group and trust funds group.) necessary, to cover obligations incurred late in the fiscal Accrual method of measuring cost means an ac- year for benefit payments in excess of the amount spe- counting method that records cost when the liability is cifically appropriated in the act for that year, where the incurred. As applied to Federal employee retirement ben- budget authority is charged to the appropriation for the efits, accrual costs are recorded when the benefits are program for the fiscal year following the fiscal year for earned rather than when they are paid at some time in which the appropriations act is passed. the future. The accrual method is used in part to provide Agency means a department or other establishment of data that assists in agency policymaking, but not used the Government. 120 ANALYTICAL PERSPECTIVES

Allowance means a lump-sum included in the budget combines the on- and off-budget totals to derive unified to represent certain transactions that are expected to in- (i.e. consolidated) totals for Federal activity. crease or decrease budget authority, outlays, or receipts Budget year refers to the fiscal year for which the bud- but that are not, for various reasons, reflected in the pro- get is being considered, that is, with respect to a session gram details. of Congress, the fiscal year of the government that starts Balanced Budget and Emergency Deficit Control on October 1 of the calendar year in which that session of Act of 1985 (BBEDCA) refers to legislation that altered Congress begins. the budget process, primarily by replacing the earlier fixed Budgetary resources mean amounts available to in- targets for annual deficits with a Pay-As-You-Go require- cur obligations in a given year. The term comprises new ment for new tax or mandatory spending legislation and budget authority and unobligated balances of budget au- with caps on annual discretionary funding. The Statutory thority provided in previous years. Pay-As-You-Go Act of 2010, which is a standalone piece of Cap means the legal limits for each fiscal year under legislation that did not directly amend the BBEDCA, re- BBEDCA on the budget authority and outlays (only if ap- instated a statutory pay-as-you-go rule for revenues and plicable) provided by discretionary appropriations. mandatory spending legislation, and the Budget Control Cap adjustment means either an increase or a de- Act of 2011, which did amend BBEDCA, reinstated dis- crease that is permitted to the statutory cap limits for cretionary caps on budget authority. each fiscal year under BBEDCA on the budget authority Balances of budget authority means the amounts of and outlays (only if applicable) provided by discretion- budget authority provided in previous years that have not ary appropriations only if certain conditions are met. been outlayed. These conditions may include providing for a base level Baseline means a projection of the estimated receipts, of funding, a designation of the increase or decrease by outlays, and deficit or surplus that would result from con- the Congress, (and in some circumstances, the President) tinuing current law or current policies through the period pursuant to a section of the BBEDCA, or a change in con- covered by the budget. cepts and definitions of funding under the cap. Changes Budget means the Budget of the United States in concepts and definitions require consultation with the Government, which sets forth the President’s comprehen- Congressional Appropriations and Budget Committees. sive financial plan for allocating resources and indicates Cash equivalent transaction means a transaction the President’s priorities for the Federal Government. in which the Government makes outlays or receives col- Budget authority (BA) means the authority provided lections in a form other than cash or the cash does not by law to incur financial obligations that will result in accurately measure the cost of the transaction. (For exam- outlays. (For a description of the several forms of budget ples, see the section on “Outlays’’ earlier in this chapter.) authority, see “Budget Authority and Other Budgetary Collections mean money collected by the Government Resources’’ earlier in this chapter.) that the budget records as a governmental receipt, an off- Budget Control Act of 2011 refers to legislation that, setting collection, or an offsetting receipt. among other things, amended BBEDCA to reinstate dis- Concurrent resolution on the budget refers to the cretionary spending limits on budget authority through concurrent resolution adopted by the Congress to set bud- 2021 and restored the process for enforcing those spend- getary targets for appropriations, mandatory spending ing limits. The legislation also increased the statutory legislation, and tax legislation. These concurrent reso- debt ceiling; created a Joint Select Committee on Deficit lutions are required by the Congressional Budget Act of Reduction that was instructed to develop a bill to reduce 1974, and are generally adopted annually. the Federal deficit by at least $1.5 trillion over a 10-year Continuing resolution means an appropriations act period; and provided a process to implement alternative that provides for the ongoing operation of the Government spending reductions in the event that legislation achiev- in the absence of enacted appropriations. ing at least $1.2 trillion of deficit reduction was not Cost refers to legislation or administrative actions that enacted. increase outlays or decrease receipts. (Cf. savings.) Budget resolution—see concurrent resolution on the