How the Federal Budget Process Works

by John Haughey // Jan 19, 2018 Uncategorized

Big Red Letters for the Federal Budget ProcessAccording to a recent Public Affairs Council survey, the most important federal policy issue facing the country in 2018 will be the federal budget. Given the current gridlock in Congress, that would seem to make sense. But how does the federal budget process or the federal budget appropriations all work?

Today we’re bringing you a quick refresher.

Historical Background for the Federal Budget Process

The first United States federal budget was adopted in September 1789 when Congress approved Appropriations Act HR 32, which allocated $639,000 to cover the federal government’s expenses for 1790. The proposed federal budget for fiscal year 2018, which began Oct. 1, 2017, would apportion $4.4 trillion to pay for government operations through Sept. 30, 2018.

Since 2010, it has become standard for Congress not to pass a fiscal year (FY) budget but, instead, to pay for government operations through a series of “continuing resolutions” that temporarily sustain funding for federal agencies, and rarely does a budget actually get approved before a fiscal year begins on Oct. 1.

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For instance, the FY 2011 budget didn’t get approved until April 2011 — more than six months after FY 2011 began. The FY 2012 budget wasn’t approved until December 2011. The FY 2013 and FY 2014 budgets were never approved. The FY 2015 and FY 2016 budgets were both approved in December. The FY 2017 budget was never passed, with a continuing resolution sustaining funding at FY 2016 levels through Jan. 19, 2018.

Which brings us to now: The Trump Administration’s proposed $4.4 trillion FY 2018 budget rattled through a series of continuing resolutions and a $1.3 trillion Omnibus spending bill in late March.

When Congress doesn’t pass continuing resolutions or Omnibus bills, the government shuts down, meaning all non-essential programs close and workers are furloughed. This happened in 2013.

While entrenched partisanship has made crafting an annual federal spending plan into a mind-boggling morass, even without obstructionism and political discord such a macro-budgeting process is by its nature complex, exhaustive and lengthy.

TWO LAWS DEFINE, REFINE PROCESS

The U.S. Constitution designates the “power of the purse” — the authority to create, collect taxes and borrow money — to Congress. The Constitution does not define a federal budget process, nor does it address the role the President plays in developing them. The process and President’s responsibilities are now defined and refined by two laws:

The Budget & Accounting Act of 1921 requires the President to submit an annual budget request for the entire federal government to Congress, and created the Office of Management and Budget (OMB) to review funding requests from federal agencies to assist the Executive Office in formulating a budget request.

* The 1974 Congressional Budget & Impoundment Control Act created the House and Senate budget committees and 12 appropriations subcommittees, established the Congressional Budget Office (CBO) and moved the start of the fiscal year from July 1 to Oct. 1.

The federal budget process, also called the appropriations process, actually starts a full year before a fiscal year begins on Oct. 1. Technically, planning for the FY 2019 budget, which goes into effect on Oct. 1, 2018, has already begun at the agency-level, even though the FY 2018 budget has not been adopted. Read more about the federal budget process timeline.

Therefore, there are often three budgets in various stages of implementation. In mid-January 2018, federal agencies are operating in accordance to their FY 2017 budgets — which are actually “continuing resolution” extensions of FY 2016 budgets — while Congress is debating the proposed FY 2018 budget and as federal agencies are planning their FY 2019 budget proposals.

DISCRETIONARY, MANDATORY AUTHORIZATIONS

* Appropriations bills: These are “discretionary” spending bills submitted by 12 House and Senate appropriations subcommittees to their respective chambers for adoption. Appropriation bills must be renewed every year to keep federal agencies and programs operating. They are “discretionary” because Congress can change funding levels each year, not necessarily because the programs themselves are discretionary. Defense spending, for instance, is discretionary. These annual appropriations constitute about one-third of all federal spending.

* Mandatory spending: This is what the federal government expends on its obligations. “Entitlement” programs such as Social Security, Medicare, Medicaid and interest on the national debt are regarded as “mandatory” or “direct” spending. This constitutes more than half the federal budget.

* Authorization bills: Congress must pass legislation that actually gives federal agencies the legal authority to spend the money appropriated to them. Unlike annual appropriations bills, authorizations can span multiple years, so many of these bills do not need to be Congressionally approved every year. When multi-year authorizations expire, Congress can reauthorize them, end them, or change funding levels.

