Understanding the Federal Budget Process: An Overview
November 09, 2010
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I. History

II. The President’s Budget

III. The Budget Resolution

IV. The Appropriation Process

V. Execution

VI. Audit

The federal budget outlines spending and revenue levels for a given fiscal year, which runs from October 1 through September 30. The process has evolved over time with the enactment of various laws.1 Today’s budget procedures are based on the Congressional Budget Act of 1974 and include steps to ensure that the executive and legislative branches play vital roles in shaping budgetary priorities. While a budget only covers a single fiscal year, the budget process itself runs over multiple years as agencies spend money, plan for future activities, and undergo audits as required by Congress (see interactive federal budget process calendar).

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1Notable budget legislation includes: Budget and Accounting Act, 1921; Congressional Budget and Impounding Control Act, 1974; Balanced Budget and Emergency Deficit Control Act, 1985; and the Budget Enforcement Act, 1990

Click on the graphic below for access to the interactive budget calendar.

  I.  History

Prior to the passage of the Budget and Accounting Act of 1921, the federal government had no formalized process for developing and producing a budget.  The Congress set its own rules about appropriations, changed them frequently, and left little room for executive input.  The Budget and Accounting Act created the Bureau of the Budget (later renamed the Office of Management and Budget—OMB) in the executive branch and required the President to submit an annual budget.  It also created the General Accounting Office (later renamed the Government Accountability Office—GAO) to audit federal spending.  The legislation swung budgetary control away from the Congress.  This greater presidential role coincided with an increasingly large government and the complicated budget process that accompanies such growth. 

By the 1970s, many in the Congress felt the President exercised too much control over the budget process.  In response to the Nixon administration’s use of impoundments and unauthorized spending, Congress passed the Congressional Budget and Impoundment Control Act in 1974.  This act set up a parallel congressional budget process, creating the Congressional Budget Office (CBO) to provide separate, non-partisan analysis of the budget.  Since 1974, the Congress has passed a number of laws regulating the budget process, but the Congressional Budget Act remains the organizing framework.  It created the House and Senate budget committees to manage the Congressional process and specified that Congress create and adhere to its own budget plan.

II. The President’s Budget

The federal budget process begins every spring, when agencies start to prepare their budget requests for the upcoming fiscal year (for example, in the spring of 2010 agencies began to prepare its budget request for fiscal year 2012).  After the agencies’ internal review processes are complete, budget requests are submitted to OMB for review, which usually occurs in the fall.  OMB will frequently make changes to agencies’ requests before the budget is ready to be presented to Congress.  The President’s budget is released on or before the first Monday in February, usually following the State of the Union Address. 

The President’s budget lays out policy proposals and budget priorities for federal programs, which includes recommendated funding levels for discretionary spending programs, such as defense and education (as they must have their funding renewed each year).  Tax provisions and mandatory spending programs (entitlement programs such as Social Security and Medicare) are permanent unless otherwise specified in law.  Generally, the President and the Congress do not need to pass legislation for these activities to continue.  The President’s Budget also provides projections for four or more years of spending, revenue and debt levels, based on input from various federal agencies.

The President also provides estimates of the country’s economic outlook for the coming year. Economic factors such as economic growth (or real GDP growth), inflation and unemployment rates will influence spending and revenue projections. 

III. The Budget Resolution

After receiving the President’s budget, the Congress works to create its own budget plan (known as the concurrent budget resolution).  The House and the Senate do not need to follow the President’s budget, but they often use it as a starting point.

Both the House and the Senate are responsible for drafting their own budget resolution.  Like the President’s budget, these budget resolutions set spending and revenue targets for the upcoming year. The funding is divided into 20 different “budget functions ” (spending areas), such as defense, energy, and transportation. If the resolutions passed by the House and Senate differ, they must be reconciled in a conference report like any other piece of legislation. The final product is a concurrent resolution, meaning that it is agreed to by both houses of Congress but not signed into law. 

While budget resolutions are not laws, and the Congress can act on funding and revenue legislation without first adopting budget resolution, they can enforce good fiscal discipline. The budget resolution sets congressional priorities and guides the appropriations process, which allocates funding to discretionary programs.  It can include reconciliation instructions that require a congressional committee to change the content of mandatory programs or tax law in order to match spending and revenue targets. 

A congressional budget resolution can also set discretionary spending caps , which limit how much Congress can spend in appropriations. Any appropriations subcommittee that requests more funds than the budget resolution sets down must be approved by a two-thirds majority vote in the Senate. The budget resolution estimates the size of the deficit (or surplus ) and the national debt in the coming year, and must project the deficits for at least the next four years. 

The Congressional Budget Act requires Congress to pass a budget resolution by April 15, but there is no penalty for missing this deadline. However, the Act bars the Congress from considering legislation affecting revenues, spending, or the debt limit until it adopts a budget resolution. The House can begin consideration of appropriations bills on May 15.  Neither the House nor the Senate passed a budget resolution in 2010. If this occurs, Congress is bound by whatever spending levels are put into place in prior years’ resolutions.

Even as the budget resolutions are being drafted, the House and Senate appropriations subcommittees can hold hearings and draft appropriations bills.