Credit program account means a budget account budget. that receives and obligates appropriations to cover the Budget totals mean the totals included in the bud- subsidy cost of a direct loan or loan guarantee and dis- get for budget authority, outlays, receipts, and the surplus burses the subsidy cost to a financing account. or deficit. Some presentations in the budget distinguish Current services estimate—see Baseline. on-budget totals from off-budget totals. On-budget totals Debt held by the public means the cumulative reflect the transactions of all Federal Government enti- amount of money the Federal Government has borrowed ties except those excluded from the budget totals by law. from the public and not repaid. Off-budget totals reflect the transactions of Government Debt held by the public net of financial assets entities that are excluded from the on-budget totals by means the cumulative amount of money the Federal law. Under current law, the off-budget totals include Government has borrowed from the public and not repaid, the Social Security trust funds (Federal Old-Age and minus the current value of financial assets such as loan Survivors Insurance and Federal Disability Insurance assets, bank deposits, or private-sector securities or equi- Trust Funds) and the Postal Service Fund. The budget ties held by the Government and plus the current value of financial liabilities other than debt. Budget Concepts 121 .11

Debt held by Government accounts means the debt vide aid to any person who, or State or local government the Treasury Department owes to accounts within the that, meets the legal criteria for eligibility. Examples Federal Government. Most of it results from the surplus- include Social Security, Medicare, Medicaid, and the es of the Social Security and other trust funds, which are Supplemental Nutrition Assistance Program (formerly required by law to be invested in Federal securities. Food Stamps). Debt limit means the maximum amount of Federal Federal funds group refers to the moneys col- debt that may legally be outstanding at any time. It in- lected and spent by the Government through accounts cludes both the debt held by the public and the debt held other than those designated as trust funds. Federal funds by Government accounts, but without accounting for off- include general, special, public enterprise, and intragov- setting financial assets. When the debt limit is reached, ernmental funds. (Cf. trust funds group.) the Government cannot borrow more money until the Financing account means a non-budgetary account Congress has enacted a law to increase the limit. (an account whose transactions are excluded from the Deficit means the amount by which outlays exceed budget totals) that records all of the cash flows resulting receipts in a fiscal year. It may refer to the on-budget, off- from post-1991 direct loan obligations or loan guarantee budget, or unified budget deficit. commitments. At least one financing account is associ- Direct loan means a disbursement of funds by the ated with each credit program account. For programs Government to a non-Federal borrower under a con- that make both direct loans and loan guarantees, sepa- tract that requires the repayment of such funds with or rate financing accounts are required for direct loan cash without interest. The term includes the purchase of, or flows and for loan guarantee cash flows. (Cf. liquidating participation in, a loan made by another lender. The term account.) also includes the sale of a Government asset on credit Fiscal year means the Government’s accounting peri- terms of more than 90 days duration as well as financing od. It begins on October 1st and ends on September 30th, arrangements for other transactions that defer payment and is designated by the calendar year in which it ends. for more than 90 days. It also includes loans financed by Forward funding means appropriations of budget the Federal Financing Bank (FFB) pursuant to agency authority that are made for obligation starting in the loan guarantee authority. The term does not include the last quarter of the fiscal year for the financing of ongoing acquisition of a federally guaranteed loan in satisfaction grant programs during the next fiscal year. of default or other guarantee claims or the price support General fund means the accounts in which are re- “loans” of the Commodity Credit Corporation. (Cf. loan corded governmental receipts not earmarked by law for guarantee.) a specific purpose, the proceeds of general borrowing, and Direct spending—see mandatory spending. the expenditure of these moneys. Disaster funding means a discretionary appropria- Government sponsored enterprises mean private tion that is enacted that the Congress designates as being enterprises that were established and chartered by the for disaster relief. Such amounts are a cap adjustment to Federal Government for public policy purposes. They the limits on discretionary spending under BBEDCA. The are classified as non-budgetary and not included in the total adjustment for this purpose cannot exceed a ceiling Federal budget because they are private companies, and for a particular year that is defined as the total of the their securities are not backed by the full faith and credit average funding provided for disaster relief over the pre- of the Federal Government. However, the budget presents vious 10 years (excluding the highest and lowest years) statements of financial condition for certain Government and the unused amount of the prior year’s ceiling (exclud- sponsored enterprises such