Manual on the Federal Budget Process

CRS Report for Congress
Manual on the Federal Budget Process
August 28, 1998
Robert Keith
Specialist in American National Government
Government Division
Allen Schick

Congressional Research Service ˜ The Library of Congress

This manual provides a comprehensive explanation of the federal budget process, including
an overview and separate chapters on the framework for budget enforcement; the President's
budget; the congressional budget resolution and reconciliation; revenues and borrowing;
authorizations and direct spending; annual appropriations; and the implementation of spending
laws. It is intended to assist users of federal budget information in understanding how the
process works and how data are to be interpreted. Excerpts from legislation, standard forms,
and other documentation developed at each stage of the budget process are exhibited.
Appended material includes a listing of milestones in the federal budget process, citations to
major budgetary laws, and a glossary of budgetary terms. The manual is not expected to be
updated. (A much shorter explanation of the federal budget process—28 pages—is provided
in CRS Report 98-721, Introduction to the Federal Budget Process.)

Manual on the Federal Budget Process
Budgeting for the federal government is an enormously complex process. It
entails dozens of subprocesses, countless rules and procedures, the efforts of tens of
thousands of staff persons in the executive and legislative branches, millions of work
hours each year, and the active participation of the President and congressional
leaders, as well as other Members of Congress and executive officials.
The enforcement of budgetary decisions involves a complex web of procedures
that encompasses both congressional and executive actions. These procedures are
rooted principally in two statutes—the Congressional Budget Act of 1974 and the
Budget Enforcement Act (BEA). The 1974 act established a congressional budget
process in which budget policies are enforced by Congress during the consideration
of individual measures. The BEA is the current embodiment of additional
enforcement procedures, first established in the Balanced Budget and Emergency
Deficit Control Act of 1985 and renewed with substantial modification in 1990 and
1997, that are used mainly by the Executive to enforce budget policies after
congressional action for a session has ended.
The President’s budget, officially referred to as the Budget of the United States
Government, is required by law to be submitted to Congress early in the legislative
session. The President’s budget is only a request to Congress. Nevertheless, the
power to formulate and submit the budget is a vital tool in the President’s direction
of the executive branch and of national policy. The President’s proposals often
influence congressional revenue and spending decisions, though the extent of the
influence varies from year to year and depends more on political and fiscal conditions
than on the legal status of the budget.
The Congressional Budget Act of 1974 establishes the congressional budget
process as the means by which Congress coordinates the various budget-related
actions (such as the consideration of appropriations and revenue measures) taken by
it during the course of the year. The process is centered around an annual concurrent
resolution on the budget that sets aggregate budget policies and functional spending
priorities for at least the next five fiscal years. Because a concurrent resolution is not
a law—it cannot be signed or vetoed by the President—the budget resolution does
not have statutory effect; no money can be raised or spent pursuant to it. Revenue
and spending amounts set in the budget resolution establish the basis for the
enforcement of congressional budget policies through points of order.
Congress implements budget resolution policies through action on individual
revenue and debt-limit measures, annual appropriations acts, and direct spending
legislation. In some years, Congress considers reconciliation legislation pursuant to
reconciliation instructions in the budget resolution.
The federal government has a decentralized system of expenditure management.
The Office of Management and Budget has year-round responsibility in overseeing the
expenditure of funds, but agencies have primary responsibility to ensure the legality
and propriety of expenditure.

Chapter 1. Overview of the Federal Budget Process.....................1
The Evolution of Federal Budgeting..............................3
The Budget Cycle...........................................5
Roles of the Participants.....................................11
Basic Concepts of Federal Budgeting............................15
The Budget and the Economy.................................20
Chapter 2. The Framework for Budget Enforcement....................23
Deficit Reduction and the Rules of Congressional Budgeting..........23
Budgeting for Discretionary and Direct Spending...................26
The Chain of Discretionary Spending Control.....................30
Deficit Targets, Discretionary Spending Limits, and the
PAYGO Process.......................................32
Baseline Budget Projections...................................38
Budgeting for Direct and Guaranteed Loans.......................39
Chapter 3. The President’s Budget.................................47
Formulation and Content of the President’s Budget.................48
The Economic Forecast and Projections..........................53
Information in the President’s Budget...........................56
Chapter 4. The Congressional Budget Resolution and Reconciliation.......63
The Congressional Budget Resolution...........................63
The Reconciliation Process...................................79
Chapter 5. Revenues and Borrowing...............................85
Revenue Legislation in Congress...............................88
Pay-As-You-Go (PAYGO) Rules..............................90
Tax Expenditures...........................................91
Offsetting Collections.......................................93
Borrowing ................................................ 93
Chapter 6. Authorizations and Direct Spending.......................99
The Authorization Process....................................99
Direct Spending...........................................106
Chapter 7. Annual Appropriations................................113
Types of Appropriations Measures.............................115
Appropriations Procedures in Congress.........................117
Continuing Appropriations...................................126
Interpreting Appropriations Measures..........................126
Chapter 8. Implementation of Spending Laws........................139
Implementation of Spending Laws.............................139
Financial Management......................................151
Appendix A. How to Obtain Publications Exhibited in the Manual........165

Appendix B. Milestones in the Federal Budget Process.................167
Appendix C. Citations to Major Budgetary Laws.....................171
Appendix D. Glossary of Budgetary Terms..........................173

List of Figures
Box 1-A.Congress’s “Power of the Purse”............................3
Box 1-B.Key Budgetary Agencies..................................4
Box 1-C.Major Laws Affecting Congressional Budgeting: 1974-1998.......6
Box 1-D.Principal Budgetary Entities of the Executive Branch............12
Box 1-E.Principal Budgetary Functions of Congressional Committees......13
Box 1-F.Principal Budgetary Functions of Congressional Support Agencies..14
Box 2-A.Differences Between Discretionary and Direct Spending..........28
Box 2-B.The Chain of Discretionary Spending Control..................31
Box 2-C.Sequestration Process Timetable...........................38
Box 2-D.Credit Reform Account Structure...........................46
Box 3-A.An Illustration of the Stages in Budget Formulation: The
Department of Education.............................49
Box 3-B.OMB Publications......................................50
Box 3-C.Confidentiality of Budgetary Information.....................51
Box 3-D.Volumes in the President’s Annual Budget Submission...........52
Box 4-A.Congressional Budget Process Timetable.....................64
Box 4-B.Functional Classifications of the Budget......................67
Box 4-C.Deficit Neutrality of Amendments..........................83
Box 4-D.The Senate’s “Byrd Rule” on Extraneous Matter...............84
Box 5-A.Bar Against Revenue Provisions in Non-Revenue Measures:
House Rules.......................................86
Box 5-B.Joint Committee on Taxation..............................88
Box 6-A.House and Senate Rules on Authorizing Legislation............102
Box 7-A.Appropriations Jurisdiction: House and Senate Rules..........114
Box 8-A.Major Financial Management Roles and Responsibilities.........140
Box 8-B.Restrictions on the Use of Funds..........................142
Box 8-C.Evidence of Obligation..................................144
Box 8-D.Major Federal Laws Affecting Financial Management...........152
Box 8-E.Major Features of the Government Performance and Results
Act of 1993......................................154
Box 8-F.Statements of Federal Financial Accounting Standards..........156

List of Tables
Exhibit 1-A.Outlays and Revenues as a Percentage of GDP: Fiscal
Years 1962-2006................................2
Exhibit 1-B.Relation of Budget Authority to Outlays..................17
Exhibit 1-C.Sensitivity of Budget Projections to Changes in Economic
Conditions .................................... 22
Exhibit 2-A.Alternative Measurements of the Deficit/Surplus............24
Exhibit 2-B.Outlays for Mandatory Spending and Net Interest:
FY1970-1996 .................................. 27
Exhibit 2-C.Discretionary Spending Limits.........................34
Exhibit 2-D.The PAYGO Scorecard..............................36
Exhibit 2-E.Hypothetical Baseline Projections and Policy Changes.......40
Exhibit 2-F.Relation of Subsidy Rates, Budget Authority, and Loan
Levels ........................................ 42
Exhibit 2-G.Calculation of Subsidy Cost...........................44
Exhibit 3-A.CBO Reestimates of the President’s Budget...............54
Exhibit 3-B.Economic Forecast..................................55
Exhibit 3-C.Appropriations Language.............................58
Exhibit 3-D.Program Description and Workload Data.................59
Exhibit 3-E.Program and Financing Schedule: Obligations by
Program Activity...............................60
Exhibit 3-F.Program and Financing Schedule: New Budget
Authority and Outlays............................61
Exhibit 3-G.Object Classification.................................62
Exhibit 4-A.Budget Resolution Aggregates: Revenues................65
Exhibit 4-B.Budget Resolution Aggregates: Spending, Deficit, and
Public Debt....................................66
Exhibit 4-C.Views and Estimates of Committees.....................68
Exhibit 4-D.Committee Report Accompanying a Budget Resolution......70
Exhibit 4-E.Section 302(a) Allocations to House Committees...........73
Exhibit 4-F.Section 302(a) Allocations to Senate Committees...........74
Exhibit 4-G.Section 302(b) Subdivisions by Appropriations Committees...75
Exhibit 4-H.CBO Cost Estimates.................................76
Exhibit 4-I.Scoring Reports....................................77
Exhibit 4-J.House Reconciliation Directives........................80
Exhibit 4-K.Senate Reconciliation Directives........................81
Exhibit 5-A.Sources of Revenue.................................87
Exhibit 5-B.Revenue Effects of Major Enacted Legislation.............89
Exhibit 5-C.Tax Expenditures...................................92
Exhibit 5-D.Offsetting Collections................................94
Exhibit 5-E.Increases in the Statutory Debt Limit During the 1990s......97

Exhibit 6-B.Types of Discretionary Authorizations..................104
Exhibit 6-C.Reauthorization Requirements........................105
Exhibit 6-D.Earmarking and Other Features of Authorizations..........107
Exhibit 6-E.Borrowing and Contract Authority.....................109
Exhibit 6-F.Entitlement Authority...............................110
Exhibit 7-A.Types of Appropriations Measures.....................116
Exhibit 7-B.Sequence of an Appropriations Act Through Congress......118
Exhibit 7-C.Sequence of House Actions on Appropriations Measures....120
Exhibit 7-D.Special Rules on Appropriations Bills...................121
Exhibit 7-E.Statement of Administration Policy.....................122
Exhibit 7-F.Sequence of Senate Action on Appropriations Measures.....123
Exhibit 7-G.Unanimous Consent Agreements on Appropriations Bills....124
Exhibit 7-H.Numbered Senate Amendments.......................125
Exhibit 7-I.Conference Action on Appropriations Measures...........127
Exhibit 7-J.Continuing Appropriations...........................128
Exhibit 7-K.Structure of a Regular Appropriations Act...............130
Exhibit 7-L.Structure of an Appropriations Account.................131
Exhibit 7-M.Other Types of Appropriations Accounts................132
Exhibit 7-N.Availability of Funds................................133
Exhibit 7-O.Limitations on Amount..............................134
Exhibit 7-P.Limitations on Use of Appropriated Funds...............136
Exhibit 7-Q.Committee Report: Account and Program Amounts.......137
Exhibit 7-R.Committee Report: Directives to Agencies..............138
Exhibit 8-A.Apportionment Procedures...........................141
Exhibit 8-B.GAO Decisions on the Legality of Expenditure............143
Exhibit 8-C.Reprogramming Rules..............................146
Exhibit 8-D.Presidential Impoundment Messages....................149
Exhibit 8-E.GAO Review of Impoundment Messages................150
Exhibit 8-F.Chief Financial Officer..............................153
Exhibit 8-G.Agency Financial Statements.........................157
Exhibit 8-H.Flow of Financial Transactions........................159
Exhibit 8-I.Management Accountability and Control................161

Manual on the Federal Budget Process
Chapter 1. Overview of the Federal Budget Process
Budgeting for the federal government is an enormously complex process. It
entails dozens of subprocesses, countless rules and procedures, the efforts of tens of
thousands of staff persons in the executive and legislative branches, millions of work
hours each year, and the active participation of the President and congressional
leaders, as well as other Members of Congress and executive officials. It could hardly
be otherwise, because so much is at stake when budget decisions are made.
Since 1962, as Exhibit 1-A shows, federal spending—as measured in
outlays—has amounted to between 17% and 24% of the Gross Domestic Product
(GDP) of the United States. Federal revenues have hovered between 17% and 20%
of GDP during the same period. The deficit, which has resulted from the imbalance
between revenues and spending, accounts for the largest single source of borrowing
in capital markets. Although the deficit declined markedly during most of this decade
and surpluses are projected for the near term, federal outlays and revenues as a share
of GDP will remain significant. The deficit is expected to recur, and rise sharply, in
a couple of decades as retirement and health costs for the “baby-boomer” generation
The trend of federal revenues and spending relative to GDP is only one of the
ways of measuring the impact of the budget. Trends also can be measured in terms
of real spending (i.e., inflation-adjusted spending), or in terms of the shares of the
budget allocated to major national priorities, such as defense, aid to state and local
governments, and health care. One of the useful ways of measuring trends is to
examine how the composition of federal spending has changed over time. Exhibit 2-
B, which is discussed later, reveals the growth in the share of the budget spent on
various entitlement programs. This exhibit suggests still another perspective: the
growth in the numbers of persons receiving various types of federal payments.
The budget is, however, much more than a matter of numbers. It finances
federal programs and assists many households in meeting basic expenses. It provides
a safety net for persons facing illness or old age. It is the means by which the United
States invests in its future through both physical improvements, such as highway
construction, and human improvements, such as training and education. The budget
pays for national defense and signals to allies and adversaries the role of the United
States on the world scene. It is one of the principal instruments available to the
federal government for regulating economic activity and for stabilizing household

Exhibit 1-A.
Outlays and Revenues as a Percentage of GDP:
Fiscal Years 1962-2006
(1)During the period from FY1962-2006, actual and projected revenues
(shown by the solid line) fluctuate within a narrow range, from 17.0% to

19.9% of Gross Domestic Product (GDP).

(2)Actual and projected outlays (shown by the dashed line) fluctuate within a
wider range during the same period, from 17.2% to 23.2% of GDP.
(3)The actual deficit reached a high of 6.1% of GDP in FY1983.
(4)In January 1998, CBO projected (as shown here) that favorable economic
developments, the enactment of deficit-reduction legislation, and other
factors would cause the deficit to be eliminated by FY2001. Within a
couple of months, CBO projected that a surplus would occur as early as
(5)The percentages shown here are on a “total budget” basis; they include the
transactions of the off-budget entities, which are the Social Security trust
funds and the Postal Service fund.
Source: Chart prepared by the Congressional Research Service based on
data in: Congressional Budget Office, The Economic and Budget Outlook:
Fiscal Years 1999-2008, January 1998, Summary Table 2, page xviii, and Table
E-5, page 113.

With so much at stake, it should not be surprising that budgeting often is a
difficult and contentious process. Allocating over a trillion-and-a-half dollars is
anything but a routine task, for as big as the budget is, there is never enough money
to satisfy all the claims on it. To budget is to fight over money. The conflict sprawls
between the two parties and between the executive and legislative branches. There
often is friction among congressional committees and between those who make tax
policy and those who control spending. The scope of conflict has expanded as the
size of the budget has grown and become even more prominent in the economic life
of the country.
The procedures described in this manual are the means devised over the years
to channel conflict in ways that enable the numerous participants to work their way
toward agreement each year. In this sense, the rules affect outcomes. How much is
taxed and spent and who gets what depend in substantial measure on the rules and
procedures of federal budgeting. In studying the budget process, therefore, one gains
an understanding not only of the roles of participants and the many steps that they
must take each year, but also of the interaction between budgetary procedures and
policy. (Appendix A explains how to obtain publications cited in this report.)
The Evolution of Federal Budgeting
The “power of the purse” is a legislative power. The Constitution lists the power
to lay and collect taxes and the power to borrow as powers of Congress; further, it
provides that funds may be drawn from the Treasury only pursuant to appropriations
made by law (see Box 1-A). The Constitution does not state how these legislative
powers are to be exercised, nor does it expressly provide for the President to have a
role in the management of the nation’s finances. During the nation’s early years, the
House and Senate devised
Box 1-A.procedures for the enactment of
Congress’s “Power of the Purse”spending and revenue
legislation. As these proceduresth
U.S. Constitutionevolved during the 19 century
and the first decades of the 20th
Article I, Section 8century, they led to highly
fragmented legislative actions.
The Congress shall have PowerIn the course of each session,
To lay and collect Taxes, Duties,Congress passed many separate
Imposts, and Excises ...appropriations bills and other
To borrow Money on the credit ofmeasures affecting the financial
the United States ...condition of the federal
government. Neither the
Article I, Section 9Constitution nor the procedures
adopted by the House and
No Money shall be drawn from theSenate provided for a budget
Treasury, but in Consequence ofsystem (that is, for a
Appropriations made by Law ...coordinated set of actions
covering all federal spending
and revenues). As long as the
federal government was small and its spending and revenues were stable, such a
budget system was not considered necessary.

Legislative fragmentation was mirrored by fragmentation in the executive branch.
The President had a limited role in overseeing financial operations, and most agencies
submitted their spending estimates to relevant congressional committees without
having their requests reviewed by the President. Early in this century, however, the
incessant rise in federal spending and the recurrence of deficits (spending exceeded
revenues in half of the 20 years preceding FY1920) led Congress to seek a more
coordinated means of making financial decisions. The key legislation was the Budget
and Accounting Act of 1921, which established the executive budget process.
The 1921 Budget and Accounting Act did not directly alter the procedures by
which Congress makes revenue and spending decisions. The main impact was in the
executive branch. The President was required to submit his budget recommendations
to Congress each year, and the Bureau of the Budget—renamed the Office of
Management and Budget (OMB) in 1970—was created to assist him in carrying out
his budgetary responsibilities (see Box 1-B for an identification of key budgetary
agencies). Congress, it was expected, would be able to coordinate its revenue and
spending decisions if it received comprehensive budget recommendations from the
President. In line with this expectation, the House and Senate changed their rules to
consolidate the jurisdiction of the Appropriations Committees over spending. The
1921 act also established the General Accounting Office (GAO), headed by the
comptroller general, and made it the principal auditing arm of the federal government.
The 1921 act, as amended, remains the statutory basis for the presidential budget
Box 1-B.After World War II, the
Key Budgetary Agenciesbelief that the presidential budget
sufficed to maintain fiscal control
Congressional Budget Office (CBO)gave way to the view that
Created by the 1974 CongressionalCongress needed its own budget
Budget Act, CBO serves as Congress’sprocess. Some Members of
independent, nonpartisan agency forCongress feared that dependence
budgetary information and analysis.on the executive budget had
bolstered the President’s fiscal
General Accounting Office (GAO)powers at the expense of
Created by the 1921 Budget andCongress’s; others felt that as
Accounting Act, GAO conducts auditslong as its financial decisions
and evaluations of federal programs forwere fragmented, Congress
Congress, as well as many other types ofcould not effectively control
budgetary activity.expenditures. Some efforts were
Office of Management and Budget (OMB)made in the late 1940s to createa congressional budget, but it
Established by the 1921 Budget andwas not until the 1970s that a
Accounting Act as the Bureau of thedurable process was established.
Budget, and renamed in 1970, OMB
coordinates the preparation andThe Congressional Budget
implementation of the President’sand Impoundment Control Act
budget.of 1974 established a
congressional budget process
centered around a concurrent resolution on the budget, scheduled for adoption prior
to legislative consideration of revenue or spending bills. The congressional budget

process initiated in the 1970s did not replace the preexisting revenue and spending
processes. Instead, it provided an overall legislative framework within which the
many separate measures affecting the budget would be considered. The central
purpose of the budget process established by the 1974 act is to coordinate the various
revenue and spending decisions that are made in separate revenue, appropriations, and
other budgetary measures. To assist Congress in making budget decisions, the 1974
act established the Congressional Budget Office (CBO) and directed it to provide data
on and analyses of the federal budget.
During the years that the congressional budget process has been in operation, its
procedures have been adapted by Congress to changing circumstances. Following a
decade of experience with the 1974 Congressional Budget Act, Congress made
further changes in the budget process by enacting the Balanced Budget and
Emergency Deficit Control Act in 1985 (also known as the Gramm-Rudman-Hollings
Act), the Budget Enforcement Act in 1990, and the Line Item Veto Act in 1996,
among other laws.
The 1985 act prescribed declining deficit targets intended to achieve balance in
FY1991; the targets were enforced by sequestration, a process involving automatic,
across-the-board cuts in nonexempt spending programs if the targets were expected
to be exceeded. The 1990 act replaced the deficit targets with caps on discretionary
spending and a pay-as-you-go requirement for revenue and direct spending legislation;
sequestration was retained as the means of enforcing the two new mechanisms.
Finally, the 1996 act authorized the President to cancel discretionary spending in
appropriation acts, as well as new direct spending and limited tax benefits in other
legislation, subject to expedited legislative procedures by which Congress could
overturn the cancellations. (The Supreme Court struck down the Line Item Veto Act
in June 1998 as unconstitutional.) Other, less extensive changes have been made from
time to time. The various modifications made by these and other laws are discussed
in appropriate sections of the manual.
Box 1-C identifies some of the major laws affecting the congressional budget
process in the last quarter century. Appendix B summarizes the major milestones in
the development of the federal budget process. Appendix C provides citations to
major budgetary laws.
The Budget Cycle
Federal budgeting is a cyclical activity that begins with the formulation of the
President’s annual budget and concludes with the audit and review of expenditures.
The process spreads over a multi-year period. The main stages are formulation of the
President’s budget, congressional budget actions, implementation of the budget, and
audit and review. While the basic steps continue from year to year, particular
procedures often vary in accord with the style of the President, the economic and
political considerations under which the budget is prepared and implemented, and
other factors.