IV. The Appropriations Process

By tradition, appropriations work begins in the House when the House Appropriations Committee allocates funding to its 12 subcommittees. Each subcommittee holds hearings and puts together an appropriation bill, which is then submitted to the full committee. If the Congress has not adopted a budget resolution by May 15th, the House Appropriations Committee can start considering appropriation bills.

Each appropriation bill moves to the House floor for a vote. The Senate Appropriations Committee process mirrors that of the House.  If there are disagreements between the House and the Senate, they must be resolved by a conference committee comprised of members of both chambers. The bill that emerges from the conference is then voted on by the House and the Senate before being presented to the President.

The President can agree to the appropriation bill and sign it, or he can veto the bill, sending it back to Congress with his reasons for rejecting it. Congress can then consider amendments to make the bill acceptable to the President and would again have to present another concurrent bill (one passed by both the Senate and the House) to the President for their signature, or attempt to override the President’s veto.

Generally, there are 12 appropriations bills passed annually for discretionary spending; corresponding to the 12 subcommittees of the Appropriations Committees.  Supplemental appropriations bills are often passed to provide additional funding for the current year. For example, in 2010, the supplemental appropriations bill provides over $46 billion for overseas war funding, as well as funds for Haiti relief and the Gulf Coast oil spill. Congress also passed a $5 billion disaster supplemental bill passed for 2010, to help communities recovering from natural disasters.

In some years, Congress is not able to complete action on the 12 separate appropriations bills by the start of the fiscal year, especially if certain spending bills cause prolonged disagreements and debate or there is a threat of a presidential veto. In these cases, Congress must pass a continuing resolution to maintain funding until appropriations work can be completed.  Otherwise, non-essential federal activity must shut down due to a lack of funding.  Delays often force the passage of an omnibus spending bill, which collects several budget areas into one bill.

V. Execution

Once Congress has allocated funds through the Appropriations process and the fiscal year begins on October 1st, agencies are permitted to use their appropriated funds.  At this point, it has been a year and a half since agencies submitted their annual budget requests. Agencies spend funds under the watchful eye of the OMB, which supervises disbursement of funds from the Treasury to various departments, and agency financial officers (such as the Comptroller in the Department of Defense and the Assistant Secretary for Financial Resources in the Department of Health and Human Services).  OMB and these officials work to ensure that departmental funds are spent appropriately and effectively.  Congress frequently exercises its oversight role by conducting hearings to ensure that agencies are executing programs in a manner consistent with their legislative intent.

VI. Audit

The Government Accountability Office (GAO) closes the multi-year budget process by auditing federal government programs during and after the end of a particular fiscal year.  The agencies also have inspectors general, who are appointed by the President, but who are independent from the heads of the agencies. The review and closing of a fiscal year usually happens too late to affect the following year’s budget; frequently, however, conclusions drawn from reports and audits can affect future budgets and program plans.

Box 1. U.S. Budget Entities

Box 1. U.S. Budget Entities

House and Senate Budget Committees: These committees take the lead in drafting the annual budget resolution and monitor the progress of appropriations to ensure that spending plans are in accordance with limits set by the resolution.

House and Senate Appropriations Committee: These committees have jurisdiction over deciding spending levels for all discretionary programs (defense, education, etc.).

House Ways and Means Committee: This committee has jurisdiction over taxes and most mandatory programs (such as Social Security, Medicare, and Medicaid).

Senate Finance Committee: The counterpart to House Ways and Means, this committee has jurisdiction over taxes and most mandatory programs (such as Social Security, Medicare, and Medicaid ).  The Constitution requires that any legislation that generates revenue must originate in the House. 

Congressional Budget Office: A non-partisan office created by the Congressional Budget Act of 1974 to analyze the effects of selected policy options on the budget.  CBO’s reports on the costs of legislation have great influence in Congress.  They also publish studies on the economic outlook, review the economic effects of federal spending, and prepare studies on budget options for Congress.

Office of Management and Budget: The budget office of the President works with agencies to coordinate spending requests that become part of the Administration’s budget. OMB develops and submits the budget to Congress and works to advocate for the President’s spending and revenue priorities.  They also monitor the spending of federal funds once budgets are enacted.

Government Accountability Office: As the investigative arm of Congress, GAO monitors spending and progress of federal programs during and after given fiscal years. 

Joint Committee on Taxation: Established in 1926, the Joint Committee on Taxation (JCT) is a non-partisan unit of Congress that assists both houses on matters related to tax legislation.  They help write tax law and generate Congress’s official revenue estimates of these proposals.

 

Other Helpful Resources:
Websites

The House Appropriations Committee website
The Senate Appropriations Committee website

Reports
A Brief History of the Committee on the Budget (in the House of Representatives)
History of the United States House of Representatives (1789-1994) [Chapter 9: The Power of the Purse]
The Congressional Budget Process: An Explanation (from the Senate)
Congressional Research Service, The Congressional Appropriations Process: An Introduction
House Committee on Rules, The Appropriations Process
Schick, Allen.  The Federal Budget: Politics, Policy, and Process

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