as the Federal National ing the portion of the prior year’s ceiling that was itself Mortgage Association. (Cf. off-budget.) due to any unused amount from the year before). Disaster Intragovernmental fund—see Revolving fund. relief is defined as activities carried out pursuant to a de- Liquidating account means a budget account that re- termination under section 102(2) of the Robert T. Stafford cords all cash flows to and from the Government resulting Disaster Relief and Emergency Assistance Act. from pre-1992 direct loan obligations or loan guarantee Discretionary spending means budgetary resources commitments. (Cf. financing account.) (except those provided to fund mandatory spending pro- Loan guarantee means any guarantee, insurance, grams) provided in appropriations acts. (Cf. mandatory or other pledge with respect to the payment of all or a spending.) part of the principal or interest on any debt obligation Emergency requirement means an amount that the of a non-Federal borrower to a non-Federal lender. The Congress has designated as an emergency requirement. term does not include the insurance of deposits, shares, Such amounts are not included in the estimated budget- or other withdrawable accounts in financial institutions. ary effects of PAYGO legislation under the requirements (Cf. direct loan.) of the Statutory Pay-As-You-Go Act of 2010, if they are Mandatory spending means spending controlled by mandatory or receipts. Such a discretionary appropria- laws other than appropriations acts (including spend- tion that is subsequently designated by the President as ing for entitlement programs) and spending for the an emergency requirement results in a cap adjustment to Supplemental Nutrition Assistance Program, formerly the limits on discretionary spending under BBEDCA. food stamps. Although the Statutory Pay-As-You-Go Entitlement refers to a program in which the Federal Act of 2010 uses the term direct spending to mean this, Government is legally obligated to make payments or pro- 122 ANALYTICAL PERSPECTIVES mandatory spending is commonly used instead. (Cf. dis- Outlay means a payment to liquidate an obligation cretionary spending.) (other than the repayment of debt principal or other dis- Means of financing refers to borrowing, the change bursements that are “means of financing” transactions). in cash balances, and certain other transactions involved Outlays generally are equal to cash disbursements, but in financing a deficit. The term is also used to refer to the also are recorded for cash-equivalent transactions, such debt repayment, the change in cash balances, and certain as the issuance of debentures to pay insurance claims, other transactions involved in using a surplus. By defini- and in a few cases are recorded on an accrual basis such tion, the means of financing are not treated as receipts or as interest on public issues of the public debt. Outlays are outlays and so are non-budgetary. the measure of Government spending. Obligated balance means the cumulative amount of Outyear estimates mean estimates presented in the budget authority that has been obligated but not yet out- budget for the years beyond the budget year of budget au- layed. (Cf. unobligated balance.) thority, outlays, receipts, and other items (such as debt). Obligation means a binding agreement that will re- Overseas Contingency Operations/Global War sult in outlays, immediately or in the future. Budgetary on Terrorism (OCO/GWOT) means a discretionary resources must be available before obligations can be in- appropriation that is enacted that the Congress and, sub- curred legally. sequently, the President have so designated on an account Off-budget refers to transactions of the Federal by account basis. Such a discretionary appropriation that Government that would be treated as budgetary had the is designated as OCO/GWOT results in a cap adjustment Congress not designated them by statute as “off-budget.” to the limits on discretionary spending under BBEDCA. Currently, transactions of the Social Security trust funds Funding for these purposes has most recently been asso- and the Postal Service are the only sets of transactions ciated with the wars in Iraq and Afghanistan. that are so designated. The term is sometimes used more Pay-as-you-go (PAYGO) refers to requirements of broadly to refer to the transactions of private enterprises the Statutory Pay-As-You-Go Act of 2010 that result in that were established and sponsored by the Government, a sequestration if the estimated combined result of new most especially “Government sponsored enterprises” such legislation affecting direct spending or revenue increases as the Federal Home Loan Banks. (Cf. budget totals.) the on-budget deficit relative to the baseline, as of the end Offsetting collections mean collections that, by law, of a congressional session. are credited directly to expenditure accounts and deducted Public enterprise fund—see Revolving fund. from gross budget authority and outlays of the expendi- Reappropriation means a provision of law that ex- ture account, rather than added to receipts. Usually, they tends into a new fiscal year the availability of unobligated are authorized to be spent for the purposes of the account amounts that have expired or would otherwise expire. without further action by the Congress. They result from Receipts mean collections that result from the business-like transactions with the public, including pay- Government’s exercise of its sovereign power to tax or ments from the public in exchange for goods and services, otherwise