Box 1-C.
Major Laws Affecting Congressional Budgeting: 1974-1998
Congressional Budget and Impoundment Control Act of 1974
Established the congressional budget process, including the budget
resolution and reconciliation, created House and Senate Budget Committees
and CBO, and set forth impoundment control procedures.
Balanced Budget and Emergency Deficit Control Act of 1985
(Gramm-Rudman-Hollings Act)
Established declining deficit targets, leading to balance in FY1991, and the
sequestration process; also, modified the congressional budget process
Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987
Placed the sequester “trigger” in the hands of the OMB director and revised
and extended the deficit targets, aiming at balance in FY1993.
Budget Enforcement Act of 1990
Replaced deficit targets with discretionary spending limits and a pay-as-you-
go (PAYGO) process through FY1995, both enforced by sequestration; also,
modified the congressional budget process extensively. Included the Federal
Credit Reform Act of 1990.
Omnibus Budget Reconciliation Act of 1993
Extended the discretionary spending limits and PAYGO process through
Line Item Veto Act (1996)
Granted the President special authority from 1997 through 2004 to cancel
discretionary spending, new direct spending, or limited tax benefits in
legislation. (Struck down by the Supreme Court in June 1998.)
Budget Enforcement Act of 1997
Extended the discretionary spending limits and PAYGO process through
FY2002 and made changes (mostly minor or technical) in the congressional
budget process.
The activities related to a single fiscal year usually stretch over a period of two-
and-a-half calendar years (or longer). As the budget is being considered, federal
agencies must deal with three different fiscal years at the same time: implementing
the budget for the current fiscal year; seeking funds from Congress for the next fiscal
year; and planning for the fiscal year after that.
Formulation of the President’s Budget. No later than early February of
each year, the President must submit to Congress a budget for the fiscal year starting
on October 1. Preparation of the President’s budget begins in the spring of the
preceding year, about ten months before it is submitted to Congress. At the time the

budget is being considered, federal agencies must deal concurrently with three fiscal
years: they are implementing the budget for the current fiscal year, seeking funds
from Congress for the fiscal year starting on October 1 (the budget year), and
preparing for the fiscal year after that. Understandably, therefore, budgets are
formulated with a great deal of uncertainty about the conditions to which they will
Before it examines detailed spending and program requests, OMB reviews the
major policy issues for the next budget and updates the long-term forecast of revenues
and spending. Together with the Council of Economic Advisers (CEA), it reviews
the economic outlook and presents the President with a projection of future economic
conditions. The President often issues (through OMB) policy directives and planning
guidelines to be used by agencies in preparing their budget requests. The extent to
which these guidelines limit the amounts that agencies may request varies from year
to year.
The summer months and the early fall are an intensive period for preparation of
detailed budget requests by federal agencies. These requests are reviewed by OMB,
which notifies agencies of the spending levels recommended by it for their programs.
Agencies have a brief period during which they may appeal to the President for higher
levels than were recommended by OMB. Some recent Presidents (particularly Nixon,
Reagan, and Bush) delegated much of the “appeals” function to senior White House
staff; others (such as Ford, Carter, and Clinton) had a more direct role in resolving
budget appeals. The appeals often involve policy issues as well as budget levels.
After the appeals have been decided, budget preparation is completed, but changes
may be made right up to the deadline for printing the budget.
The budget submitted by the President contains a report for the upcoming fiscal
year, indicating whether the President’s recommendations are consistent with the
discretionary spending limits and pay-as-you-go requirement established under the
Budget Enforcement Act of 1990, as amended.
Congressional Action on the Budget. Congressional budget actions may
be classified according to three distinct types of measures involved: (1) adoption of
a budget resolution; the steps associated with this action commonly are referred to as
the “congressional budget process”; (2) passage of the annual appropriations bills,
including regular, supplemental, and continuing appropriations measures; and (3)
passage of other legislation affecting the federal budget, such as authorizing
legislation, reconciliation bills, and measures changing tax law, modifying entitlement
programs, or adjusting the debt limit. The budget resolution is Congress’s main
procedure for linking these different types of measures.
The Budget Resolution. The congressional budget process begins early
each year after the President submits his annual budget. Congress is not bound by the
President’s recommendations. When it develops a budget resolution, Congress may
use different policy, economic, and technical assumptions than those presented in the
executive budget. When it enacts legislation to carry out the budget plan, it may
provide more or less funds than the President has requested for particular programs,
or make different changes in tax laws than the President has recommended.

Under the 1974 Congressional Budget Act, each House and Senate committee
is required to issue a “views and estimates” report on the budget matters in its
jurisdiction within six weeks after the President submits his budget. The Budget
Committees use these reports, along with CBO analyses, to prepare the budget
resolution for the coming fiscal year. The Budget Committees use baseline
projections of revenues, spending, and the surplus or deficit to estimate the impact of
proposed policy changes.
The budget resolution, which is supposed to be adopted by April 15, contains
total revenue and spending levels for at least five fiscal years. These totals generally
are binding for the first year and the sum of all five years. Because it is a concurrent
resolution (which is not presented to the President for his signature or veto), the
budget resolution does not have statutory effect. No taxes can be levied or funds
spent pursuant to a budget resolution.
The budget resolution consists of three main sections: aggregates, functional
allocations of spending, and (optionally) reconciliation instructions. The aggregates
include total revenues, and the amount by which total revenues should be changed;
total new budget authority; total outlays; the surplus or deficit; and the debt limit.
The new budget authority and outlay levels are allocated among 20 functional
categories, such as National Defense, International Affairs, Energy, or Agriculture.
Reconciliation instructions direct designated House and Senate committees to report
legislation conforming spending, revenue, or debt-limit levels under existing law to
current budget policies. These instructions are included when Congress seeks to
make changes in revenue or direct spending laws.
The budget resolution does not mention specific programs or accounts, but the
aggregates, functional allocations, and reconciliation instructions typically are
predicated on assumptions about particular programs. These assumptions sometimes
are set forth in the reports of the Budget Committees accompanying the budget
resolution, but they are not binding on Congress when it considers revenue or
spending legislation.
To ensure that the budget resolution serves as a guideline for subsequent action
on budget-related measures, Congress is supposed to adopt it before turning to the
consideration of revenue, spending, or debt-limit measures for the next fiscal year.
However, Congress often fails to adopt the budget resolution by the April 15 deadline
specified in the 1974 Congressional Budget Act. The rules of the House permit it to
consider regular appropriations bills after May 15 even if the budget resolution has
not yet been adopted.
Annual Appropriations Measures. The rules of the House and (to a lesser
extent) the Senate require that agencies and programs be authorized in law before an
appropriation is made for them. An authorizing act is a law that: (1) establishes a
program or agency and the terms and conditions under which it operates; and (2)
authorizes the enactment of appropriations for that program or agency. Authorizing
legislation may originate in either the House or the Senate and may be considered any
time during the year. Many agencies and programs have temporary authorizations
that have to be renewed annually or every few years.

Action on appropriations measures sometimes is delayed by the failure of
Congress to enact necessary authorizing legislation. The House and Senate often
waive or disregard their rules against unauthorized appropriations for ongoing
programs that have not yet been reauthorized.
The budgetary impact of authorizing legislation depends on whether it contains
only discretionary authorizations (for which funding is provided in annual
appropriations acts) or direct spending, which itself enables an agency to enter into
Annual appropriations are provided in 13 regular appropriations bills, each one
under the jurisdiction of parallel House and Senate Appropriations subcommittees that
recommend spending levels to the full committees. These bills come to the House and
Senate individually as do other measures (such as revenue and entitlement legislation)
affecting overall budget levels. When Congress fails to enact all of the regular
appropriations bills by the start of the fiscal year, it provides interim funding in
continuing resolutions. In some years, these measures have provided appropriations
for the full fiscal year, not just for a month or two. Congress also enacts supplemental
appropriations measures to provide additional funding to federal agencies or programs
or to finance spending not covered in the regular appropriations bills.
Regular, continuing, and supplemental appropriations measures (as well as other
spending legislation) are linked to the budget resolution through the “Section 302”
procedures established in those sections of the 1974 Congressional Budget Act. After
a budget resolution has been adopted, the spending totals are allocated to the House
and Senate Appropriations Committees (and to other committees with spending
jurisdiction). The Appropriations Committees then subdivide their spending amounts
among their 13 subcommittees. When an appropriations measure is considered by the
House or Senate, the spending provided in it is compared to the amount subdivided
to the pertinent subcommittee. In some circumstances, consideration of an
appropriations measure may be barred by a point order on the grounds that budget
resolution levels or the Section 302 amounts would be breached. In most instances,
however, the appropriations bill is consistent with the Section 302 subdivision.
Reconciliation Bills and Other Measures Affecting the Budget.
Annual appropriations are enacted for only about half of total federal spending; the
remainder is determined largely by permanent appropriations and other funding
devices that do not require annual action by Congress. In addition, the amount of
revenue generated each year is determined principally by existing law. This means
that Congress cannot enforce its budget decisions merely by comparing the amounts
in new legislation with its budgeted levels. The portions of the budget governed by
existing law are controlled primarily through the reconciliation procedures mentioned
earlier. These procedures are triggered by reconciliation instructions in the budget
resolution that direct designated committees to change revenue or spending laws by
specified amounts. In most instances, committees subject to reconciliation
instructions are given a deadline by which they are to report changes in existing laws.
The recommendations of the instructed committees usually are consolidated into an
omnibus reconciliation bill.

Congressional committees also can report legislation changing revenue or
spending laws (such as entitlements) on their own initiative. When they do so, the
amounts of revenue or spending estimated to result from enactment of the measure
are compared to the budget resolution or the Section 302 allocations. Under some
circumstances, variance from the budgeted levels can lead to a point of order barring
consideration of the legislation.
Implementation of the Budget. Although they are bound by congressional
decisions, agencies typically have some spending discretion because appropriations
are made in broad categories. Agencies generally conform to the financial and
program plans they submit to congressional committees, but they sometimes
reprogram funds (shift them from one use to another within an account) or use other
devices to meet unanticipated needs or changing conditions. Some reprogrammings
require approval by the Appropriations Committees or legislative committees.
Agencies cannot spend appropriations until OMB apportions those funds. The
Antideficiency Act requires that OMB apportion funds to prevent the necessity for
deficiency or supplemental appropriations or to achieve the most effective and
economical use of funds. OMB apportions available funds among time periods (such
as quarters or months) or projects, then agencies allot their apportioned funds among
their administrative units. Agencies generally are not permitted to spend in excess of
their apportionments.
When the President or another executive official withholds funds provided by
Congress, he uses the procedures set forth in the Impoundment Control Act of 1974.
If the President wants to delay obligations or expenditures, he proposes a deferral, but
may do so only for the reasons authorized in the Antideficiency Act. He cannot defer
funds for policy reasons. If the President wants to cancel an appropriation, he must
propose a rescission. If Congress fails to rescind the funds within a 45-day waiting
period, the President must release the funds. The comptroller general oversees
compliance with the Impoundment Control Act.
In 1996, Congress gave the President special authority for 1997-2004 to cancel
discretionary spending, items of new direct spending, and limited tax benefits under
the Line Item Veto Act. President Clinton exercised this authority in 1997 in the case
of two reconciliation acts and nine regular appropriations acts for FY1998. However,
the Supreme Court struck down the act in June 1998.
The final phase of the budget process is review and audit. Under the principle
of internal control, agencies have the primary responsibility for ensuring the propriety
and efficiency of their expenditures. Agencies are required to maintain accounting
systems and to audit their expenditures in accordance with standards promulgated by
GAO. Two laws passed in recent years, the Chief Financial Officers Act of 1990 and
the Government Performance and Results Act of 1993, seek to strengthen financial
management and reporting in the federal government.

Roles of the Participants
Budgeting cannot be an isolated activity, conducted solely by a small number of
financial experts. Because the stakes in budgeting radiate to all sectors of public
policy, the participants come from all parts of the federal government. Some
budget-makers are program specialists; others are fiscal experts. Some occupy central
roles in government; some participate from the limited perspective of a particular
program or organization. The division of budgetary labor is essentially political in
character: there are program advocates and fiscal guardians, legislative controllers
and executive bargainers, presidential agents and agency managers.
The existence of parallel legislative and executive processes adds significantly to
the number and diversity of budget participants. The executive branch has its own
budget experts; so too does Congress. There are program experts in all executive
agencies as well as in most congressional committees. Congress, in exercise of its
budgetary independence, has developed its own databases, so as to avoid undue
dependence on executive sources.
There is much greater budgetary heterogeneity in Congress than in the executive
branch, however. As an institution that represents a diversity of interests and
perspectives, Congress has diversified its budgetary processes to allow a multiplicity
of participants. When it comes to public money, no one in Congress is fully in charge,
but just about every Member and committee has some role in shaping revenue or
spending legislation.
The principal roles and functions of the participants in the budget process are
summarized in the next three boxes and discussed in more detail below.
Executive Roles. There are three main participants in executive budgeting;
arrayed in hierarchical order, they are the President, OMB, and the executive agencies
(see Box 1-D). In addition to these, various executive units have specialized roles.
The Treasury Department maintains governmentwide accounts, manages federal cash
and debt, issues periodic statements on the condition of the budget, and has the lead
role (on the executive side) in tax policy. The Council of Economic Advisers prepares
the annual Economic Report, forecasts economic trends, and advises the President
(along with others) on economic policy, and the National Economic Council
coordinates policy advice for the White House.
Budget roles cannot be considered independently of the participants. As the
interests, skills, and relationships among participants change, so too do the roles they
play. Some presidents take an active interest in budget policy; but few of them get
involved in specific budget decisions.
The manner in which the President uses OMB (and its director) varies from
administration to administration. In some years, OMB has the dominant role in budget
policy; in other seasons, it faces tough competition from other presidential agencies
and advisors.
Yet there must be a measure of stability to budgetary roles, if only because of the
urgent need to produce a budget each year. If some participants were to behave

Box 1-D.
Principal Budgetary Entities of the Executive Branch
Office of Management
Presidentand Budget (OMB)Federal agencies
Establishes executiveOperates executiveSubmit budget requests to
budget policy andbudget system andOMB; appeal to
submits budget toadvises President.President for more funds.
Issues budget targets and Justify President’s budget
Submits supplemental“passbacks” to agencies.recommendations before
requests, budgetcongressional
amendments, and updatesPrepares budget optionscommittees.
to Congress.and recommendations for
President.Request apportionment
Signs (or vetoes) revenue,from OMB and allot
appropriation, and otherIssues sequestrationfunds among subunits.
budget-related measuresreports.
passed by Congress.Maintain accounting
Reviews proposedsystems and systems of
Notifies Congress oflegislation and testimonyinternal control.
proposed rescissions andto determine whether it
deferrals.conforms to theObligate funds and pre-
President’s policies.audit expenditures.
Issues sequestration
orders to cancelApportions funds andCarry out the activities
budgetary resources.oversees execution of thefor which funds were
budget. provided.
Conducts managementDevelop strategic plans,
activities to improveperformance measures,
efficiency of federaland other material on
expenditures.program objectives and
Scores the budgetary
impact of enacted
differently each year, others might not know what to expect of them or how to adjust
their own roles. Budgeting is a process that depends on reciprocal expectations. It
is expected that agencies will seek more funds for programs in their jurisdiction and
that OMB will seek to constrain budgetary growth. It is expected that the President
will try to push his budget through Congress and that legislators will try to exercise
some independence in budget policy, but it is also expected that both sides will
compose their differences without going to the brink. When one side is more adamant
than usual, this pattern of expectations can break down, leading to protracted conflict,
as happened in the mid-1990s.

Box 1-E.
Principal Budgetary Functions of Congressional Committees
Authorizing Appropriations Revenue Budget
Committees Committees Committees Committees
Report authorizingReport regular,Report revenueReport budget
and directsupplemental, andlegislation.resolutions.
spending continuing
legislation.appropriation bills.Report legislationDraft
on public debtreconciliation
Oversee executiveReview proposedlimit, Socialinstructions and
agencies.rescissions andSecurity, andcompile
deferrals.certain otherreconciliation bill.
Submit views andentitlements.
estimates toSubmit views andAllocate new
Budgetestimates toSubmit views andbudget authority
Committees onBudgetestimates toand outlays to
matters in theirCommittees onBudgetcommittees.
jurisdiction.federal spending.Committees on
matters in theirMonitor budget
RecommendProvide guidance,jurisdiction.and advise
changes in lawsdirectives, andCongress on its
pursuant toearmarks inRecommendstatus.
reconciliationreportschanges in laws
instructions.accompanying thepursuant toScore the
appropriation bills.reconciliationbudgetary impact
Include CBO costinstructions.of revenue and
estimates inEstablish rules fordirect spending
reports on theirreprogramming.legislation.
Establish account
structure for
federal agencies.
Legislative Roles. Legislative roles encompass the activities of congressional
leaders, House and Senate committees (see Box 1-E), and congressional support
agencies (see Box 1-F). In recent years, legislative budgetary roles have been less
stable than in the past. Several explanations can be offered for this, beginning with the
fact, already noted, that there is considerable diversity in legislative budgetary roles.
However, the congressional budget process, other changes in budgetary procedure,
and political differences between the two branches have been of greater importance.
The 1974 Congressional Budget Act introduced new participants in the
legislative process, but it also retained the old ones. On paper, the roles of the
revenue, authorizing, and appropriating committees were hardly changed, but the
establishment of the Budget Committees inevitably altered expectations and behavior.