Spending is further defined by budget authority and outlay. Budget authority sets limits on a new obligation a federal agency may incur, while an outlay identifies how much money is spent in a given fiscal year on that obligation. For example, a bill that appropriates $100 million to build a dam would have a $100 million budget authority, while the outlay might be $50 million that fiscal year, meaning there is still $50 million in budget authority that can be allocated in ensuing fiscal year budgets.

THE FIVE-STEP FEDERAL BUDGET PROCESS

The federal budget process begins and ends in the Executive Office with the President submitting a budget request in February and signing the budget Congress returns before the fiscal year begins Oct. 1. The process is typically broken into five steps:

STEP 1: President submits budget request

The President is supposed to send a budget request — not an actual budget — to Congress on the first Monday in February for the coming fiscal year. This rarely happens anymore. This budget request, developed through the Executive Office’s OMB, typically sketches out an administration’s fiscal philosophies, economic policies and budget priorities, not just for the coming fiscal year, but for the years to come. It generally features three components.

  • Identifies how much money the federal government should spend on public purposes and how much the federal government should collect in tax revenues. This is a spending vs. income statement.
  • Spells out the administration’s priorities for federal programs by spelling out how much should be allocated in the coming fiscal year to each discretionary program, such as defense, agriculture, education, health, social programs.
  • Forwards proposed tax policy changes that can influence tax revenues and proposed legislation regarding mandatory spending programs, such as changes to eligibility criteria and levels of individual benefits.

STEP 2: Congress adopts a ‘Budget Resolution’

The President’s budget request is submitted to House and Senate budget committees for preliminary review, which includes calling upon administration officials to discuss proposals in public hearings. The committees formulate a “budget resolution,” which establishes the parameters for revenues, mandatory or direct spending and discretionary spending for the fiscal year.

To be enacted and passed along to 12 appropriation subcommittees, the budget resolution must pass both the House and Senate in a simple majority vote. Differences go to a joint conference committee and from it emerges the budget resolution.

The 1974 Congressional Budget & Impoundment Control Act requires the House and Senate budget committees to adopt a budget resolution by April 15, although this deadline is rarely met. The same law requires the budget resolution span at least five years. The difference between the forecast “spending ceiling” and the estimated “revenue floor” is the calculation that determines the anticipated deficit or surplus expected for each year.

STEP 3: House and Senate subcommittees adopt specific appropriations bills

With basic spending and revenue projections outlined in the budget resolution, 12 House and Senate appropriations subcommittees are tasked with determining the precise levels of spending for all discretionary programs.

The 12 appropriation subcommittees are:

            * Agriculture, Rural Development, and Food & Drug Administration (FDA)

            * Commerce, Justice, and Science

            * Defense

            * Energy and Water Development

            * Financial Services and General Government

            * Homeland Security

            * Interior and Environment

            * Labor, Health and Human Services, and Education

            * Military Construction and Veterans Affairs

            * State and Foreign Operations

            * Transportation and Housing and Urban Development

Each of the 12 areas of federal responsibility receives allocation ceilings from the House and Senate budget committees in the budget resolution. These 12 subcommittees are responsible for producing a spending bill for agencies and programs in each of these areas. For instance, the budget resolution may allocate $639.1 billion to Defense appropriations subcommittees while Interior & Environment subcommittees may receive $31.4 billion.

STEP 4: Appropriations bills are submitted to the House and Senate for approval

Each of the 12 bills must be passed by its subcommittee before being passed along to their respective chamber’s full appropriations committee. Once each of the 12 proposed spending bills are passed, they are submitted to the House and Senate for further review, debate and, ultimately, adoption.

If there are variations between a House and a Senate spending bill, they are submitted to a conference committee that irons out the differences before sending them back to the chambers for approval. When Congress can’t agree on 12 separate appropriations bills, it will often adopt an omnibus bill — a single funding bill that encompasses all 12 areas.

STEP 5: President signs each appropriations bill and the budget becomes law

When the President signs each of the 12 appropriations bills after they have passed Congress, the budget becomes law and the federal budget process is complete.