compel payment. They are compared to outlays reimbursements for damages, and gifts or donations of in calculating a surplus or deficit. (Cf. offsetting collec- money to the Government and from intragovernmental tions and offsetting receipts.) transactions with other Government accounts. The au- Revolving fund means a fund that conducts continu- thority to spend offsetting collections is a form of budget ing cycles of business-like activity, in which the fund authority. (Cf. receipts and offsetting receipts.) charges for the sale of products or services and uses the Offsetting receipts mean collections that are cred- proceeds to finance its spending, usually without require- ited to offsetting receipt accounts and deducted from ment for annual appropriations. There are two types of gross budget authority and outlays, rather than added revolving funds: Public enterprise funds, which con- to receipts. They are not authorized to be credited to ex- duct business-like operations mainly with the public, penditure accounts. The legislation that authorizes the and intragovernmental revolving funds, which conduct offsetting receipts may earmark them for a specific pur- business-like operations mainly within and between pose and either appropriate them for expenditure for that Government agencies. (Cf. special fund and trust fund.) purpose or require them to be appropriated in annual ap- Savings refers to legislation or administrative actions propriation acts before they can be spent. Like offsetting that decrease outlays or increase receipts. (Cf. cost.) collections, they result from business-like transactions or Scorekeeping means measuring the budget effects market-oriented activities with the public, including pay- of legislation, generally in terms of budget authority, ments from the public in exchange for goods and services, receipts, and outlays, for purposes of measuring adher- reimbursements for damages, and gifts or donations of ence to the Budget or to budget targets established by the money to the Government and from intragovernmental Congress, as through agreement to a Budget Resolution. transactions with other Government accounts. (Cf. re- Sequestration means the cancellation of budgetary ceipts, undistributed offsetting receipts, and offsetting resources. The Statutory Pay-As-You-Go Act of 2010 re- collections.) quires such cancellations if revenue or direct spending On-budget refers to all budgetary transactions other legislation is enacted that, in total, increases projected than those designated by statute as off-budget. (Cf. bud- deficits or reduces projected surpluses relative to the get totals.) baseline. The Balanced Budget and Emergency Deficit Control Act of 1985, as amended, requires such cancella- Budget Concepts 123 .11 tions if discretionary appropriations exceed the statutory funds, and these are called trust revolving funds. (Cf. spe- limits on discretionary spending. cial fund and revolving fund.) Special fund means a Federal fund account for Trust funds group refers to the moneys collected and receipts or offsetting receipts earmarked for specific pur- spent by the Government through trust fund accounts. poses and the expenditure of these receipts. (Cf. revolving (Cf. Federal funds group.) fund and trust fund.) Undistributed offsetting receipts mean offsetting Statutory Pay-As-You-Go Act of 2010 refers to receipts that are deducted from the Government-wide legislation that reinstated a statutory pay-as-you-go re- totals for budget authority and outlays instead of being quirement for new tax or mandatory spending legislation. offset against a specific agency and function. (Cf. offset- The law is a standalone piece of legislation that cross- ting receipts.) references BBEDCA but does not directly amend that Unified budget includes receipts from all sources and legislation. This is a permanent law and does not expire. outlays for all programs of the Federal Government, in- Subsidy means the estimated long-term cost to the cluding both on- and off-budget programs. It is the most Government of a direct loan or loan guarantee, calculated comprehensive measure of the Government’s annual on a net present value basis, excluding administrative finances. costs and any incidental effects on governmental receipts Unobligated balance means the cumulative amount or outlays. of budget authority that remains available for obligation Surplus means the amount by which receipts exceed under law in unexpired accounts. The term “expired bal- outlays in a fiscal year. It may refer to the on-budget, off- ances available for adjustment only” refers to unobligated budget, or unified budget surplus. amounts in expired accounts. Supplemental appropriation means an ap- User charges are charges assessed for the provision of propriation enacted subsequent to a regular annual Government services and for the sale or use of Government appropriations act, when the need for additional funds is goods or resources. The payers of the user charge must too urgent to be postponed until the next regular annual be limited in the authorizing legislation to those receiv- appropriations act. ing special benefits from, or subject to regulation by, the Trust fund refers to a type of account, designated by program or activity beyond the benefits received by the law as a trust fund, for receipts or offsetting receipts dedi- general public or broad segments of the public (such as cated to specific purposes and the expenditure of these those who pay income taxes or custom duties). receipts. Some revolving funds are designated as trust