Even before the budget process was established, Congress was experiencing
considerable budgetary turbulence. As many authorizing committees moved from
permanent to periodic authorizations, they became more active in proposing spending
levels for specific programs. Moreover, entitlements (as well as other forms of direct
spending) became more prevalent. These changes affected the jurisdiction and role
of the Appropriations Committees.
Box 1-F.
Principal Budgetary Functions of Congressional Support Agencies
CongressionalGeneral AccountingCongressional
Budget OfficeOfficeResearch Service
Issues reports on budgetReviews agencyAnalyzes legislative issues
and economy, including 5-accounting and financialand proposals affecting
year and program
Analyzes federalReviews deferrals and
programs and options forrescissions to determinePrepares legislative
dealing with selectedwhether they have beenhistories of particular
problems.properly reported, andlegislation and programs.
whether funds have been
Reestimates thereleased as required.Analyzes proposals to
President’s budget usingchange the federal budget
its own economic andAudits operations ofprocess.
technical assumptions.certain federal agencies.
Assists committees and
Estimates 5-year costs ofIssues legal opinionsMembers by providing
reported bills.concerning the use ofdata and analyses relevant their legislative
Estimates costs ofresponsibilities.
unfunded mandates inSettles claims and debt
reported bills.collection issues involving
appeals of agency actions
Issues advisoryand certain questions of
Maintains databases forEvaluates programs and
scorekeeping.develops methods for
assessing the effectiveness
Prepares baseline budgetof expenditures.
Assists the budget, tax,
appropriations, and other
Despite the fact that the congressional budget process has been in operation for
more than two decades, role changes continue to unfold in Congress. Reconciliation
has altered legislative roles and relationships. In each year since 1975, the
congressional budget process has been implemented differently. Multi-year budgeting

was introduced one year, credit budgeting another. In some years party leaders have
been active in shaping the budget; in other years they have remained on the sidelines.
Relationships between Congress and the White House have varied from year to year
and have contributed to role uncertainty on Capitol Hill. The 1985 Balanced Budget
Act and deficit pressures also have influenced legislative roles and behavior.
The budgetary roles and relationships of the President and congressional
participants have been greatly affected by reliance on budget summit negotiations
between the executive and legislative branches. A summit agreement in 1987
established overall budget policy for FY1988 and FY1989; a 1989 summit agreement
set overall policy for FY1990; a summit agreement in 1990 established the budget
framework for FY1991-1995; and a summit agreement in 1997 set the path for a
balanced budget by FY2002.
The increased reliance on summit negotiations has been due to two factors—split
political control of the executive and legislative branches, and the drive to reduce or
eliminate the budget deficit. In 18 of the 24 years since Congress established its own
budget process, the presidency has been controlled by one party, and one or both
houses of Congress by the other. During this period, Republicans and Democrats
often have disagreed on budget policy, and each party has had sufficient strength to
block the other’s initiatives. Moreover, as concern over deficit spending mounted,
both parties faced difficult and often controversial decisions on taxing and spending.
Negotiated budgets have been the principal means by which the two parties have
bridged their differences and agreed on policies to reduce the deficit.
The importance of budget summitry was demonstrated by the budget deadlock
and government shutdown in 1995. During that year, each party proceeded on its
own. The President submitted a budget that was unacceptable to congressional
Republicans, who adopted a budget resolution that diverged significantly from
President Clinton’s proposals. When Congress tried to implement its budget strategy
in reconciliation legislation, President Clinton vetoed the bill. In the ensuing impasse,
Congress and the President were unable to agree on major appropriations bills,
leading to the lengthiest shutdown of federal agencies in U.S. history.
The 1995 stalemate shows that the outcomes of budget summits generally are
uncertain because they depend on the willingness of the two branches to enter into
negotiations and to set aside major differences in budget policy. Two of the summit
negotiations mentioned above took place in the spring, the other two occurred in the
fall. The first agreement covered two fiscal years, the next applied to only a single
fiscal year, and the most recent ones covered five fiscal years. If summit negotiations
guide budget making in the future, one result is likely to be greater uncertainty about
the budgetary behavior of participants.
Basic Concepts of Federal Budgeting
The federal budget is a compilation of numbers about the revenues, spending,
and borrowing and debt of the government. Revenues come largely from taxes, but
stem from other sources as well (such as duties, fines, licenses, and gifts). Spending
involves such concepts as budget authority, obligations, outlays, and offsetting
collections. The numbers are computed according to rules and conventions that have

accumulated over the years; they do not always conform to the way revenues and
spending are accounted for in other processes. Some of the rules are not recognized
in law, but they are nonetheless used by the various participants in federal budgeting.
Appendix D provides a glossary of terms used in the federal budget process.
Budget Authority and Outlays. When Congress appropriates money, it
provides budget authority, that is, authority to enter into obligations. Budget
authority also may be provided in legislation that does not go through the
appropriations process (direct spending legislation). The key congressional spending
decisions relate to the obligations that agencies are authorized to incur during a fiscal
year, not to the outlays made during the year. (Obligations occur when agencies
enter into contracts, submit purchase orders, employ personnel, and so forth; outlays
occur when obligations are liquidated, primarily through the issuance of checks,
electronic fund transfers, or the disbursement of cash.)
Budget authority that first becomes available for a fiscal year is counted as new
budget authority. In programs that have permanent appropriations, new budget
authority becomes available each year without congressional action. Under law, the
income of the Social Security trust funds and certain other trust funds is automatically
available for obligation; hence, the annual receipts of these funds are counted as new
budget authority.
The provision of budget authority is the key point at which Congress exercises
control over federal spending, although the outlay level often receives greater public
attention because of its bearing on the deficit. Congress does not directly control
outlays; each year’s outlays derive in part from new budget authority and in part from
“carryover” budget authority provided in prior years. For example, President
Clinton’s budget for FY1999 estimated that outlays would total $1,733 billion. As
shown in Exhibit 1-B (taken from the President’s FY1999 budget), approximately
$1,365 billion of this amount was estimated to come from new budget authority for
the fiscal year, while the remainder ($368 billion) was estimated to come from budget
authority enacted in prior years.
Budget authority and outlays can be thought of as akin to deposits and
withdrawals in a bank account. When Congress provides budget authority, whether
by appropriating funds or otherwise enacting legislation that enables an agency to
incur obligations, its actions have the effect of making a deposit into an agency
account. That is, the budget authority augments the financial resources available to
the agency. When bills are paid and outlays occur, resources are withdrawn from the
agency’s account.
The relation of budget authority to outlays varies from program to program and
depends on spendout rates, the rates at which funds provided by Congress are
obligated and payments disbursed. In a program with a high spendout rate, most new
budget authority is expended during the fiscal year; if the spendout rate is low,
however, most of the outlays occur in later years.

Exhibit 1-B.
Relation of Budget Authority to Outlays
(dollars in billions)
(1)This exhibit shows the relationship of budget authority to outlays in the
FY1999 budget. It shows that: (a) not all budget authority becomes
outlays in the year for which it is provided; and (b) a portion of each year’s
outlays derives from budget authority provided in prior years. The flow of
outlays from budget authority is measured by the spendout rate, sometimes
called the outlay rate.
(2)Total new budget authority typically exceeds total outlays for a fiscal year
because in programs with long lead times, such as construction, it may take
years for the resources provided by Congress to be spent.
(3)The outlays set forth in the budget are only estimates of the amount to be
spent. Actual outlays for a fiscal year may vary significantly from the
estimate. However, congressional budget procedures, such as Section 302
allocations, control annual appropriations acts and other legislation in
terms of the volume of outlays in a fiscal year.
(4)Unspent budget authority carried over into future years consists of both
obligated and unobligated balances. Most of the obligated balances are
for contracts entered into in prior years; most of the unobligated balances
are in trust funds.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Chart

20-1, page 352.

Regardless of the spendout rate, the outlays in the budget are merely estimates
of the amounts that will be disbursed during the year. If payments turn out to be
higher than the budget estimate, outlays will be above the budgeted level. The
President and Congress control outlays indirectly by deciding on the amount of
budget authority to be provided or by limiting the amount of obligations to be
Budget reforms enacted since 1985 have increased the prominence of outlay
estimates and controls in federal budgeting. Under these procedures, outlay estimates
are essential in enforcing the discretionary spending limits and the pay-as-you-go
requirement. This process is outlined in the next chapter.
Certain receipts of the federal government are accounted for as “offsets” against
outlays rather than as revenues. Various fees collected by government agencies are
deducted from outlays; similarly, income from the sale of certain assets are treated as
offsetting receipts. Most such receipts are offset against the outlays of the agencies
that collect the money, but in the case of offshore oil leases and certain other
activities, the revenues are deducted from the total outlays of the government.
Scope of the Budget. The budget consists of two main groups of funds:
federal funds and trust funds. Federal funds—which comprise mainly the general
fund—largely derive from the general exercise of the taxing power and general
borrowing and for the most part are not earmarked by law to any specific program or
agency. One component of federal funds, called special funds, are earmarked as to
source and purpose. The use of federal funds is determined largely by appropriations
Trust funds are established, under the terms of statutes that designate them as
trust funds, to account for funds earmarked by specific sources and purposes. The
Social Security funds are the largest of the trust funds; revenues are collected under
a Social Security payroll tax and are used to pay for Social Security benefits and
related purposes. The unified budget includes both the federal funds and the trust
funds. The balances in the trust funds are borrowed by the federal government; they
are counted, therefore, in the federal debt. Because these balances offset a budget
deficit but are included in the federal debt, the annual increase in the debt invariably
exceeds the amount of the budget deficit. For the same reason, it is possible that the
federal debt will rise even when the federal government has a budget surplus.
Capital and operating expenses are not segregated in the budget. Hence, monies
used for the operations of government agencies as well as for the acquisition of
long-life assets (such as buildings, roads, and weapons systems) are reported as
budget outlays. Proposals have been made from time to time to divide the budget into
capital and operating accounts. While these proposals have not been adopted, the
budget contains various tables showing the investment and operating outlays of the
The budget totals do not include all the financial transactions of the federal
government. The main exclusions fall into two categories—off-budget entities and
government-sponsored enterprises. In addition, the budget includes direct and

guaranteed loans on the basis of the accounting rules established by the Federal Credit
Reform Act of 1990, which are discussed more fully in the next chapter.
Off-budget entities are excluded by law from the budget totals. The receipts and
disbursements of the Social Security trust funds (the Old-Age and Survivors
Insurance Fund and the Disability Insurance Fund), as well as spending for the Postal
Service Fund, are excluded from the budget totals. These transactions are shown
separately in the budget. Thus, the budget now reports two deficit or surplus
amounts—one excluding the Social Security trust funds and the Postal Service Fund,
and the other (on a “total” or “consolidated” basis) including these entities. The latter
is the main focus of discussion in both the President’s budget and the congressional
budget process. The official policy adopted by the President and Congress to achieve
a balanced budget early in the near term uses a consolidated basis, which includes
Social Security.
The transactions of government-owned corporations (excluding the Postal
Service), as well as revolving funds, are included in the budget on a net basis. That
is, the amount shown in the budget is the difference between receipts and outlays, not
the total activity of the enterprise or revolving fund. If, for example, a revolving fund
has annual income of $150 million and disbursements of $200 million, the budget
would report $50 million as net outlays.
Government-sponsored enterprises (GSEs) are excluded from the budget
because they are deemed to be private rather than public entities. The federal
government does not own any equity in these enterprises, most of which receive their
financing from private sources. Although they were established by the federal
government, their budgets are not reviewed by the President or Congress in the same
manner as other programs. Most of these enterprises engage in credit activities. They
borrow funds in capital markets and lend money to homeowners, farmers, and others.
In total, these enterprises have assets and liabilities in excess of one trillion dollars.
At this writing, the government-sponsored enterprises are:
!the Student Loan Marketing Association (Sallie Mae);
!the College Construction Loan Insurance Association (Connie Lee);
!the Federal National Mortgage Association (Fannie Mae);
!the Federal Home Loan Mortgage Corporation;
!the Banks for Cooperatives;
!the Farm Credit Banks;
!the Federal Agricultural Mortgage Corporation;
!the Federal Home Loan Banks;
!the Financing Corporation; and
!the Resolution Funding Corporation.
Financial statements of the government-sponsored enterprises are published in
the President’s budget.
Functional Categories of the Budget. Budget authority and outlays are
classified into 20 functional categories that represent the major objectives and
operations of the federal government. Each of the functions is divided into a number
of subfunctions. (See Box 4-B for a list of budget functions.)

Although the functional classification has diminished in importance in recent
years, it is used for a number of purposes in the federal budget process. First, the
functional classification brings together in a single category the various programs and
activities serving a common objective, regardless of the agency responsible for them.
For example, the “National Defense” function includes most of the programs and
expenditures of the Defense Department, as well as defense-related activities of the
Energy Department and other federal agencies.
Second, the functional classification shows the various types of resources spent
on the same objective. Thus, the budget presents the budget authority, outlays, tax
expenditures, and credit authority associated with each function.
Third, the functional classification may be used to explain the President’s budget
policies and is used to present budgetary data.
Finally, the functional classification is used in establishing congressional budget
priorities. Each budget resolution contains a functional allocation of new budget
authority and outlays for at least the next five fiscal years.
The Budget and the Economy
A key purpose of the federal budget is to allocate public funds among
government agencies and programs. Viewed from this perspective, the budget is an
internal management tool of government. Much of the budget process entails
relationships among federal agencies and between the agencies and Congress.
The budget, however, serves another role which transcends the internal
operations of the government. It is a prime means of influencing the condition of the
economy. The size of the budget (and especially the deficit), the shape of tax policy,
and the pattern of federal spending help determine the rate of economic growth,
employment trends, interest rates, and price changes. When they make budget
decisions, therefore, the President and Congress are guided in part by concern about
the impact of their policies on economic performance.
The relation of the budget and the economy is bilateral. Not only does the
budget influence the economy, but the reverse also is true: the condition of the
economy shapes budget outcomes. When the President and Congress formulate their
budgets for the next fiscal year or beyond, they must make assumptions about future
economic conditions. They typically make assumptions about real and nominal
growth, the Gross Domestic Product, short- and long-term interest rates, and inflation
and unemployment rates. Differences in the assumptions used by the two branches
of government often account for sizeable differences in their planned budget levels.
Because the budget is predicated on assumptions about future economic
conditions, the extent to which the President’s or Congress’s budget policies
materialize depends, in substantial measure, on whether the assumptions prove to be
accurate. Any major discrepancy between assumed and actual economic conditions
will translate into variances between expected and actual budget results.

Exhibit 1-C reveals that the budget is highly sensitive to changes in economic
conditions. Deviations of the economy from the assumed path will lead to higher or
lower revenues, outlays, and deficits. Revenues are particularly sensitive to the rate
of economic growth; outlays are particularly sensitive to the interest rate paid on
government debt. Moreover, as the exhibit indicates, the impact of these economic
conditions on the budget compounds with each passing year.
According to the information presented in Exhibit 1-C, one tenth of one
percentage point lower economic growth would subtract an estimated $1 billion from
federal revenues in the first year and $9 billion in the fifth year; a one percentage point
rise in inflation would add $6 billion to outlays in the first year and $62 billion in the
fifth year.
The relation of the budget and the economy is a matter of considerable dispute.
Controversy rages over the appropriate size of the surplus or deficit, the assumptions
to be used in making budget projections, and the extent to which federal government
policy should affect the supply of, or the demand for, goods and services.

Exhibit 1-C.
Sensitivity of Budget Projections to Changes in Economic Conditions
1998 1999 2000 2001 2002 2003 2004
Real Rate of Growth is 0.1 Percentage Point a Year Lower
Beginning in January 1998
Change in Revenues-1-3-5-7-9-12-15
Change in Outlays
Net interest (Debt service)aaa1123
Mandatory spendingbaaaaaaa
Change in Deficit or Surplus-1-3-5-8-11-14-18
Inflation Rate is 1 Percentage Point a Year Higher
Beginning in January 1998
Change in Revenues926456587111139
Change in Outlays
Net interest
Higher rates5152023252727
Debt Serviceaa-1-1-3-4-7
Discretionary spending00000612
Mandatory spending181728405367
Total b 6 22 37 50 62 81 99
Change in Deficit or Surplus34815243040
a. Less than $500 million
b. A minus sign indicates an increase in the deficit or a decrease in the surplus.
(1)Revenues and outlays, and therefore the surplus or deficit as well, are
sensitive to changes in economic conditions, particularly the rate of real
growth, unemployment and inflation levels, and interest rates. This exhibit
displays the estimated effects on the budget of changes in economic
assumptions for two of these factors—real growth and inflation. Real
growth refers to the change in the Gross Domestic Product after
adjustment for price changes.
(2)Inflation increases both revenues and outlays in roughly equal degrees,
which lessens its net effect on the surplus or deficit.
(3)Under these projections, a rise in inflation has a much greater impact on
interest payments and mandatory spending during the first five years than
it does on discretionary spending because the latter is assumed to be
capped by statutory limits in effect through FY2002. The effect on interest
payments occurs more quickly but levels off after a few years; the effect on
mandatory spending builds more slowly but continues to increase year
after year. After FY2002, when the caps on discretionary spending are
assumed to expire, such spending begins to rise steadily.
Source: Congressional Budget Office, The Economic and Budget Outlook:
Fiscal Years 1999-2008, January 1998, Table C-1, page 98.

2. The Framework for Budget Enforcement
The enforcement of budgetary decisions involves a complex web of procedures
that encompasses both congressional and executive actions. These procedures are
rooted principally in two statutes—the Congressional Budget Act of 1974 and the
Budget Enforcement Act (BEA). The 1974 act established a congressional budget
process, as discussed in Chapter 4, in which budget policies are enforced by Congress
during the consideration of individual measures. The BEA is the current embodiment
of additional enforcement procedures, first established in the Balanced Budget and
Emergency Deficit Control Act of 1985 and renewed with modification in 1990 and
1997, that are used mainly by the executive to enforce budget policies after
congressional action for a session has ended.
These twin sets of enforcement procedures are separate and distinct, but they
have common elements and are linked in various ways. One important common
element is the emphasis placed on reducing the deficit in past years and, currently, on
maintaining a surplus. Another is the distinction drawn between the treatment of
discretionary spending on the one hand and direct spending and revenues on the other.
Congress enforces budget decisions in two ways. One is by guarding against
actions that would cause budget outcomes to deviate from a desired course; the other
is by ensuring that the House and Senate (and their committees) abide by the budget
decisions taken in the congressional budget resolution. This chapter deals with
enforcing budget outcomes; Chapter 4 deals with enforcing congressional budget
decisions. In addition, this chapter addresses two other elements of the framework
for budget enforcement—budget baselines and the new rules for the treatment of
federal credit activities.
Deficit Reduction and the Rules of Congressional Budgeting
Between the early 1980s and the late 1990s, annual consideration of the budget
was dominated by concern about the budget deficit. The reason for this concern is
evident from Exhibit 2-A, which displays the budget deficit at 4-year intervals since
FY1982. In the mid-1980s, the deficit exceeded $200 billion and amounted to almost
six percent of GDP. High deficits persisted in the early 1990s.
The size of the deficit depends on how it is measured. The “total” or
“consolidated” deficit combines all on-budget federal funds and trust funds with the
off-budget entities (the Social Security trust funds and the Postal Service Fund). The
total deficit generally is regarded as the most comprehensive measure of the impact
of the budget on the economy.

Exhibit 2-A.
Alternative Measurements of the Deficit/Surplus
(1)This table, taken from President Clinton’s initial budget submission for
FY1999 (in February 1998), displays three alternative measures of the
deficit or surplus: (a) on a total or consolidated basis; (b) on an on-budget
basis (which excludes the Social Security trust funds and the Postal Service
Fund); and (c) on a federal-funds basis (which excludes all trust funds).
Depending on the basis for the measurement, the estimate for FY2002
ranged from a deficit of $111 billion to a surplus of $90 billion.
(2)The total deficit incorporates both on-budget and off-budget transactions,
but it does not include the finances of government-sponsored enterprises.
(3)The Social Security trust funds ran an $8 billion deficit in FY1982, but
since then they have run a steadily increasing surplus (amounting to about
$100 billion by the end of the 1990s). With the Social Security trust funds
excluded, the reported deficit (after FY1982) is much higher because the
annual surplus in these funds does not offset the deficit in the rest of the
(4)The federal funds deficit excludes all trust funds, whether they are on-
budget or off-budget.
Source: Chart prepared by the Congressional Research Service based on
data in: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Historical Tables, February 1998, Table 1.1,
pages 19-20, and Table 1.4, pages 25-26.

A narrower measure of the deficit—the on-budget deficit—is derived by
excluding the Social Security trust funds and the Postal Service Fund from the totals.
As noted, this exclusion is mandated by law, although Social Security and the Postal
Service Fund are counted in the budget in reports on the deficit. In 1983, Congress
enacted legislation revising the financing of the Social Security trust funds in order to
bring about increasing annual surpluses for the next several decades. As Exhibit 2-A
discusses, the Social Security trust funds ran a small deficit in FY1982; thereafter, the
trust funds have run steadily increasing surpluses (amounting to about $100 billion by
the end of the 1990s). Therefore, excluding Social Security from computations of the
deficit or surplus results in higher deficit or lower surplus figures. (The accumulated
balance credited to these funds is much higher than the annual surplus; it now
amounts to hundreds of billions of dollars and is projected to amount to trillions of
dollars in the early decades of the next century.)
A still narrower measure of the deficit—the federal funds deficit—would exclude
all trust funds from deficit computations. As is the case with Social Security,
the other trust funds in the net incur an annual surplus. Exhibit 2-A shows that the
federal funds deficit exceeded $300 billion in the early 1990s.
Regardless of the measure used, it is evident that the deficit was unusually high
for an extended period of time. This chronic deficit prompted Congress to enact the
Balanced Budget and Emergency Deficit Control Act of 1985. The original 1985
Balanced Budget Act established deficit targets for each year through FY1991, when
the budget was to be balanced, and a sequestration process under which budgetary
resources would be canceled automatically if the estimated deficit exceeded the
amount allowed under the act.
Even with the targets, the actual deficit for the covered years was above the
targeted level. The 1985 act, as originally framed, did not require that the actual
deficit be within the target; it required only that the deficit projected at the start of the
fiscal year be within that amount. Thus, any increase in the deficit during the fiscal
year, whether because of changes in economic conditions, policy changes, or other
factors, did not activate the sequestration process for that fiscal year.
Failure to achieve the deficit targets, and other problems, led Congress to revise
the process in the Budget Enforcement Act (BEA) of 1990. Sequestration
procedures were retained, but the fixed deficit targets were replaced by adjustable
ones (which expired at the end of FY1995), adjustable limits were imposed on
discretionary spending, and a pay-as-you-go (PAYGO) process was established for
revenues and direct spending. The discretionary spending limits and PAYGO process
were extended in 1993 (through FY1998) and again in 1997 (through FY2002).
Different categories of discretionary spending are used for different periods.
Under the 1997 changes, discretionary spending limits apply separately to defense and
nondefense spending for FY1998-1999 and to violent crime reduction spending for
FY1998-2000; for the remaining fiscal years, all discretionary spending is merged into
a single category. In 1998, as part of the Transportation Equity Act for the 21st
Century, Congress added separate categories for highway and mass transit spending.

The PAYGO process requires that legislation enacted during a session affecting
revenues or direct spending not increase the deficit or reduce the surplus. Legislation
reducing revenues or increasing direct spending must be fully offset (in the same or
other legislation) by revenue increases or reductions in direct spending.
Violations of the discretionary spending limits or the PAYGO requirement are
enforced by sequestration. Sequestration has not been used in recent years.
Budgeting for Discretionary and Direct Spending
The distinction drawn by the BEA between discretionary spending (which is
controlled through the annual appropriations process) and direct spending (which is
provided outside of the annual appropriations process) recognizes that the federal
government has somewhat different, though overlapping, means of dealing with these
two types of spending. One set of procedures pertains to discretionary spending,
another to direct spending.
Most of the direct spending subject to the PAYGO process under the BEA
involves entitlement programs; the rest consists of other forms of mandatory spending
provided through authorizing legislation and interest payments. In fact, entitlements
now account for about half of total federal spending (all direct spending, including net
interest, accounts for about two-thirds of the total). Their recent growth is shown in
Exhibit 2-B, which also shows the rise in the number of recipients of these payments.
The impressive feature of this trend is that most of the growth in spending and in the
number of recipients has been built into existing law; for the most part, it has not been
the result of new legislation. Indeed, the increase has occurred despite a number of
legislative enactments to curtail entitlement programs.
The procedures for discretionary and direct spending converge at two critical
points in federal budgeting: formulation of the President’s budget and formulation of
the congressional budget resolution. Both of these policy statements encompass
discretionary and direct spending. But as Box 2-A indicates, the procedures used in
budgeting for these types of expenditure differ greatly. The distinctions drawn in this
box have some notable exceptions. Some procedures associated with direct spending
are applied to particular types of discretionary programs, and vice versa.
Nevertheless, the generalizations presented here help to explain the complications of
the budget process and explain how decisions are made. The paragraphs below
correspond to the entries in Box 2-A.
(1) Budgetary Impact of Authorizing Legislation. An authorization for a
discretionary spending program is only a license to enact an appropriation. The
amount of budgetary resources available for spending is determined in annual
appropriations acts. For direct spending programs (principally entitlements), on the
other hand, the authorizing legislation either provides, or effectively mandates the
appropriation of, budget authority. In those entitlement programs that are subject to
annual appropriation, the Appropriations Committees have little or no discretion as
to the amounts they provide.

Exhibit 2-B.
Outlays for Mandatory Spending and Net Interest: FY1970-1996
(in billions of dollars)
1970 1980 1990 1996
Outlays for mandatory spending and
net interest (and as a percent of75.5314.9752.91,026.7
total outlays)(39%)(53%)(60%)(66%)
Outlays for selected major
Social Security (OASDI)30118245344
Medicare 6 31 96 171
Unemployment assistance3171723
Federal retirement6275268
Food/nutrition assistance1132134
Recipients of selected major
entitlements (in millions of persons):
Social Security (OASDI)26353943
Food Stamps (and predecessors)9191926
Medicare Hospital Insurance20283338
Medicaid 15 22 25 34
(1)This exhibit consists of three sections. The first section shows total outlays
for mandatory programs and net interest, and such spending as a
percentage of total federal outlays; the second part shows outlays for
selected major entitlement programs; and the third part shows trends in the
number of recipients of selected major entitlement programs.
(2)Mandatory and net interest spending grew almost 15-fold between FY1970
and FY1996, claiming an increasingly greater share of the budget. As a
percentage of total federal outlays, mandatory and net interest spending
increased from 39% in FY1970 to 66% in FY1996.
(3)Most mandatory or direct spending is for entitlements, which primarily
involve retirement and disability programs (such as Social Security) and
health programs (such as Medicare and Medicaid).
(4)Because most entitlement spending stems from permanent law, spending
automatically increases over time as more people receive benefits.
Entitlement spending also increases because of inflation.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Historical Tables, February 1998, Table 3.1
(pages 42-49), Table 8.1 (page 117), and Table 8.5 (pages 121-125).

Box 2-A.
Differences Between Discretionary and Direct Spending
FeatureSpendingDirect Spending
(1) Budgetary impact ofNo direct impact;Direct impact; provides
authorizing legislation.authorizes considerationbudgetary resources.
of appropriations bills.
(2) Committees whichAppropriationsAuthorizing committees.
provide or mandateCommittees.
budget authority.
(3) Frequency ofAnnual.Periodic.
(4) Means of enforcingSection 302 allocationsReconciliation process.
the budget resolution.and suballocations.
(5) Budget EnforcementDiscretionary spendingPay-as-you-go (PAYGO)
Act controls.limits.requirement.
(6) Basis of computingCurrent year’s spendingBaseline budget
budget impact.and President’s request.projections.
(7) Typical decisionHow much to increase.How much to decrease.
facing Congress.
(8) Impact of economicIndirect, discretionary.Direct, often automatic.
(2) Committees Which Provide or Mandate Budget Authority. The
Appropriations Committees have jurisdiction and effective control over discretionary
spending programs, while authorizing committees effectively control direct spending
programs (including those funded in annual appropriations acts). In fact, committee
jurisdiction determines whether a program is classified as discretionary or direct
spending. All spending under the effective control of the Appropriations Committees
is discretionary; everything else is direct spending. Accordingly, when legislation
establishes a program as discretionary or direct spending, it not only determines the
character of spending but the locus of congressional committee control as well.
(3) Frequency of Decision-Making. Discretionary appropriations are, with
few exceptions, made annually for the current or next fiscal year. Direct spending
programs typically are established in permanent law that continues in effect until such
time as it is revised or terminated by another law. The fact that many entitlements
have annual appropriations does not diminish the permanence of the laws governing
the amounts spent. It should be noted, however, that some direct spending programs,

such as Medicare, have been subject to frequent legislative changes. The purpose of
such legislation has been to modify existing law, not to provide annual funding.
(4) Means of Enforcing the Budget Resolution. The procedures used by
Congress to enforce the policies set forth in the annual budget resolution differ
somewhat for discretionary and direct spending programs. For both types of
spending, Congress relies on allocations made under Section 302 of the 1974
Congressional Budget Act to ensure that spending legislation reported by House and
Senate committees conforms to established budget policies. But although this
procedure is effective in controlling new legislation—both annual appropriations
measures and new entitlement legislation—it is not an effective control on the
spending that results from existing laws. Hence, Congress relies on reconciliation
procedures to enforce budget policies with respect to existing spending and revenue
laws. Reconciliation is not currently applied to discretionary programs funded in
annual appropriations measures.
(5) Budget Enforcement Act Controls. Discretionary programs are subject
to the spending limits set in the BEA. Direct spending is not capped, but operates
under the PAYGO process, which requires that direct spending and revenue
legislation enacted for a fiscal year not cause the deficit to rise or the surplus to
decrease. The lack of caps is due to the fact that most direct spending programs are
open-ended, with spending determined by eligibility rules and payment formulas in
existing law rather than by new legislation.
(6) Basis of Computing Budget Impact. The baseline projections discussed
earlier are applied to both discretionary and direct spending programs, but they are
much more prominently used in scoring changes for the latter. In recommending
funds for discretionary programs, the Appropriations Committees rely almost
exclusively on two other benchmarks: the appropriation for the current fiscal year and
the amount requested by the President for the upcoming fiscal year. These
committees regularly compare the amount recommended by them to each of these
benchmarks, but make no mention in their reports of baseline budget projections. In
the case of direct spending programs, however, the reconciliation instructions, the
budgetary impact of legislative changes made in reconciliation bills, and other claimed
savings (or increases) are computed in terms of the baseline projections.
(7) Typical Decision Facing Congress. Because discretionary spending is
determined in annual appropriations acts, the typical decision facing Congress for such
spending is the amount by which it should be changed from the current year’s level.
Direct spending is determined by permanent law and often is affected by exogenous
factors, such as price changes, so that decisions typically deal with the amount of
increases or decreases from baseline levels. In direct spending programs, increases
often are built into law; in discretionary spending programs, they are not.
(8) Impact of Economic Changes. When economic conditions—such as the
inflation or unemployment rate—change, there often is an automatic, reciprocal
change in direct spending. A price rise triggers cost-of-living adjustments (COLAs)
in various payment programs, as does a rise in the number of persons filing
unemployment claims or participating in the Food Stamps program. Discretionary

spending, by contrast, is largely insulated from such changes. When prices rise, for
example, Congress can opt to appropriate more discretionary funds or it can compel
the affected agency to absorb the increased costs.
The Chain of Discretionary Spending Control
The many pieces and procedures of the federal budget process have been
introduced in this and the preceding chapter. At this point, it would be useful to put
some of the pieces together to see how they create a chain of spending controls as
part of an integrated budget process (see Box 2-B). The controls traced in the exhibit
pertain most fully to discretionary spending. A somewhat different set of controls
would apply to other parts of the budget, such as direct spending and revenues,
though there are some common features. The discussion that follows is keyed to the
accompanying exhibit.
Before explaining the individual controls, two points should be noted. First, each
control (other than the first one) is based on “may not be exceeded” rules. That is,
the amount available under one step may not normally exceed the amount provided
in the previous step. These rules establish a chain relationship among the various
parts of the process. But the “may not be exceeded” rules do not always mean that
the controls produce the desired results. For one thing, there can be various
adjustments or exceptions, as will be explained below. For another, enforcement of
the “may not be exceeded” rules often depends on estimates and assumptions which
may prove to be erroneous as events unfold. Third, enforcement of those rules
pertaining to Congress sometimes may be set aside. Despite these caveats, the
sequence of controls generally are quite effective in keeping discretionary spending
within established limits.
The second point to be noted is that the chain of controls engages the
participation of virtually all executive and legislative participants in federal budgeting.
Note, however, that the chain does not begin with the President’s budget because (as
discussed earlier) it is only a set of recommendations. Congress does not have to
accept these recommendations in its own budget actions. Note also that the chain
does not include authorizing legislation because these measures do not always
determine the amount that may be appropriated.
(1) Discretionary Spending Limits. The limits set dollar caps on budget
authority and outlays, subject to adjustment by OMB for certain purposes prescribed
by law, on broad categories of discretionary spending through FY2002. The
President’s budget recommendations and the congressional budget resolution adhere
to these limits. At times, however, the President and CBO do not agree on how these
limits are to be applied, and CBO sometimes finds that the President has
recommended spending in excess of the discretionary spending caps.
(2) Budget Resolution Aggregates. The aggregates in the budget resolution
may be lower than, or the same amount as, the discretionary spending limits.
Legislation considered by Congress may not violate the aggregate spending levels
(total budget authority and total outlays) in the budget resolution and, by implication,
may not exceed the discretionary spending limits.

Box 2-B.
The Chain of Discretionary Spending Control

Control or
LimitationMethod of Control
(1)DiscretionaryCaps on discretionary budget authority and outlays,
spending limitsadjusted periodically as prescribed by law; they apply to
defense and nondefense categories for FY1998-1999
and a total category for FY2000-2002; also, violent
crime reduction (FY1998-2000) and highway and mass
transit (FY1999-2003) categories are used.
(2)Budget resolutionCeilings on total budget authority and outlays which
aggregatesguide the enactment of legislation; budget resolution
aggregates do not exceed discretionary spending limits.
Allocations of total budget authority and outlays in the
(3)Section 302(a)budget resolution to committees with spending
allocationsjurisdiction; total amounts allocated to committees may
not exceed the budget resolution aggregates.
A committee’s subdivision of its spending allocations by
(4)Section 302(b)subcommittee (or by program); subdivisions made by a
subdivisionscommittee may not exceed its allocations.
The amount of budget authority or outlays resulting
(5)Appropriationfrom an appropriations act may not exceed the Section
302(b) subdivision to the relevant Appropriations
The distribution of enacted appropriations (or other
(6)Apportionmentsbudgetary resources) for a fiscal year by OMB to
projects or fiscal year quarters within an account; the
total amount apportioned to an account may not exceed
the amount appropriated.
The distribution of apportioned resources by a
(7)Allotmentsdepartment or agency among its subunits; the amount
allotted may not exceed the amount apportioned.
Actions taken by federal agencies that incur financial
(8)Obligationsliabilities of the federal government; an agency may not
obligate in excess of the resources available to it.
Payments made by the Treasury Department to
(9)Outlaysliquidate obligations lawfully incurred by agencies;
outlays may not exceed obligations.

(3) Section 302(a) Allocations. After a budget resolution is adopted, the total
budget authority and outlays in it are allocated among House and Senate committees
with jurisdiction over discretionary or direct spending. Discretionary spending is
under the jurisdiction of the Appropriations Committees. The total amounts allocated
to committees may not exceed the budget resolution aggregates.
(4) Section 302(b) Subdivisions. The Appropriations Committees are
required to subdivide their allocations among their subcommittees. (The other House
and Senate committees are not required to subdivide their allocations.) The
subdivisions made by the subcommittees may not exceed the amounts allocated to the
full committee. The spending in each annual appropriations measure is compared to
the relevant subdivision made under Section 302(b). In some cases, a point of order
can be raised against an appropriations measure that exceeds the relevant subdivision.
(5) Apportionments. After the appropriations measures have been enacted,
OMB apportions funds to agencies by quarters of the fiscal year or by project. The
amounts apportioned during the fiscal year may not be more than the amount
appropriated. However, “deficiency” apportionments are permitted in some instances.
(6) Allotments. Each department and agency allots the amount apportioned to
it among its subunits. The amount allotted may not be more than the amount
apportioned. Some agencies (generally small ones) skip the allotment procedure.
(7) Obligations. An agency is not permitted to obligate (except under very
limited exceptions) in excess of the resources available to it or for purposes other than
those for which the funds were provided. The amount available for obligation in an
account may include—in addition to new appropriations—transfers from other
accounts, funds carried over from prior years, and (when authorized by law) certain
offsetting receipts collected by the agency.
(8) Outlays. This is the final step in the chain of spending control. The
Treasury Department makes payments to liquidate obligations lawfully incurred by
agencies. Outlays may not exceed obligations.
Deficit Targets, Discretionary Spending Limits, and the
PAYGO Process
Establishment of the Sequestration Process. The 1985 Balanced
Budget Act established a series of declining annual deficit targets and created an
automatic spending-reduction process (known as sequestration) intended to ensure
that the deficit targets were adhered to even if Congress and the President failed to
reduce the deficit sufficiently through legislative action. The Budget Enforcement Act
(BEA) of 1990 made major changes in conjunction with the enactment of a five-year
deficit-reduction accord covering FY1991-1995. In 1993, the BEA procedures were
extended through FY1998 as part of another comprehensive budget agreement
between the President and Congress. Most recently, the procedures were extended
through FY2002, with modifications, by the Budget Enforcement Act (BEA) of 1997,
as part of a plan to balance the budget by that fiscal year.

Sequestration involves the issuance of a presidential order that permanently
cancels budgetary resources, except for revolving funds, special funds, trust funds,
and certain offsetting collections. As originally framed, the purpose of sequestration
was to achieve a required amount of outlay savings to reduce the estimated deficit to
target levels. Once sequestration is triggered by an executive determination, spending
reductions are made automatically; this process, therefore, is regarded by many as
providing a strong incentive for Congress and the President to reach agreement on
legislation that would avoid a sequester.
Changes Made by the Budget Enforcement Acts of 1990 and 1997.
From its inception in 1985 until its revision by the BEA in 1990, the process was tied
solely to the enforcement of fixed deficit targets. The BEA changed the sequestration
process substantially. First, it effectively eliminated the deficit targets as a factor in
budget enforcement. Second, the BEA established adjustable limits on discretionary
spending funded in the annual appropriations process. Third, the BEA created
pay-as-you-go (PAYGO) procedures to require that increases in direct spending (i.e.,
spending controlled outside of the annual appropriations process) or decreases in
revenues due to legislative action are offset so that there is no net increase in the
deficit or reduction of the surplus.
The BEA established new sequestration procedures to enforce the discretionary
spending limits and the pay-as-you-go requirements. To the extent that any
sequesters must be made, they occur on the same day (which must be within 15
calendar days after Congress adjourns to end a session); sequestration of this type is
referred to as end-of-session sequestration. Further, one or more additional
sequesters may occur subsequently in the fiscal year to eliminate any breach in the
discretionary spending limits; this type of sequestration is referred to as within-session
Previously, the surpluses of the Social Security trust funds were included in the
deficit estimates made under the 1985 Balanced Budget Act but Social Security
spending (except for administrative expenses) was exempt from sequestration. Under
the BEA, Social Security spending still is exempt from sequestration, but the trust
fund surpluses are excluded from the deficit estimates.
The BEA established adjustable limits on discretionary spending. For
FY1991-1993, separate limits were set for new budget authority and outlays for three
different categories—defense, international, and domestic. For FY 1994-1998, limits
on new budget authority and outlays were established for a single category—total
discretionary spending. In 1994, the Violent Crime Control and Law Enforcement
Act of 1994 (P.L. 103-322) established separate but parallel sequestration procedures
for violent crime reduction programs through FY2000.
In 1997, the BEA limits for FY1998 were revised and new limits were
established through FY2002 (see Exhibit 2-C). The limits are established for the
following categories of discretionary spending: defense and nondefense, for FY1998-
1999; discretionary (a single category), for FY2000-2002; and violent crime
reduction, for FY1998-2000. In 1998, as part of the Transportation Equity Act for

the 21st Century (P.L. 105-178), Congress created separate categories for highway
and mass transit spending for FY1999-2003.

Exhibit 2-C.
Discretionary Spending Limits
(in millions of dollars)
Non-Defense Discretionary Spending
Budget Authority253,506283,737285,937
Outlays 285,686 289,297 290,057
Violent Crime Reduction Spending
Budget Authority5,5005,8004,500
Outlays 4,833 4,953 5,554
Defense Discretionary Spending
Budget Authority269,000271,570275,429
Outlays 267,124 266,635 269,072
Total Discretionary Spending
Budget Authority528,006561,107565,866
Outlays 557,643 560,885 564,683
(1)The discretionary spending limits apply to funds provided in annual
appropriations acts (except for mandatory programs, such as Medicaid,
funded in such acts). Limits are set on both new budget authority and
outlays; a breach of either type of limit would cause a sequester.
(2)The discretionary spending limits are divided into categories, which vary
by fiscal year. The BEA of 1997 established the following categories for
the five-year period covering FY1998-2002 (FY2001 and FY2002 are not
shown here): defense and nondefense for FY1998-1999; total discretionary
(a single category) for FY2000-2002; and violent crime reduction for
FY1998-2000. In 1998, the Transportation Equity Act for the 21st Century
established highway and mass transit categories beginning with FY1999.
(3)Periodically, the OMB director adjusts the discretionary spending limits
for factors set forth in the BEA, including such things as changes in
concepts and definitions, emergency spending, and the enactment of
legislation in specified categories (such as for continuing disability reviews
and international arrearages).
(4)Discretionary spending limits also are included in the budget resolution
and are enforced in the Senate (but not the House) by a point of order.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Table

14-2, pages 261-263.

Under the BEA, the discretionary spending limits must be adjusted periodically
by the President for various factors, including (among others), changes in concepts
and definitions, a special outlay allowance (to accommodate estimating differences
between OMB and CBO), and the enactment of legislation providing emergency
funding and funding for the International Monetary Fund, international arrearages, an
earned income tax credit compliance initiative, and other specially designated
Enforcement of the spending limits is accomplished through a special
sequestration process that is triggered automatically, at the end of a congressional
session, if the applicable spending limit is breached through the enactment of
legislation. If the enactment of legislation causing a breach in the spending limits for
the current year occurs during the last quarter of the fiscal year (i.e., between July 1
and September 30), the appropriate discretionary spending limits for the next fiscal
year are reduced by the amount of the breach.
Under the PAYGO process created by the BEA, legislation increasing direct
spending or decreasing revenues must be offset so that the deficit is not increased or
the surplus reduced (see Exhibit 2-D). The PAYGO process does not require any
offsetting action when the spending increase or revenue decrease is due to the
operation of existing law, such as an increase in the number of persons participating
in the Medicare program. Direct spending consists largely of spending for entitlement
programs. Most direct spending and revenue programs are established under
permanent law, so there is not necessarily any need for recurring legislative action on
them (and the PAYGO process does not require such action).
Enforcement of the PAYGO process also is accomplished through a special
sequestration procedure. The PAYGO process does not preclude Congress from
enacting legislation to increase direct spending; it only requires that the increase be
offset by reductions in other direct spending programs (which could include increases
in offsetting receipts), by increases in revenues, or by a combination of the two in
order to avoid a sequester. If a sequester under this process is required, it would have
to offset the amount of any net deficit increase (or surplus reduction) for the fiscal
year caused by the enactment of legislation in the current and prior sessions of
Congress, and would be applied to nonexempt direct spending programs.
Spending for Social Security benefits and current federal deposit insurance
commitments, as well as emergency direct spending and revenue legislation (so
designated by both the President and by Congress), is exempted completely from the
PAYGO sequestration process. All remaining direct spending programs are covered
by the PAYGO process to the extent that legislation affecting their spending levels is
counted in determining whether a net increase or decrease in the deficit has occurred
for a fiscal year. If a PAYGO sequester occurs, however, many direct spending
programs would be exempt from reduction.
In 1997, coverage of the PAYGO requirement was extended to legislation
enacted through FY2002; however, the PAYGO process remains in effect through
FY2006 to deal with the outyear effects of such measures. Consequently, a PAYGO

sequester could occur in FY2003-2006 based on legislation enacted before the end
of FY2002.
ReportActAct Title199819992000200120022003
No. No.
Legislation enacted in the 1st Session—Reports issued after 11/21/97 (not reflected in Final Report):
417PL 105-85H.R. 1119National DefenseAuthorization Act for Fiscal
Year 1998:
OMB estimateCBO estimate-156-1593910171519-4-13-24-35
418P.L. 105-89H.R. 867Adoption and Safe FamiliesAct of 1997
OMB estimateCBO estimate-1-1..........3.....11.....40.....767
* * * * *
Total, new balances
(excluding Final SequesterReport FY1998 amount):
OMB estimateCBO estimate-153111614109
-156 68 95 96 22 -68
Exhibit 2-D.
The PAYGO Scorecard
(1)The budgetary impact of all direct spending and revenue legislation
enacted beginning with FY1991 is recorded on a multi-year PAYGO
“scorecard.” This exhibit shows an excerpt from a table in the
sequestration preview report for FY1999, issued in February 1998 as part
of the President’s budget. By this time, more than 400 separate PAYGO
measures had been enacted.
(2)From time to time, Congress and the President have reset the PAYGO
balances to zero as part of a major deficit-reduction act in order that the
sizeable savings from the act not be available to offset future spending
increases or revenue reductions. This happened with the Balanced Budget
Act of 1997, which was enacted several months before this sequestration
preview report was issued.
(3)This exhibit shows that the National Defense Authorization Act for FY1998
contained modest amounts of direct spending, ranging in one year from
savings of $156 million to increases of $15 million in another.
(4)Although the PAYGO scorecard exhibited here shows a balance of $11
million for FY1999, no sequester would be required under these estimates
(assuming they remained unchanged during the session). This is because,
under a “look back” feature, the balance for the current year (-$153
million for FY1998) is added to the balance for the budget year. In this
case, the FY1998 “credit” more than offsets the FY1999 amount.

Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Table

14-5, pages 268-269.

As originally framed, the 1985 Balanced Budget Act provided for the automatic
issuance of a sequestration order by the President upon the submission of a report by
the comptroller general identifying a deficit excess. This feature of the act was
invalidated by a Supreme Court ruling (Bowsher v. Synar) in 1986 on the ground that
the constitutional separation-of-powers doctrine was violated because the comptroller
general is a legislative branch official. Congress subsequently revised the process in
the Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987 by
placing the triggering function in the hands of the OMB director, an executive branch
The Timing of Sequestration Actions. The multiple sequestration
procedures established by the BEA in 1990 remain automatic and are triggered by a
report from the OMB director. For sequestration purposes generally, there is only
one triggering report issued each year (just after the end of the session). Additionally,
OMB reports triggering a sequester for discretionary spending may be issued during
the following session if legislative developments so warrant (i.e., the enactment of
supplemental appropriations). The CBO director must provide advisory sequestration
reports, shortly before the OMB director’s reports are due.
The timetable for the sequestration process is set forth in Box 2-C.
Early in the session, OMB and CBO issue sequestration preview reports. The
reports provide estimates of the discretionary spending limits, with the adjustments
prescribed by law. Also, the reports provide estimates of any net deficit increase or
decrease caused by the enactment of direct spending or revenue legislation subject to
the PAYGO process. In August, OMB and CBO issue sequestration update reports
to reflect the impact of legislation enacted during the interim. Finally, OMB and CBO
issue sequestration reports shortly after Congress adjourns to end the session. The
end-of-session reports must reflect any pertinent legislation enacted since the update
reports were issued and must indicate the baseline amount of budgetary resources and
the amount and percentage of the reduction for each account subject to sequestration.
In preparing its update and final sequestration reports, OMB must use the
economic and technical assumptions that were used in the earlier preview report.
During the course of the session, OMB must provide Congress with cost estimates
of budgetary legislation shortly after its enactment, so that compliance with the
discretionary spending limits and PAYGO requirements can be monitored. The cost
estimates must be based on the economic and technical assumptions used in the
President’s most recent budget.
Several other reports are associated with the sequestration process. For
example, within-session sequestration reports may be issued by CBO and OMB (no
later than July 10 and July 15, respectively) if supplemental appropriations or other
discretionary spending is enacted that causes a breach in a discretionary spending
limit. Also, the comptroller general issues a compliance report, if requested by either
the House or Senate Budget Committee, evaluating whether the OMB and CBO
reports and the presidential order comply with the requirements of the act.

Box 2-C.
Sequestration Process Timetable
DeadlineAction to be completed

5 days before the President’sCBO issues sequestration preview report.

budget submission
Date of the President’sOMB issues sequestration preview report
budget submission(as part of the President’s budget).
August 10President notifies Congress if he intends to
exempt military personnel accounts.
August 15CBO issues sequestration update report.
August 20OMB issues sequestration update report.

10 days after end of sessionCBO issues final sequestration report.

15 days after end of sessionOMB issues final sequestration report;

President issues any required sequestration
Any sequestration order issued by the President must follow the OMB
sequestration report strictly.
Sequestration procedures may be suspended in the event a declaration of war is
enacted or if Congress enacts a special joint resolution triggered by the issuance of a
CBO report indicating “low growth” in the economy. Also, there are several special
procedures under the act by which the final sequestration order for a fiscal year may
be modified or the implementation of the order affected.
Baseline Budget Projections
Most appropriations are for a definite amount and the budget authority is
provided for a single fiscal year. The main task is to estimate the outlays that will
derive in the next year and beyond from the budget authority provided in the
appropriations bill. CBO and the Appropriations Committees base these estimates on
outlay (or spendout) rates—the percentage of budget authority that is spent in each
year. These outlay rates vary by account and are based on historical records. For
example, if $1 billion is appropriated to an account which has a spendout rate of 80%
in the first fiscal year that funds become available, the outlay estimate for that fiscal
year will be $800 million; the remaining $200 million will become outlays in
subsequent years.
Scoring is much more complex in enforcing the statutory PAYGO requirement.
For one thing, unlike appropriations, revenue and direct spending legislation usually
is open-ended; it does not specify the amount by which revenue or spending will be

changed. For another, the impact of this type of legislation continues in future years.
In enforcing the PAYGO requirement, Congress must estimate the revenue gain or
loss for each of the next five years (and 10 years under the special Senate rule), and
it cannot do so simply by referring to the text of the legislation being scored. It must
also take into account the behavior of taxpayers, economic conditions, and other
factors that affect revenue collection.
Congress scores revenue and direct spending legislation by reference to baseline
projections issued by CBO, sometimes in cooperation with OMB. CBO works
closely with the Joint Committee on Taxation in preparing its baseline revenue
projections (see Box 5-B). The baseline is an extrapolation of future budget
conditions, typically for each of the next five years, based on the assumption that
current policies will continue in effect. The baseline projections incorporate
assumptions about future inflation and workload changes mandated by law. These
projections are made for the budget aggregates as well as for individual programs and
When Congress considers revenue or direct spending legislation, CBO estimates
the amount of revenues or outlays that would ensue if the measure were enacted. It
then compares this amount with the baseline projection to score the legislation. Thus,
the score measures budgetary impact as the difference between the amount projected
under current policies and the amount estimated if the legislation were enacted. A
score is reported for each of the years and often for the sum of the years as well.
Exhibit 2-E provides a hypothetical example of using baseline projections to
score legislation. In this hypothetical case, legislation would be scored as reducing
spending against the baseline by $3.08 million the first year and $53.53 million over
the five years covered by the baseline.
The BEA makes OMB the “official scorer” of congressional budget actions. The
OMB score is authoritative in determining whether offsets or a sequester are required
under the PAYGO rules. However, Congress usually relies on the CBO score while
it is considering legislation. The OMB and CBO scores on legislation sometimes
In addition to enforcing PAYGO, baseline projections and scoring are used in
computing the amount of deficit reduction agreed to in budget summit negotiations
between the President and Congress and enacted in reconciliation acts.
Budgeting for Direct and Guaranteed Loans
The Federal Credit Reform Act of 1990 made fundamental changes in the
budgetary treatment of direct loans and guaranteed loans. The reform, which first
became effective for FY1992, shifted the accounting basis for federally provided or
guaranteed credit from the amount of cash flowing into or out of the Treasury to the
estimated subsidy cost of the loans. Credit reform entails complex procedures for
estimating these subsidy costs and new accounting mechanisms for recording various
loan transactions. The changes have had only a modest impact on budget totals but
a substantial impact on budgeting for particular loan programs.

Exhibit 2-E.
Hypothetical Baseline Projections and Policy Changes
(by fiscal year; in millions of dollars)
1999 2000 2001 2002 2003
Baseline projections
Initial projections100.00107.12114.74122.91131.66
Inflation increase—4%
Workload increase—3%3.123.343.583.834.11
Total increase7.127.628.178.759.38
Final projections107.12114.74122.91131.66141.04
Policy changes
Cap inflation increase at 2%-2.00-4.20-6.63-9.30-12.23
Change laws to limit
workload rises to 2%-1.08-2.30-3.67-5.20-6.92
Total policy changes-3.08-6.50-10.30-14.50-19.15
(1)This hypothetical example shows baseline projections of budget authority
for FY1999-2003, based on an assumed level of budget authority for the
current year (FY1998) of $100 billion.
(2)The baseline includes adjustments for projected inflation (in this case,
inflation increases of 4% for each year covered by the baseline) and
mandatory workload increases of 3% (such as increases in the number of
Social Security recipients). These adjustments typically lead to projections
of rising spending in each subsequent year.
(3)Policy changes represent changes from established policy (often involving
changes in law) and cause spending to vary from baseline levels. For
example, such changes might include setting inflation adjustments below
projected levels (in this case, a 2% cap) or modifying eligibility rules so as
to reduce workload increases (in this case, limiting them to 2%).
(4)Note that spending reductions tend to grow in the outyears; in this
instance, the assumed policy changes save an estimated $3.08 million from
the projected baseline in the first year and $19.15 million in the fifth year.
In this hypothetical example, the cumulative savings over five years ($53.53
million) are more than half of the projected spending level for FY1998
($100 million).
Source: Table prepared by the Congressional Research Service.

The Pre-1992 Method of Budgeting for Loans. Prior to the Federal
Credit Reform Act, the budget accounted for both direct loans and loan guarantees
on a cash basis. Direct loans were recorded as outlays when funds were disbursed.
These outlays were netted against repayments of principal and interest on old loans,
so that net outlays were the difference between disbursements of new loans and
repayments of old ones. (However, the congressional budget resolution budgeted for
both direct and guaranteed loans on a gross basis, that is, total direct loan obligations
and total guaranteed loan commitments. The inclusion of loan volumes in the budget
resolution has not been altered by credit reform.) Loan guarantees were budgeted as
outlays only when payment was made pursuant to default or to some other
contingency requiring a federal disbursement. No outlays were recorded when the
commitment was made to issue the guarantee.
This system had a number of perceived shortcomings. First, it overstated the
cost of direct loans and understated the cost of loan guarantees, thereby encouraging
the federal government to favor the latter type of loan regardless of its true cost.
Second, because direct loans were recorded as outlays when the funds were
disbursed, no budget entry was made when, as often happened, the loans were
defaulted, forgiven, converted into grants, or forgotten. The budget had inadequate
means of recognizing these costs. Third, neither Congress nor executive agencies had
effective control of guaranteed loans. They did not have to set aside resources for
loan guarantees, even when defaults were probable; when defaults occurred, the
ensuing outlays were uncontrollable. Fourth, the treatment of direct and guaranteed
loans made it impossible to compare the cost of these types of transactions to one
another or to other budgetary actions, such as grants.
The Federal Credit Reform Act of 1990. In response to these perceived
shortcomings, the Federal Credit Reform Act established a system of budgeting for
the subsidized cost of loans. The credit reforms put direct and guaranteed loans on
an equal footing, provide a means of recognizing a change in the status of loans in
the budget, control guaranteed loans at the time the commitment is made, and provide
a basis for comparing direct and guaranteed loans with other uses of budgetary
resources. The 1990 act also established procedures for handling the unsubsidized
portion of loans as well as loans made prior to FY1992.
The new system requires that budget authority and outlays be budgeted for the
estimated subsidy cost of direct and guaranteed loans. This cost is defined in the 1990
act as “the estimated long-term cost to the government of a direct loan or a loan
guarantee, calculated on a net present value basis, excluding administrative costs ....”
Under the new system, Congress appropriates budget authority or provides
indefinite authority equal to the subsidy cost. This budget authority is placed in a
program account from which funds are disbursed to a financing account. The various
accounts maintained in credit budgeting are explained later in this section. Exhibit
2-F shows the relation between subsidy rates, budget authority, and loan levels for
certain direct loans using 1999 data.

Exhibit 2-F.
Relation of Subsidy Rates, Budget Authority, and Loan Levels
(budget authority and loan levels in millions of dollars)
1999 weighted
average 1999
subsidy as asubsidy1999
percent ofbudgetestimated
Agency and programdisbursementsauthorityloan levels
Agricultural credit insurance8.556666
Rural community advancement14.431531,014
Rural electrification and telephone2.27361,475
Rural telephone bank2.6510175
Distance learning/medical link0.12*150
Rural housing insurance fund16.451971,197
Rural development loan fund50.351835
Rural economic development25.22415
P.L. 480 direct loans86.7989102
Small Business Administration:
Disaster loans5.9353901
Business loans9.54660
Total 5.99 1,310 21,875
* $500 thousand or less.
(1)The Federal Credit Reform Act of 1990 established new controls on federal
credit activities, including direct and guaranteed loans; the act does not
apply to deposit insurance and other insurance programs.
(2)Under the act, Congress appropriates budget authority equal to subsidy
costs. The subsidy determines the loan levels that can be supported
(although they sometimes are limited in statute by Congress; see Exhibit


(3)This exhibit shows data on the direct loan activities of selected agencies for
FY1999. In total, the President requested subsidy budget authority of
$1,310 million to support $21,875 million in loan levels for the year; the
weighted average subsidy for the total level of activity was 5.99 percent.
(4)The rate of subsidy (and associated budget authority and loan levels)
varies widely for different programs, even within the same agency.
Subsidies for Agriculture Department programs range from less than 1%
to nearly 87%.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Table

8-3, page 188.

Estimating the Subsidy Cost. Estimating the subsidy cost is a complex
process that must be done for each credit program. The process is designed to
separate the subsidized portion of the loan from the unsubsidized portion. Budget
authority and outlays are provided only for the subsidized portion, which is the
subsidy cost. This cost typically is less than the face value of a direct loan because all
or part of most loans is repaid. It is also less than the amount guaranteed because
only some such loans default. The unsubsidized portion of direct loans must be
financed, but it is not included in the subsidy cost; hence, no budget authority is
appropriated for it.
The subsidized portion of a direct loan is the amount, discounted to present
value, that is not repaid. For guaranteed loans, it is the portion, also discounted to
present value, on which the federal government is estimated to incur payment in the
future. In discounting to present value, a factor equal to the interest rate paid by the
Treasury Department is applied to all estimated cash flows associated with the loan.
When discounted, a payment made by the federal government in the first year of the
loan has a higher value, and therefore a higher subsidy cost, than an equivalent
payment made in a later year. Furthermore, present value is computed on a net basis,
so that estimated inflows are discounted to present value and then subtracted from
discounted outflows.
Direct Loans. Before a direct loan may be obligated, Congress must provide
budget authority in an annual appropriations act or other measure to cover the subsidy
cost. The amount of budget authority required for a given volume of loans depends
on the subsidy rate, that is, subsidy outlays as a percentage of loan disbursements.
For example, if the subsidy rate is 25 percent, budget authority of $10 million would
support $40 million of loan obligations. Exhibit 2-G shows how the subsidy rate is
derived from estimated cash flows.
The subsidy rate is calculated for each direct loan program. Many
characteristics, some related to the terms of the loans, others to the status of the
borrowers, go into calculation of the subsidy rate. These include the interest and fees
charged borrowers, assumed defaults and recoveries on defaults, and the maturity of
the loan.
Guaranteed Loans. The procedures used for estimating subsidy costs of
guaranteed loans are similar to those used for direct loans, but some of the factors
differ. The subsidy cost of guaranteed loans is the difference between the present
value of the federal government’s cash disbursements for defaults and other payments,
and the present value of the estimated cash inflows from fees, recoveries, and other
collections. In other words, the subsidy cost is the portion of estimated payments by
the federal government that is not expected to be offset by collections, in present
value terms. As with direct loans, Congress must provide sufficient budget authority
to permit the federal government to make loan guarantee commitments.

Exhibit 2-G.
Calculation of Subsidy Cost
Credit Subsidy Calculation for a Hypothetical Direct Loan
Obligated in FY 1999
(by fiscal year; in millions of dollars)
1999 2000 2001 2002 2003 2004 Sum
Obligated 1,000 ..... ..... ..... ..... ..... 1,000
Disbursed 1,000 ..... ..... ..... ..... ..... 1,000
Repayments: ..... -50 -50 -50 -50 -50 -250
Interest ..... ..... ..... ..... ..... -1,000 -1,000
Principal 0 -50 -50 -50 -50 -1,050 -1,250
Net cash flows1,000-50-50-50-50-1,050-250
Discount rate 7.6%
(assumed rate on 5-
year Treasury
Present value of
cash flows1,000-46-43-40-37-728106
(1)This hypothetical example involves a $1.0 billion direct loan obligated and
disbursed in FY1999. The example assumes that: (a) the loan is disbursed
soon after obligation; (b) the borrower pays interest annually at five
percent, well below the Treasury’s cost of money; (c) the principal is paid
in full at the end of five years (no default); and (d) for simplicity, all cash
flows take place at the end of the year.
(2)An appropriation of subsidy costs is made for the fiscal year in which the
loan is obligated, even if some or all of the funds will be outlayed in
subsequent years. Note that after the first year the actual net cash flows
are different from the present value of these cash flows.
(3)A subsidy appropriation of $106 million is needed for FY1999; this amount
is derived by totaling the present value of cash flows for all fiscal years
during the life of the loan (FY1999-2004). Outlays of $106 million also
are scored for FY1999.
(4)The subsidy rate is calculated by dividing the sum of the present value of
cash flows by total loan obligations, yielding in this instance a subsidy rate
of 10.6 percent. On the basis of this calculation, an appropriation of $106
million would permit direct loan obligations of $1.0 billion.
Source: Table prepared by the Congressional Budget Office in 1991 and
updated by the Congressional Research Service in 1998.

Recording Cash Flows in the Budget. Credit reform necessitates the
establishment of separate budgetary accounts for the subsidized and unsubsidized
portions of loans, and for the cash flows of both pre-reform loans and those made
after the new procedures took effect. Three types of accounts have been established
to accommodate these needs: (1) program accounts for the subsidized portion of new
loans and administrative expenses; (2) financing accounts for the unsubsidized portion
and for all cash flows, except administrative expenses, during the life of new loans;
and (3) liquidating accounts for the cash flows of pre-reform loans. Box 2-D lists the
budgetary status of these accounts.
Program Account. This is the type of account into which an appropriation is
provided to cover the subsidy cost of a direct or guaranteed loan. An amount
typically is also appropriated to this account for administrative expenses, though these
expenses are not included in the computation of subsidy costs. Direct and guaranteed
loans are segregated within these accounts. The program account does not receive
any funds for the unsubsidized portion of a direct or guaranteed loan.
Financing Account. This type of account is non-budgetary; its cash inflows
and outflows are not included in the budget totals. These flows are accounted for as
a “means of financing,” not as budget receipts or outlays. The financing account
collects the subsidy cost appropriation from the program account and borrows the
unsubsidized portion of the loan from the Treasury Department, as needed, to make
loan disbursements. Payments of fees, interest, principal, and other charges are placed
in the financing account which repays, with interest, money borrowed from the
Treasury Department. Separate financing accounts are maintained (within the same
program) for direct and guaranteed loans. In the case of guaranteed loans, the
financing account serves as a reserve for defaults. It lends these reserves, with
interest, to the Treasury Department.
Liquidating Account. This kind of account handles the cash flows for loans
made prior to FY1992. Because these loans were made under pre-reform procedures,
they are budgeted on a cash basis. The liquidating account collects payments of
principal, interest, and fees, and pays default claims and interest subsidies. The
liquidating account does not make new loan disbursements or commitments.

Box 2-D.
Credit Reform Account Structure

Liquidating Program Financing
Account Account Account(s)
Mandatory scoring.Discretionary scoring forScored “below the line” as
discretionary programs anda means of financing.
appropriations actions. Pay-as-
you-go scoring for entitlements if
changes are enacted by
authorizing committees.
Scored on a cash basis.Scored on a credit reformCash flows scored as a
(subsidy) basis.means of financing.
“Old loan activity”New subsidies and admin. Cash flows from new
(permanent, indefiniteexpenses (current, definite BA forcredit activity (scored as
BA).discretionary programs; current,means of financing; no
indefinite BA for mandatoryappropriations required).
For loans obligated orFor loans obligated or committedFor loans obligated or
committed prior toin FY1992 and beyond:committed in FY1992 and
FY1992:• displays full cost of program inbeyond:
• collects repayments,budget;Direct Loan Financing
interest fees;• receives appropriation ofAccount
• repays any borrowingsubsidy and administrative• collects subsidy from
with interest;expenses;program account;
• pays default claims• pays subsidy outlays to• borrows unsubsidized
and interest subsidies;financing accounts; andportion of loan from
and• adjustments to original subsidyTreasury;
• if loans are modifiedappropriations provided as• collects repayments,
or restructured, apermanent, indefiniteinterest, fees; and
subsidy is scored as aappropriations, but scored against• repays borrowing to
new loan.discretionary caps.Treasury with interest.
Guaranteed Loan
Financing Account
• collects subsidy from
program account;
• collects fees from
• acts as a reserve for
• receives interest on
reserves from Treasury;
• pays default claims and
interest subsidies.

Chapter 3. The President’s Budget
The President’s budget, officially referred to as the Budget of the United States
Government, is required by law to be submitted to Congress early in the legislative
session, no later than the first Monday in February. The budget consists of estimates
of spending, revenues, borrowing, and debt; policy and legislative recommendations;
detailed estimates of the financial operations of federal agencies and programs; data
on the actual and projected performance of the economy; and other information
supporting the President’s recommendations.
The President’s budget is only a request to Congress. Congress is not required
to adopt the President’s recommendations; in fact, one of the purposes of the budget
resolution process described in Chapter 4 is to enhance Congress’s independence from
presidential influence. Nevertheless, the power to formulate and submit the budget
is a vital tool in the President’s direction of the executive branch and of national
policy. The President’s proposals often influence congressional revenue and spending
decisions, though the extent of the influence varies from year to year and depends
more on political and fiscal conditions than on the legal status of the budget.
The Constitution does not provide for a budget, nor does it require the President
to make recommendations concerning the revenues and spending of the federal
government. Until 1921, the federal government operated without a comprehensive
presidential budget process. Instead, agencies submitted estimates to the secretary
of the Treasury (who compiled them in a Book of Estimates each year). The
President was not formally involved in the process, though some Presidents actively
intervened to shape financial policy.
The Budget and Accounting Act of 1921 provides for a national budget system.
Its basic requirement is that the President prepare and submit a budget to Congress
each year. The 1921 act established the Bureau of the Budget (now the Office of
Management and Budget) to assist the President in preparing and implementing the
executive budget. Although it has been amended many times, this statute provides the
legal basis for the presidential budget, prescribes much of its content, and defines the
roles of the President and the agencies in the process.
The three key advisers to the President on economic and budgetary matters,
sometimes referred to as the “Troika,” are the director of OMB, the secretary of the
Treasury, and the chairman of the Council of Economic Advisers. Presidents
sometimes have accorded significant influence over economic and budgetary matters
to an informal group of advisers, including such persons as the White House chief of
staff and special presidential assistants, in addition to members of the Troika.
In the executive branch, OMB is the hub of the federal budget process. Its chief
mission is to assist the President by overseeing the preparation of the budget and its
submission to Congress, and to supervise its administration and implementation by the

executive agencies. In doing so, OMB helps set funding priorities, assesses
competing funding demands among agencies, and evaluates the effectiveness of
agency programs. OMB seeks to ensure that the legislative proposals and
congressional testimony of agencies, as well as agency reports and rules, are
consistent with the President’s budget recommendations and administration policies.
During the consideration of budgetary legislation, OMB maintains liaison with the
House and Senate, communicating the President’s position on budgetary issues
through devices such as Statements of Administration Policy (see Exhibit 7-E). In
addition to its budgetary mission, OMB oversees and coordinates the administration’s
procurement, financial management, information, and regulatory policies. In OMB,
the budget and review functions report directly to the director and deputy director,
but the management and regulatory functions usually report to the deputy director for
Formulation and Content of the President’s Budget
Preparation of the President’s budget typically begins in the spring (or earlier)
each year, at least nine months before the budget is submitted to Congress, about 17
months before the start of the fiscal year to which it pertains, and about 29 months
before the close of that fiscal year. The early stages of budget preparation occur in
federal agencies. When they begin work on the budget for a fiscal year, agencies
already are implementing the budget for the fiscal year in progress and awaiting final
appropriations actions and other legislative decisions for the fiscal year after that. The
long lead times and the fact that appropriations have not yet been made for the next
year mean that the budget is prepared with a great deal of uncertainty about economic
conditions, presidential policies, and congressional actions.
At one time, OMB had a formal process, known as the spring preview, for
developing presidential budget guidelines for the next fiscal year. During the 1980s,
however, the formal process withered away (possibly because of the preoccupation
of OMB and the White House with congressional budget activity). Nowadays,
however, agencies usually are at work preparing their own budgets before presidential
policies and detailed technical instructions are communicated to them.
Box 3-A displays the budget preparation schedule in one federal agency. This
example sets forth excerpts from a more detailed schedule used by the Department of
Education (the complete schedule may be obtained on the Internet at: Note that the process begins at the
lower levels of the agency and moves progressively to higher levels until it is
consolidated into an agency-wide budget for submission to OMB. This “bottom up”
approach is typical of federal agencies, though some have elaborate planning
processes which allow for objectives established at the top to guide budget
Bottom-up budgeting is a time-consuming process. It begins almost a full year
before the President submits his budget to Congress, and a year and a half before the
beginning of the fiscal year to which it pertains. When the Education Department
started work on the FY2000 budget, it was barely half way through FY1998 and
Congress had just begun work on the FY1999 budget.

Box 3-A.
An Illustration of the Stages in Budget Formulation:
The Department of Education

date Action Explanation
SpringAllowance letter issued byOMB specifies budget authority and
OMB to Department.outlay ceilings for budget year and
MayOUS (Office of the UnderAssistant secretaries are asked to
Secretary) staff begin tosubmit their budget and legislative
develop budget andpriorities to the under secretary.
JuneOUS submits preliminarySecretary makes preliminary decisions
budget recommendationson new initiatives and total dollar
and the priorities of thelevels and requests issue papers.
assistant secretaries to the
JulyOUS staff develop issueFormal briefings are held for the
papers and submit finalsecretary involving OUS, assistant
budget recommendations tosecretaries, and other senior staff
the secretary, along with theofficers. Secretary makes final
assistant secretaries’ decisions.
SeptemberBudget request transmittedDepartment submits budget request to
to OMB.OMB in early September, along with a
transmittal letter from the secretary
covering highlights and major issues.
OctoberDepartment responds toOMB staff request answers to analytic
detailed questionsquestions to enable them to make
concerning budgetrecommendations to the director of
submission and revisesOMB; revisions take into account
request.current legislative action by Congress.
November-OMB passback and appealsOMB passback contains not only
Decemberof passback.funding decisions, but program policy
changes, legislative direction, and
personnel ceilings. Although the
OMB passback represents final
decisions, agencies can appeal levels
to the budget examiners, the director,
or the President, depending on the
nature of the issue.
JanuaryPreparation of President’sDepartment prepares a variety of
budget materials.materials to explain and justify
FebruaryPresident submits his budgetBy law, it must be submitted by the
to Congress.first Monday in February.

The Government Performance and Results Act (GPRA) requires federal agencies
to submit strategic plans and performance plans to the OMB director. Strategic plans,
which initially had to be submitted no later than September 30, 1997, lay out the long-
term goals and objectives of the agencies; they must cover at least five years and must
be revised periodically. Performance plans are submitted annually as part of the
budget process, beginning with the FY1999 budget cycle. Strategic and performance
plans are supposed to be integrated with and guide budget preparation, but it is too
early to assess whether this has been achieved. Procedures under GPRA are
discussed more fully in Chapter 8.
As agencies formulate their budgets, they maintain continuing contact with the
OMB examiners assigned to them. These contacts provide agencies with guidance
in preparing their budgets and also enable them to alert OMB to any needs or
problems that may loom ahead.
Box 3-B.Midway during their work on
OMB Publicationsthe budget, agencies receiveCircular A-11 from OMB,
OMB communicates its instructions andwhich contains detailed
guidelines on budget preparation and otherinstructions and schedules for
activities to agencies by means of the followingsubmission of budget estimates.
types of publications:OMB communicates its
!Circulars, which are expected to have ainstructions and guidelines on
continuing effect of two years or more;budget preparation and other
!Bulletins, which contain guidance of aactivities to agencies through
more transitory nature that wouldcirculars, bulletins, and other
normally expire after one or two years;publications (see Box 3-B).
!Regulations and Paperwork, reports,
updated daily, that list the regulationsAgency requests are
and paperwork under OMB review;submitted to OMB in late
!Financial Management policies andsummer or early fall; these are
Grants Management circulars andreviewed by OMB staff in
related documents;consultation with the President
!Federal Register Submissions, whichand his aides. The review has
include copies of proposed and final ruleseveral distinct stages: (1) staff
submissions to the Federal, during which OMB staff
prepare issue papers, consult
with agency officials, and
prepare recommendations; (2) director’s review, at which major issues are discussed,
OMB examiners defend their recommendations, and the OMB director makes budget
decisions; (3) passback, at which agencies are notified of the director’s decisions and
have an opportunity to appeal to OMB if they disagree with aspects of the passback;
(4) appeals, which are first taken to OMB, but if agreement cannot be reached, may
be taken to the President; and (5) final decisions, which are made by the President,
pursuant to which agencies must promptly revise their budget submissions to bring
them into accord with these decisions. The budget is then printed for distribution to
Congress and the public.

Box 3-C.The 1921 Budget and
Confidentiality of Budgetary InformationAccounting Act bars agencies
from submitting their budget
Budget and Accounting Act of 1921requests directly to Congress
(31 U.S.C. 1108(e))(see Box 3-C). Moreover,
Except as provided in subsection (f) of thisOMB regulations in Circular A-
section, an officer or employee of an10 provide for confidentiality in
agency...may submit to Congress or aall budget requests and
committee of Congress an appropriationsrecommendations prior to the
estimate or request, a request for an increase intransmittal of the President’s
that estimate or request, or a recommendationbudget to Congress. However,
on meeting the financial needs of theit is quite common for internal
Government only when requested by eitherbudget documents to become
House of Congress.public while the budget is still
being formulated.
The format and content of the budget are partly determined by law, but the 1921
Budget and Accounting Act authorizes the President to set forth the budget “in such
form and detail” as he may determine. Over the years, there has been an increase in
the number of volumes making up the budget submission, as well as in the types of
information and explanatory material presented. (During a 4-year period covering
FY1991-1994, however, the budget was presented as a single document.) The
different volumes used in recent years are shown in Box 3-D.
Much of the budget is an estimate of requirements under existing law rather than
a request for congressional action. About one-third of all spending in the budget is
discretionary; Congress must act each year on appropriations acts providing
discretionary budget authority. The remainder of the spending, however, is
mandatory; it occurs automatically each year (with some exceptions) under permanent
law. Similarly, most of the revenue for a fiscal year is generated under permanent
law. The President usually proposes some changes in mandatory spending and
revenue laws in his budget.
The President is required to submit a budget update (reflecting changed
economic conditions, congressional actions, and other factors), referred to as the
Mid-Session Review, by July 15 each year. The President may revise his
recommendations any time during the year. Changes requested before Congress has
acted are submitted as budget amendments; requests made for additional funds after
Congress has acted on the particular appropriations measures are submitted as
supplemental requests. The Mid-Session Review and messages transmitting budget
amendments, supplemental requests, and impoundment proposals are routinely printed
as House documents.
The President and his budget office have an important but limited role once the
budget is submitted to Congress. OMB officials and other presidential advisors
appear before congressional committees to discuss overall policy and economic issues,
but they generally leave formal discussions of specific programs to the affected
agencies. Agencies thus bear the principal responsibility for defending the President’s
program recommendations at congressional hearings. Agencies are

Box 3-D.
Volumes in the President’s Annual Budget Submission
In most years, the President submits his annual budget to Congress as
a multi-volume set. In recent years, the major volumes that make up this
set have included:
!the Budget (referred to officially as the Budget of the United States
Government), which includes the budget message of the President,
detailed presentations on the President’s major budgetary initiatives,
a descriptive discussion of federal programs organized by budget
function, and summary tables;
!the Appendix, which sets forth detailed financial information on
individual programs and appropriation accounts;
!the Analytical Perspectives, which contains analyses that are
designed to highlight specified subject areas or provide other
significant presentations of budget data that place the budget in
perspective, such as current services estimates, economic and
accounting analyses, and the Budget Enforcement Act preview
!the Historical Tables, which provide data on budget receipts,
outlays, surpluses or deficits, federal debt, and federal employment
covering an extended time period—in most cases beginning in
FY1940 or earlier; and
!Budget Information for States, which provides proposed state-by-
state obligations for the major federal formula grant programs to
state and local governments.
In addition, the budget submission is supplemented by A Citizen’s
Guide to the Federal Budget, Budget System and Concepts, and several
technical reports.
The President transmits his annual Economic Report of the President
to Congress shortly after his budget submission. This document includes
the report of the Council of Economic Advisers.
Later in the year, the President submits the Mid-Session Review of
his budget.
supposed to justify the President’s recommendations, not their own, and OMB
maintains an elaborate legislative clearance process to ensure that agency budget
justifications, testimony, and other submissions are consistent with presidential policy.
But the fragmented structure of the appropriations process and interactions
at congressional hearings sometimes enable agencies to exert independence from the
White House’s position on particular issues.
Independence from the President’s recommendations also is fostered by CBO
review of the Administration’s proposals. The CBO review, which generally is
published about one month after the President’s budget is submitted to Congress,
includes its reestimates of the President’s budget, based on its own economic and

technical assumptions. The CBO review includes a summary, backed up by detailed
analyses of major programs and policies. As Exhibit 3-A reveals, CBO sometimes
finds that, if the President’s budget proposals were put into effect, they would yield
a higher deficit or lower surplus than the Administration had projected. Although the
differences between the President’s estimates and CBO’s estimates often seem to be
large, they usually amount to less than one-half percent of total revenue and spending.
In recent years, several factors have given the President more continuing
involvement in congressional action on the budget. One factor is the Budget
Enforcement Act, which requires the President to notify Congress whether the
discretionary spending limits and pay-as-you-go requirements are being met. (This
process is discussed in Chapter 2.) Another factor is the trend toward budget
summits at which an overall agreement is negotiated by presidential aides and
congressional leaders. Finally, with agencies and Congress acting more independently
on budget matters than in the past, the President and his aides must closely monitor
developments in Congress.
The Economic Forecast and Projections
Because of its size—outlays total one-fifth of GDP—the budget has a significant
impact on the economy. As stated in the opening chapter, the relationship between
the budget and the economy is bilateral. Not only does budget policy affect the
economy, economic performance strongly influences budget outcomes. In making the
budget, the President must consider the condition of the economy and the potential
effects of federal policies on prices, employment levels, the output of goods and
services, and other economic indicators.
The President’s budget contains a forecast of economic conditions for the next
two calendar years (see Exhibit 3-B). It also projects assumed economic
performance for a longer period. There is a marked tendency for these forecasts and
assumptions to project steady improvement in the years ahead. Shortly after the
budget is issued, the President submits an annual Economic Report to Congress. This
document also contains the annual report of the President’s Council of Economic
Congress is not bound by the President’s economic projections. It usually makes
its own economic forecast, relying on data and analyses from CBO, in formulating the
budget resolution for the next fiscal year. Congress and the President sometimes
coordinate their economic forecasts, however, especially when they engage in a
budget summit.
The budget is highly sensitive to the level of economic growth, price changes,
interest rates, and unemployment (see Exhibit 1-C). Deviations between actual and
projected economic conditions will cause receipts and outlays to vary from budgeted
amounts. Revenues are especially sensitive to the level of economic activity; outlays
are directly affected by interest rates.

Exhibit 3-A.
CBO Reestimates of the President’s Budget
(by fiscal year, in billions of dollars)
Deficit (-) or surplus under the President’s budgetary
policies as estimated by the Administration-10109
Baseline Differences
Discretionary 5 a -1
Total b 18 3 -4
Differences in Estimates of Proposed Policies
Discretionary a 7 7
Subtotal b -1 8 10
All Estimating Differencesb
Total Differences18-6-13
Deficit (-) or surplus under the President’s budgetary
policies as estimated by the Administration84-5
a.Less than $500 million
b.Reductions in the surplus are shown with a negative sign.
(1)Shortly after the President’s budget is submitted, CBO issues its own
analysis, including reestimates of the President’s projections. This excerpt
is taken from the CBO analysis of the FY1999 budget (the complete CBO
table covers FY1998-2003).
(2)In making reestimates, CBO distinguishes between baseline differences
(which reflect economic and technical factors) and differences due to
proposed policy changes.
(3)Typically, CBO finds that its reestimates show a higher deficit or lower
surplus compared to the President’s budget. This is true for all years in
the example shown except FY1998. Note that the gap between CBO and
presidential surplus estimates widens in the outyears.
Source: Congressional Budget Office, Analysis of the President’s
Budgetary Proposals for Fiscal Year 1999, March 1998, Summary Table 2, page

Exhibit 3-B.
Economic Forecast
(calendar years)
1998 1999 2000 2001
Gross Domestic Product (GDP):
Levels, dollar amounts in billions:
Current dollars8,4308,7729,1429,547
Real, chained (1992) dollars7,3577,5037,6527,820
Consumer Price Index (all urban)
Percent change, fourth quarter over2.
fourth quarter
Unemployment rate, civilian, percent:
Fourth quarter level5.
Annual average4.
Federal pay raises, January, percent:
Military 2.8 3.1 3.0 3.0
Civilian 2.8 3.1 3.0 3.0
Interest rates, percent:
91-day Treasury bills5.
10-year Treasury notes5.
(1)The revenue and outlay estimates in the budget are made in tandem with
the economic forecast. The economic forecast presented here covers
through calendar year 2003 (2002 and 2003 data are not shown). Exhibit

1-C illustrates the sensitivity of budget projections to economic changes.

(2)In addition to Gross Domestic Product (GDP), the Consumer Price Index
the unemployment rate, federal pay raises, and interest rates, assumptions
regarding incomes are used (but not shown in this excerpt).
(3)GDP is projected in both current and real dollars. Current GDP is
essential in projecting budget receipts; real GDP (expressed in chained
1992 dollars) is used to project future unemployment and changes in the
volume of economic activity.
(4)Changes in economic performance generally have a more pronounced
impact on revenues than on outlays.
(5)The pay raises shown in the budget are the amounts that the President
intends to recommend to Congress.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, February 1998, Table III-1, page 29.

While actual economic conditions often are less favorable than had been forecast,
this is not always the case. For FY1998, both OMB and CBO (and most private
economists) initially forecast a deficit. The forecast later was changed from a deficit
to the first surplus in many years; the surplus estimates subsequently were revised
Economic conditions are not the only factors causing the budget to veer off the
projected course. Variances also result from policy decisions and from differences
between the technical estimates made when the budget was prepared and those used
as later information became available.
Much of the adjustment of the budget to economic conditions is automatic; it
occurs without presidential or congressional action. Revenues do not usually fall
when the economy weakens; they just grow more slowly. Outlays of various indexed
programs are adjusted for price changes, and interest charges respond directly to
changing interest rates. Periodically, the President issues an updated budget forecast
to take account of fresh economic data and other developments. CBO also
reestimates revenues and outlays to reflect changing economic conditions.
The Budget Enforcement Act can affect the capacity of the government to use
the budget as an instrument of economic policy. That law prescribes a decline in the
real levels of discretionary spending, and deficit neutrality for legislative changes in
revenue and mandatory programs, as the key fiscal policy objectives of the federal
government. However, the BEA provides for adjustments to accommodate
emergencies and the BEA controls can be suspended altogether by Congress in case
of recession or weak economic growth.
Information in the President’s Budget
The President’s budget contains a variety of data and information concerning
both overall budget policy and particular programs and accounts. One useful
guideline for understanding budget requests is to compare them to baseline estimates.
The baseline projections prepared by OMB are referred to as current services
estimates. They project budget authority, outlay, and revenue amounts without policy
change. The baseline estimates are presented in both summary and more detailed
fashion. Because they are based on different assumptions, the President’s current
services estimates often differ from the baseline projections made by CBO.
Detailed information on each budget account is provided in the budget. The
budget provides the text of the current appropriation for each annually appropriated
account (see Exhibit 3-C), as well as a narrative description of each account’s
programs and performance (see Exhibit 3-D).
Following the appropriations language and program statement, the budget
presents a Program and Financing Schedule for each account, as displayed in
Exhibits 3-E and 3-F. This schedule shows the account’s programs and financing
sources and relates annual obligations to outlays. The budget also contains a schedule
of each account’s objects of expenditure (see example in Exhibit 3-G), as well as a
summary of positions associated with each account.

The standard schedules shown in the budget were designed for accounts which
spend appropriated funds. Special schedules are used for credit transactions in which
the federal government makes or guarantees loans. Special schedules also are
provided for business-type operations and various nonappropriated accounts.

Exhibit 3-C.
Appropriations Language
Federal Bureau of Investigation
Salaries and Expenses
For necessary expenses of the Federal Bureau of
Investigation...[$2,750,921,000] $2,785,214,000; of which not to exceed
$50,000,000 for automated data processing and telecommunications and technical
investigative equipment and not to exceed $1,000,000 for undercover operations
shall remain available until September 30, [1999] 2000; of which not less than
[$221,050,000] $170,283,000 shall be for counterterrorism investigations, foreign
counterintelligence, and other activities related to our national security;...
In addition, $215,356,000 for such purposes, to remain available until
expended, to be derived from the Violent Crime Reduction Trust Fund, as
authorized by the Violent Crime Control and Law Enforcement Act of 1994, as
amended, and the Antiterrorism and Effective Death Penalty Act of 1996.
(Department of Justice Appropriations Act, 1998.)
(1)For each account funded by annual appropriations, the budget prints the
text of the current and proposed appropriations. Material in brackets is
current appropriations language proposed for deletion; material in italics
is proposed to be added. (Additional discussion of appropriations
language is provided in Chapter 7. The full text of this appropriations
language appears in Exhibit 7-L.)
(2)The appropriation exhibited here proposes nearly $3 billion for the
salaries and expenses of the Federal Bureau of Investigation. All operating
funds for an agency or a major program are typically provided in a single
(3)In this particular case, $2,750,921,000 is the amount that was
appropriated for FY1998 and $2,785,214,000 is the amount that was
requested by the President for FY1999. $50,000,000 was earmarked for
automated data processing and other purposes for FY1998; the same
amount also was proposed for FY1999.
(4)The appropriations language is immediately followed by a citation of the
annual appropriations act in which the appropriation for the current fiscal
year was provided.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Appendix, February 1998, page 604.

Exhibit 3-D.
Program Description and Workload Data
The overall objectives of the FBI are to uphold the law—to investigate violations
of Federal criminal law, to protect the United States from foreign hostile intelligence
efforts, to provide leadership and assistance to other Federal, State, local, and
international law enforcement agencies, ...
The direct programs of the FBI are divided into the following general categories:
Law enforcement support.—This activity consists of training, recruitment,
applicant investigations, forensic laboratories, investigative records and
communications, ADP and telecommunications, and technical field support and
services, identification, and informational services.

1997 actual1998 est.1999 est.

Training—FBI Academy:
New FBI Special Agents1,106735950
FBI In-Service Training6,5775,5006,000
State and Local personnel3,5252,7893,000
Forensic examinations performed:
Federal 462,216 620,000 660,000
Non-Federal 81,479 130,000 140,000
Name Checks Processed35,946,69640,390,00043,390,000
Fingerprint Cards Processed13,043,49314,550,00014,250,000
(1)For most budget accounts, the budget describes the programs and provides
relevant workload or other performance data. Recent budgets have
significantly revamped these program descriptions, making them more
specifically related to the particular year’s budget request.
(2)OMB instructions for the preparation of the budget in Circular A-11 call
for agencies to justify their requests with detailed analyses of workload,
unit costs, productivity trends, and performance standards. The amount of
such data included in the budget, however, is quite limited.
(3)Much more detailed program descriptions and performance data are
provided by agencies in the justification material presented to the
Appropriations subcommittees. The justification materials are included in
the Appropriations Committees’ hearings, published by the Government
Printing Office.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Appendix, February 1998, page 605.

Exhibit 3-E.
Program and Financing Schedule:
Obligations by Program Activity
Program and Financing (in millions of dollars)
Identification code 15-0200-0-1-999actualest.est.
Obligations by program activity:
Direct program:
Operating expenses:
Criminal, security and other1,6481,8381,902
investigations 805 534 515
Law enforcement support162164175
Program direction2,6152,5362,592
Total operating expenses
Capital investment:
Criminal, security and other73174123
investigations 164 327 280
Law enforcement support242
Program direction239505405
Total capital investment
Total direct program2,8543,0412,997
Reimbursable program482476519
Total obligations3,3363,5173,516
(1)The “Program and Financing” schedule, which accompanies each budget
account, covers three fiscal years (the past, current, and upcoming fiscal
years) and consists of several parts. The part displayed in this exhibit
shows obligations classified by the program and activities comprising the
account. OMB instructions call for agencies to define activities that are
based on the accounting structure, are related to the administrative
operations of the agency, and are useful for program analysis and
(2)Each account has an 11-digit identification code. The first two digits
designate the agency; the next four are the account number; the seventh
digit indicates the type of budget request (such as regular or
supplemental); and the eighth digit indicates the type of fund. The last
three digits are the functional classification.
(3)Where appropriate, program and financing schedules distinguish between
operating expenses and capital investments. (Unlike virtually all state and
local governments, the federal government does not budget separately for
operating and capital spending.)
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Appendix, February 1998, page 604.

Exhibit 3-F.
Program and Financing Schedule:
New Budget Authority and Outlays
Program and Financing (in millions of dollars)
Identification code 15-0200-0-1-999actualest.est.
New budget authority (gross), detail:
Appropriation 2,567 2,751 2,786
Transferred from other accounts173185215
Appropriation (total)2,7402,9363,001
Transferred to other accounts-35..........
Advance appropriation (indefinite)35..........
Spending authority from offsetting
collections: Offsetting collections (cash)482476519
Total new budget authority (gross)3,2223,4123,520
Outlays (gross), detail:
Outlays from new current authority2,4872,2022,251
Outlays from current balances207641440
Outlays from new permanent authority482476519
Total outlays3,1763,3193,210
(1)This portion of the schedule (continued from the previous exhibit) shows
detailed information on the new budget authority and outlays associated
with the account. The total new budget authority requested for FY1999,
$3,520 million, reflects an appropriation of $2,786 million (as shown in
Exhibit 3-C), plus $215 million transferred from the Violent Crime
Reduction Trust Fund and $519 million from offsetting collections.
(2)The program and financing schedule also presents net, rather than gross,
amounts of new budget authority and outlays (not shown here). The gross
amounts represent the total to be obligated or spent in the account,
regardless of source; the net amounts are the amounts to be financed by
appropriations (not offsetting collections).
(3)“Current” new budget authority comes from appropriations bills to be
enacted during the session. “Permanent” new budget authority is derived
automatically from prior laws; no further congressional action is required.
(4)Other parts of the schedule (not shown here) provide information on
unobligated balances, sources of offsetting collections, and other matters.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Appendix, February 1998, page 605.

Exhibit 3-G.
Object Classification
Object Classification (in millions of dollars)
Identification code 15-0200-0-1-999actualest.est.
Direct obligations:
Personnel compensation:
11.1Full-time permanent1,0831,1911,243
11.3Other than full-time permanent433
11.5Other personnel compensation185192199
11.9Total personnel compensation1,2721,3861,445
12.1Civilian personnel benefits328382406

13.0Benefits for former personnel3..........

21.0Travel and transportation of persons705858
22.0Transportation of things101414
23.1Rental payments to GSA163187199
23.2Rental payments to others303131
23.3Communications, utilities, and miscellaneous
24.0Printing and reproduction333
* * * * * *
99.0Subtotal, direct obligations2,8543,0412,997
99.0Reimbursable obligations482476519
99.9Total obligations3,3363,5173,516
(1)This schedule—which accompanies every budget account—classifies
obligations among the major objects of spending. The same object codes
are used for all federal agencies.
(2)Some objects are divided into subcodes to provide more detailed
information on expenditures. Note that personnel compensation is
subdivided between full-time compensation and other personnel costs.
(This exhibit does not show all of the codes and subcodes for this account.)
(3)For each account with personnel compensation, the budget presents a
“Personnel Summary” (not displayed here) that provides the amount of
full-time equivalent employment (in workyears) and other personnel data.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Appendix, February 1998, pages 605-606.

Chapter 4. The Congressional Budget Resolution
and Reconciliation
The Congressional Budget Resolution
The Congressional Budget and Impoundment Control Act of 1974, as amended,
establishes the congressional budget process as the means by which Congress
coordinates the various budget-related actions (such as the consideration of
appropriations and revenue measures) taken by it during the course of the year. The
process is centered around an annual concurrent resolution on the budget that sets
aggregate budget policies and functional spending priorities for at least the next five
fiscal years.
Because a concurrent resolution is not a law—it cannot be signed or vetoed by
the President—the budget resolution does not have statutory effect; no money can be
raised or spent pursuant to it. The main purpose of the budget resolution is to
establish the framework within which Congress considers separate revenue, spending,
and other budget-related legislation. Revenue and spending amounts set in the budget
resolution establish the basis for the enforcement of congressional budget policies
through points of order. The budget resolution also initiates the reconciliation
process for conforming existing revenue and spending laws to congressional budget
The 1974 Congressional Budget Act, which includes many provisions that
operate as rules of the House and Senate, has been amended many times. Major
changes to the act occurred in the 1980s and 1990s in conjunction with legislation
establishing and extending the Balanced Budget and Emergency Deficit Control Act
of 1985 and the Budget Enforcement Act of 1990. Changes in the 1974 act were
made most recently by the Budget Enforcement Act of 1997. Additionally, some
rules of the congressional budget process have been incorporated into or augmented
by the standing rules of the House and Senate.
Content and Formulation of the Budget Resolution. The congressional
budget process begins upon the presentation of the President’s budget in January or
February (see Box 4-A). The timetable set forth in the 1974 Congressional Budget
Act calls for the final adoption of the budget resolution by April 15, well before the
beginning of the new fiscal year on October 1. Although the House and Senate often
pass the budget resolution separately before April 15, they often do not reach final
agreement on it until after the deadline—sometimes months later. The Congressional
Budget Act of 1974 bars consideration of revenue, spending, and debt-limit measures
for the upcoming fiscal year until the budget resolution for that year has been adopted,
but certain exceptions are provided (such as the exception that allows the House to
consider the regular appropriations bills after May 15, even if the budget resolution
has not been adopted by then).

Box 4-A.
Congressional Budget Process Timetable
DeadlineAction to be completed
First Monday in FebruaryPresident submits budget to Congress.
February 15CBO submits report on economic and budget
outlook to Budget Committees.
Six weeks after President’sHouse and Senate committees submit reports
budget is submittedon views and estimates to respective Budget
April 1Senate Budget Committee reports budget
April 15Congress completes action on budget
June 10House Appropriations Committee reports last
regular appropriations bill.
June 30House completes action on regular
appropriations bills and any required
reconciliation legislation.
July 15President submits mid-session review of his
budget to Congress.
October 1Fiscal year begins.
Budget Resolution Content. The 1974 Congressional Budget Act requires
the budget resolution, for each fiscal year covered, to set forth budget aggregates (see
Exhibits 4-A and 4-B) and spending levels for each functional category of the budget
(see Box 4-B). The aggregates included in the budget resolution are as follows:
!total revenues (and the amount by which the total is to be changed by
legislative action);
!total new budget authority and outlays;
!the deficit or surplus; and
!the debt limit.
With regard to each of the functional categories, the budget resolution must
indicate for each fiscal year the amounts of new budget authority and outlays, and
they must add up to the corresponding spending or aggregates.
Aggregate amounts in the budget resolution do not reflect the revenues or
spending of the Social Security trust funds, although these amounts are set forth
separately in the budget resolution for purposes of Senate enforcement procedures.

Exhibit 4-A.
Budget Resolution Aggregates: Revenues
Sec. 101. Recommended Levels and Amounts.
The following budgetary levels are appropriate for the fiscal years 1998, 1999,

2000, 2001, and 2002:

(1) Federal Revenues—For purposes of the enforcement of this resolution—
(A) The recommended levels of Federal revenues are as follows:
Fiscal year 1998: $1,199,000,000,000.
Fiscal year 1999: $1,241,900,000,000.
Fiscal year 2000: $1,285,600,000,000.
Fiscal year 2001: $1,343,600,000,000.
Fiscal year 2002: $1,407,600,000,000.
(B) The amounts by which the aggregate levels of Federal revenues should
be changed are as follows:
Fiscal year 1998: $-7,400,000,000.
Fiscal year 1999: $-11,100,000,000.
Fiscal year 2000: $-22,000,000,000.
Fiscal year 2001: $-22,800,000,000.
Fiscal year 2002: $-19,900,000,000.
(C) The amounts for Federal Insurance Contributions Act revenues for
hospital insurance within the recommended levels of Federal revenues are as
Fiscal year 1998: $113,500,000,000.
Fiscal year 1999: $119,100,000,000.
Fiscal year 2000: $125,100,000,000.
Fiscal year 2001: $130,700,000,000.
Fiscal year 2002: $136,800,000,000.
(1)The first title of a budget resolution sets forth the budget aggregates—total
revenues, new budget authority, outlays, the deficit or surplus, and the debt
limit. It also includes spending levels by function and, if appropriate,
reconciliation instructions. This exhibit shows the revenue aggregates.
(2)These amounts do not include receipts of the Social Security trust funds,
which are off-budget. These receipts, as well as Social Security spending,
are presented elsewhere in the title only to enforce Senate point-of-order
provisions intended to protect the balances in the trust funds. Although
Medicare receipts (under the Federal Insurance Contributions Act) are
included in the budget totals, they also are shown separately.
(3)The budget resolution shown here contemplates legislative action to reduce
revenues by more than $80 billion over five years; it does not specify which
provisions of revenue law should be changed.
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget for Fiscal Year 1998), June 4, 1997, page


Exhibit 4-B.
Budget Resolution Aggregates: Spending, Deficit, and Public Debt
Sec. 101. Recommended Levels and Amounts.
The following budgetary levels are appropriate for the fiscal years 1998, 1999,

2000, 2001, and 2002:

* * * * * *
(2) NEW BUDGET AUTHORITY- For purposes of the enforcement of this
resolution, the appropriate levels of total new budget authority are as follows:
Fiscal year 1998: $1,386,700,000,000.
Fiscal year 1999: $1,440,100,000,000.
Fiscal year 2000: $1,486,400,000,000.
Fiscal year 2001: $1,520,200,000,000.
Fiscal year 2002: $1,551,600,000,000.
(3) BUDGET OUTLAYS- For purposes of the enforcement of this resolution,
the appropriate levels of total budget outlays are as follows:
Fiscal year 1998: $1,372,000,000,000.
Fiscal year 1999: $1,424,100,000,000.
Fiscal year 2000: $1,468,800,000,000.
Fiscal year 2001: $1,500,700,000,000.
Fiscal year 2002: $1,515,900,000,000.
(4) DEFICITS- For purposes of the enforcement of this resolution, the amounts
of the deficits are as follows:
Fiscal year 1998: $-173,000,000,000.
Fiscal year 1999: $-182,200,000,000.
Fiscal year 2000: $-183,200,000,000.
Fiscal year 2001: $-157,100,000,000.
Fiscal year 2002: $-108,300,000,000.
(5) PUBLIC DEBT- The appropriate levels of the public debt are as follows:
Fiscal year 1998: $5,593,500,000,000.
Fiscal year 1999: $5,841,000,000,000.
Fiscal year 2000: $6,088,600,000,000.
Fiscal year 2001: $6,307,300,000,000.
Fiscal year 2002: $6,481,200,000,000.
(1)New budget authority is provided in annual appropriations acts and direct
spending measures. The outlay amounts set forth in the budget resolution
are estimates.
(2)Exclusion of off-budget Social Security trust funds, which are running
significant surpluses, means that the resolution may show a deficit even
when the total budget is in surplus.
(3)The annual increase in the public debt is greater than the deficit for that
fiscal year because the debt includes amounts borrowed from trust funds.
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget for Fiscal Year 1998), June 4, 1997, pages

3 and 4.

Box 4-B.The budget resolution does
Functional Classifications of the Budgetnot allocate funds among
specific programs or accounts,
National Defense (050)but the major program
International Affairs (150)assumptions underlying the
General Science, Space, and Technology (250)functional amounts are often
Energy (270)discussed in the reports
Natural Resources and Environment (300)accompanying each resolution.
Agriculture (350)Some recent reports have
Commerce and Housing Credit (370)contained detailed information
Transportation (400)on the program levels assumed
Community and Regional Development (450)in the resolution. These
Education, Training, Employment, and Socialassumptions are not binding on
Services (500)the affected committees.
Health (550)
Medicare (570)Finally, the 1974
Income Security (600)Congressional Budget Act
Social Security (650)allows certain additional matters
Veterans’ Benefits and Services (700)to be included in the budget
Administration of Justice (750)resolution. Perhaps the most
General Government (800)important optional feature of a
Net Interest (900)budget resolution is
Allowances (920)reconciliation directives
Undistributed Offsetting Receipts (950)(discussed below). In recent
years, the House and Senate
have included many declaratory
statements in budget resolutions; these provisions usually begin with the phrase “it is
the sense of the House” or “it is the sense of the Senate.” Also, the Senate has
included other procedural matters in recent years, including provisions called reserve
funds, which provide for later adjustments in budget resolution figures and committee
spending allocations so that certain deficit-neutral legislation may be considered.
Budget Resolution Formulation. The House and Senate Budget
Committees are responsible for marking up and reporting the budget resolution. In
the course of developing a budget resolution, the Budget Committees hold hearings,
receive “views and estimates” reports from other committees, and obtain information
from CBO. In their initial hearings each year, the Budget Committees receive
testimony from the director of OMB, the secretary of the Treasury, and the chairman
of the President’s Council of Economic Advisers. The CBO director also testifies.
The “views and estimates” reports of House and Senate committees—an excerpt from
one appears as Exhibit 4-C—provide the Budget Committees with information on
the preferences and legislative plans of congressional committees regarding budgetary
matters within their jurisdiction.
CBO assists the Budget Committees in developing the budget resolution by
issuing, early each year, a report on the economic and budget outlook that includes
baseline budget projections. The baseline projections presented in the report are
supported by more detailed projections for accounts and programs; CBO usually
revises the baseline projections one or more times before the Budget Committees

Exhibit 4-C.
Views and Estimates of Committees
Surface Transportation
The [House Transportation and Infrastructure] Committee’s top priority is to
reauthorize the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991
The Committee ... recommends that the Budget Resolution assume contract
authority for these programs that reflect a funding level that would make full use of
the resources of the Highway Trust Fund. The funding levels for highways, mass
transit, and highway safety should include income plus an additional amount that
would draw down the existing balance. We recognize that immediately spending the
maximum level possible would be difficult in light of the goal to balance the budget
by 2002. The Committee also believes that Federal fuel excise taxes be used to
finance infrastructure improvements and not be diverted to the General Fund. The
Budget Resolution should assume funding financed from the 4.3 cent fuel tax that is
currently deposited in the General Fund. This increased revenue will allow the Trust
Fund to sustain a higher level of funding well into the next century ....
It is not sufficient, however, to simply provide contract authority for the
reauthorization in the Budget Resolution. The Budget Resolution must also assume
that the newly authorized funds can actually be spent. Toward this end, the resolution
should reflect enactment of H.R. 4, the Truth in Budgeting Act, to move the
transportation trust funds off-budget so they can be utilized for their stated intent.
Without special budgetary treatment for the transportation trust funds, the funds
authorized and the tax revenue collected will simply accumulate ....
(1)House and Senate committees are required to report their views and
estimates on budget matters in their jurisdiction within six weeks after the
President submits his budget. The excerpt shown presents the views of the
House Transportation and Infrastructure Committee for FY1998.
(2)Some committees submit “views and estimates” reports in the form of a
brief letter from the chairman; others submit lengthy, detailed reports. In
this exhibit, the views represent a bipartisan statement; some committees
submit separate statements from the majority and minority members.
(3)The House Transportation Committee, like many other committees,
organizes its report by broad subject areas under its jurisdiction and
identifies major legislation it expects to consider. Legislative committees
comment on direct spending within their jurisdiction (in this case, contract
authority for highway programs), but may also discuss their authorizations
that require funding in annual appropriations acts.
(4)Committees may comment on structural and procedural aspects of the
budget that affect their jurisdiction, not just budget policy matters.
Source: House Budget Committee, Views and Estimates of Committees of
the House on the Concurrent Resolution on the Budget for Fiscal Year 1998,
House Budget Committee Print No. CP-1, May 1997, pages 227-228.

mark up the budget resolution. In addition, CBO issues a report analyzing the
President’s budgetary proposals in light of CBO’s own economic and technical
assumptions. In past years, CBO also issued an annual report on spending and
revenue options for reducing the deficit.
The extent to which the Budget Committees (and the House and Senate)
consider particular programs when they act on the budget resolution varies from year
to year. Specific program decisions are supposed to be left to the Appropriations
Committees and other committees of jurisdiction, but there is a strong likelihood that
major issues will be discussed in markup, in the Budget Committees’ reports, and
during floor consideration of the budget resolution (an excerpt from a Budget
Committee report is shown in Exhibit 4-D). Although any programmatic assumptions
generated in this process are not binding on the committees of jurisdiction, they often
influence the final outcome.
Floor consideration of the budget resolution is guided by House and Senate rules
and practices. In the House, the Rules Committee usually reports a special rule (a
simple House resolution), which, once approved, establishes the terms and conditions
under which the budget resolution is considered. This special rule typically specifies
which amendments may be considered and the sequence in which they are to be
offered and voted on. It has been the practice in recent years to allow consideration
of a few amendments (as substitutes for the entire resolution) that present broad
policy choices. In the Senate, the amendment process is less structured, relying on
agreements reached by the leadership through a broad consultative process. The
amendments offered in the Senate may entail major policy choices or may be focused
on a single issue.
Budget Resolution Enforcement. Achievement of the policies set forth in
the annual budget resolution depends on the legislative actions taken by Congress
(and their approval or disapproval by the President), the performance of the economy,
and technical considerations. Many of the factors that determine whether budgetary
goals will be met are beyond the direct control of Congress. If economic
conditions—growth, employment levels, inflation, and so forth—vary significantly
from projected levels, so too will actual levels of revenue and spending. Similarly,
actual levels may differ substantially if the technical factors upon which estimates are
based, such as the rate at which agencies spend their discretionary funds or
participants become eligible for entitlement programs, prove faulty.
Congress’s regular tools for enforcing the budget resolution each year are overall
spending ceilings and revenue floors and committee allocations and subdivisions of
spending. In addition, in recent years the Senate has enforced discretionary spending
limits in the budget resolution, which parallel the adjustable limits established in
statute and enforced by the sequestration process. In order for the enforcement
procedures to work, Congress must have access to complete and up-to-date
budgetary information so that it can relate individual measures to overall budget
policies and determine whether adoption of a particular measure would be consistent
with those policies. Substantive and procedural points of order are designed to obtain
congressional compliance with budget rules. A point of order may bar House or
Senate consideration of legislation that violates the spending ceilings

Exhibit 4-D.
Committee Report Accompanying a Budget Resolution
Discretionary Spending
Discretionary spending in this function is a priority in the Bipartisan Budget
The Resolution Mark assumes spending of all estimated Highway Trust Fund tax
receipts between 1998 and 2002...Proposal would increase total highway spending from
its current level of $20.8 billion to $23.1 billion in 2002.
The Resolution Mark assumes the Budget Resolution baseline for FAA
Operations, Facilities and Equipment, and Research, Engineering, and Development
programs. The Resolution Mark would provide for these programs to grow from their
1997 level of $7.1 billion to $8.3 billion in 2002. The Resolution Mark also assumes
a freeze in the Airport Improvement Program (AIP), through 2002, at its current level
of $1.46 billion. The President’s budget had provided for AIP to be reduced to $1.0
billion in 1998 and frozen at this figure through 2002....
In order to meet the Bipartisan Budget Agreement’s discretionary spending limits,
savings will be required from programs in this function. These savings will be
determined by the Appropriations Committee....
Mandatory Spending
The Resolution Mark provides for an increase in contract authority for highways,
highway safety, and mass transit above the levels provided in 1997. Total highway and
highway safety contract authority would rise from its current level of $22.6 billion to
$25.1 billion in 2002....
(1)The increases or decreases in spending and revenues recommended by the
Budget Committees usually are explained in the Budget Committee reports
on the budget resolution as changes from the baseline. Spending
recommendations are discussed by functional category of the budget, and
within each category, by discretionary and mandatory amounts.
(2)In this case, the Senate Budget Committee adhered to a Bipartisan Budget
Agreement, reached by President Clinton and congressional leaders, that
designated transportation spending as a priority.
(3)The Budget Committee’s recommendations for this function, like many
others, are a mix of increases for priority programs, freeze levels for other
programs, and reductions in others.
(4)Although specific program assumptions are not binding on the
Appropriations Committees and other committees with spending
jurisdiction, they may represent a consensus and influence final outcomes.
Source: Senate Budget Committee, Concurrent Resolution on the Budget,thst
FY1998: Committee Print to Accompany S.Con.Res. 27 (105 Cong., 1 Sess.),
S.Prt. 105-27, May 1997, pages 25-27.

and revenue floors in the budget resolution, committee subdivisions of spending, or
congressional budget procedures.
Budget Resolution Aggregates. In the early years after the 1974
Congressional Budget Act, the principal enforcement mechanism was the ceiling on
total budget authority and outlays and the floor under total revenues set forth in the
budget resolution. The limitations inherent in this mechanism soon became apparent.
For example, the issue of controlling breaches of the spending ceilings usually did not
arise until Congress acted on supplemental appropriations acts, when the fiscal year
was well underway. The emergency nature of the legislation often made it difficult
to uphold the ceilings.
As part of the budget process changes made by the BEA of 1997, the aggregate
levels set in the budget resolution, and the associated discretionary spending limits and
committee spending allocations, are adjusted periodically for the consideration of
legislation in several different categories; the adjustments are meant to parallel similar
adjustments made automatically in the statutory discretionary spending limits. The
chairmen of the House and Senate Budget Committees make the adjustments
whenever the designated legislation is reported and submit them for publication in the
Congressional Record; the adjustments take permanent effect if the legislation is
enacted into law.
Adjustments may be triggered by legislation in the following five categories:
(1) measures containing designated emergency amounts of discretionary
spending, direct spending, or revenues;
(2) measures funding continuing disability reviews;
(3) measures providing an allowance for the International Monetary Fund;
(4) measures funding arrearages for various international organizations,
international peacekeeping, and multilateral development banks (but only for the
period covering FY1998-2000 and subject to a limit of $1.884 billion in budget
authority); and
(5) measures providing funds for an earned income tax credit compliance
initiative, subject to annual limits ranging from $138 million for FY1998 to $146
million for FY2002.
Allocations of Spending to Committees. In view of the inadequacies in
the early years of congressional budgeting of relying on enforcement of the budget
totals, Congress changed the focus of enforcement in the 1980s to the committee
allocations and subdivisions of spending made pursuant to Section 302 of the act.
The key to enforcing budget policy is to relate the budgetary impact of individual
pieces of legislation to the overall budget policy. Because Congress operates through
its committee system, an essential step in linking particular measures to the budget is
to allocate the spending amounts set forth in the budget resolution among House and
Senate committees.
Section 302(a) provides for allocations to committees to be made in the
statement of managers accompanying the conference report on the budget resolution.
A Section 302(a) allocation is made to each committee which has jurisdiction over

spending, both for the budget year and the full period covered by the budget
resolution—at least five fiscal years (see Exhibits 4-E and 4-F).
The committee allocations do not take into account jurisdiction over
discretionary authorizations funded in annual appropriations acts. The amounts of
new budget authority and outlays allocated to committees in the House or Senate may
not exceed the aggregate amounts of budget authority and outlays set forth in the
budget resolution. Although these allocations are made by the Budget Committees,
they are not the unilateral preferences of these committees. They are based on
assumptions and understandings developed in the course of formulating the budget
After the allocations are made under Section 302(a), the House and Senate
Appropriations Committees subdivide the amounts they receive among their 13
subcommittees, as required by Section 302(b) (see Exhibit 4-G). The
subcommittees’ Section 302(b) subdivisions may not exceed the total amount
allocated to the committee. Each Appropriations Committee reports its subdivisions
to its respective chamber; the appropriations bills may not be considered until such a
report has been filed.
Scoring and Cost Estimates. Scoring (also called scorekeeping) is the
process of measuring the budgetary effects of pending and enacted legislation and
assessing its impact on a budget plan—in this case, the budget resolution. In the
congressional budget process, scoring serves several broad purposes. First, it informs
Members of Congress and the public about the budgetary consequences of their
actions. When a budgetary measure is under consideration, scoring information lets
Members know whether adopting the amendment or passing the bill at hand would
breach the budget. Further, scoring information enables Members to judge what must
be done in upcoming legislative action to achieve the year’s budgetary goals. Finally,
scoring is designed to assist Congress in enforcing its budget plans. In this regard,
scoring is used largely to determine whether points of order under the 1974
Congressional Budget Act may be sustained against legislation violating budget
resolution levels.
The principal scorekeepers for Congress are the House and Senate Budget
Committees, which provide the presiding officers of their respective chambers with
the estimates needed to determine if legislation violates the aggregate levels in the
budget resolution or the committee subdivisions of spending. The Budget
Committees make summary scoring reports available to Members on a frequent basis,
usually geared to the pace of legislative activity. CBO assists Congress in these
activities by preparing cost estimates of legislation (see Exhibit 4-H), which are
included in committee reports, and scoring reports for the Budget Committees. (see
Exhibit 4-I) The Joint Committee on Taxation supports Congress by preparing
estimates of the budgetary impact of revenue legislation.

Exhibit 4-E.
Section 302(a) Allocations to House Committees
(by fiscal year, in millions of dollars)
Appropriations Committee
Current Level
Budget Authority274,392304,803330,585
Outlays 276,420 297,566 324,972
Discretionary Action
General Purpose
Budget Authority269,000271,500275,367
Outlays 266,823 266,518 268,995
Budget Authority242,457255,699257,326
Outlays 279,117 287,850 289,716
Violent Crime Reduction Trust Fund
Budget Authority5,5005,8004,500
Outlays 3,592 4,953 5,554
Total Discretionary Action
Budget Authority516,957532,999537,193
Outlays 549,532 559,321 564,265
* * * * * *
Committee Total
Budget Authority799,209845,504875,412
Outlays 833,464 864,187 892,592
Agriculture Committee
Current Level (Enacted Law)
Budget Authority9,8249,6469,113
Outlays 7,512 7,136 6,663
(1)Under Section 302(a) of the 1974 Congressional Budget Act, separate
spending allocations are made by the House and Senate Budget
Committees to committees of their respective houses.
(2)The Budget Committees use different approaches in making allocations
(see the next exhibit). The House Budget Committee allocates spending for
each of the five fiscal years (only three are shown here) and further divides
discretionary appropriations by the BEA categories used for sequestration.
(3)The House also distinguishes between “current level,” reflecting enacted
law (mostly appropriated entitlements), and “discretionary action,”
reflecting expected legislative activity, and allocates by functional category
(not shown here).
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget—Fiscal Year 1998), June 4, 1997, page 114.

Exhibit 4-F.
Section 302(a) Allocations to Senate Committees
Budget Year Total 1998
(in millions of dollars)
Entitlements funded
Direct spendingin annual
Committee jurisdiction appropriations
Appropriations 788,769 824,665 0 0
Appropriations (violent crime reduction)5,50010,0113,5927,70208,50208,476
Agriculture, Nutrition, and Forestry48,15248,02200
Armed Services9,190-3,20300
Banking, Housing, and Urban Affairs4,9222,202637634
Commerce, Science, Transportation1,8791,8485041
Energy and Public Works25,6372,91500
Finance 683,953 681,872 112,893 115,429
Foreign Relations13,13512,94500
Governmental Affairs56,24855,19000
* * * * * *
Total 1,386,700 1,372,000 144,841 147,270
(1)Under Section 302(a) of the 1974 Congressional Budget Act, the Senate
Budget Committee allocates spending to committees for the next fiscal year
and (not shown here) the sum of the five fiscal years, but, unlike the House,
it does not make separate allocations for each of the five fiscal years.
Further, the Senate (but not the House) allocates revenue and outlay
amounts for Social Security.
(2)As used here, “direct spending” includes discretionary appropriations as
well as mandatory spending (such as entitlements) and thus differs from the
use of the term in the PAYGO process established under the BEA. Neither
meaning of the term includes discretionary authorizations.
(3)“Entitlements funded in annual appropriations” are displayed for
informational purposes. The amounts shown in this column are included
in direct spending.
(4)Senate allocations do not distinguish between “current level” and
“discretionary action,” nor are they divided among functional categories.
(5)Offsetting receipts are presented on a separate line, “unassigned to
committee” (not shown here), as negative amounts.
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget—Fiscal Year 1998), June 4, 1997, page 148.

Exhibit 4-G.
Section 302(b) Subdivisions by Appropriations Committees
(in millions of dollars)
Subcommittee Mandatory Total
General Crime
Purpose Trust
Agriculture, Rural Development, Food and
Drug Administration
Budget authority13,751.....35,04848,799
Outlays 12,997 ..... 35,205 49,202
Budget authority25,9685,25952231,749
Outlays 25,548 3,434 532 29,514
District of Columbia
Budget authority835..........835
Outlays 537 ..... ..... 537
Energy and Water Development
Budget authority20,793..........20,793
Outlays 20,893 ..... ..... 20,893
Foreign Operations
Budget authority12,800.....4412,844
Outlays 13,060 ..... 44 13,104
* * * * * *
Emergency Reserve
Budget authority246..........246
Outlays 259 ..... ..... 259
Grand Total
Budget authority521,0025,500277,312803,814
Outlays 549,706 3,592 278,725 832,023
(1)Under Section 302(b) of the 1974 Congressional Budget Act, the
Appropriations Committees are required to subdivide their allocations by
subcommittee. In this way, the amounts in each regular appropriations bill
can be compared to the subdivision for the relevant subcommittee (because
each subcommittee reports one of the 13 regular appropriations bills).
(2)Appropriations measures cannot be considered until the Appropriations
Committees have filed their reports on the Section 302(b) subdivisions.
They may revise their subdivisions at any time by filing a new report.
(3)The structure of these reports corresponds to that used in the Section

302(a) allocations; in this example, the “discretionary” and “mandatory”

columns correspond to the “discretionary action” and “current level”
allocations made by the House Budget Committee.
Source: H.Rept. 105-260 (Report on the Revised Subdivision of Budget
Totals for Fiscal Year 1998), House Appropriations Committee, September 23,

1997, pages 2-3.

Exhibit 4-H.
CBO Cost Estimates
(by fiscal year, in millions of dollars)
Direct Spending
Spending Under Current Law for Federal
Civilian Retirement
Estimated Budget Authority43,85145,99448,246
Estimated Outlays43,76445,90448,151
Proposed Changes
New Retirement Benefits
Estimated Budget Authority122922
Estimated Outlays122922
Agency Payments
Estimated Budget Authority-14-330
Estimated Outlays-14-330
Total Change in Direct Spending
Estimated Budget Authority-2-422
Estimated Outlays-2-422
Spending Under H.R. 2206 for Federal Civilian
Estimated Budget Authority43,84945,99048,268
Estimated Outlays43,76245,90048,173
Spending Subject to Appropriation
(1)Section 403 of the 1974 Congressional Budget Act requires that CBO
prepare five-year cost estimates of all public bills, other than
appropriations bills, reported by House or Senate committees (only three
years are shown here); they usually are published in the reports
accompanying the bills.
(2)The cost estimate presented in this exhibit pertains to an authorizing bill
that provides both direct spending and discretionary authorizations. The
authorization changes are assumed to be fully funded in appropriations.
(3)In addition to tabular information, CBO cost estimates usually provide a
detailed discussion of the budgetary impact of each section of the bill and
its PAYGO and unfunded mandate implications, if any.
Source: CBO cost estimate for H.R. 2206, Veterans’ Health Programs
Improvement Act of 1997, October 1, 1997 (obtained from CBO’s Internet site).

Exhibit 4-I.
Scoring Reports
The Current Level Report for the U.S. Senate, Fiscal Year 1998,
105th Congress, 1st Session, as of Close of Business October 24, 1997
(in billions of dollars)
(1)The 1974 Congressional Budget Act requires that the House and Senate
Budget Committees issue scoring (also called scorekeeping) reports on the
status of the congressional budget. Over the years, both committees have
met this requirement by inserting CBO scoring reports into the
Congressional Record, as frequently as legislative activity requires; only
the Senate Budget Committee has issued these reports regularly in recent
(2)These reports are used principally in determining whether a pending
measure would violate Section 311 of the 1974 Congressional Budget Act
by causing total budget authority or outlays to exceed, or total revenues to
fall below, the levels set in the budget resolution.
(3)As used here, “current level” includes both new legislation already enacted
or sent to the President during the session and revenue or spending
resulting from existing law.
Source: Remarks of Senator Pete Domenici, “Budget Scorekeeping Report,”
in the Congressional Record of October 29, 1997, at pages S11371-72.

Points of Order. The 1974 Congressional Budget Act provides for both
substantive and procedural points of order to block violations of budget resolution
policies and congressional budget procedures. One element of substantive
enforcement is based on Section 311 of the act, which bars Congress from considering
legislation that would cause total revenues to fall below the level set in the budget
resolution or total new budget authority or total outlays to exceed the budgeted level.
The House and Senate both enforce the spending ceilings for the first
fiscal year only; the revenue floor, however, is enforced for the first fiscal year and for
the full number of fiscal years covered by the budget resolution.
In the House (but not the Senate), Section 311 does not apply to spending
legislation if the committee reporting the measure has stayed within its allocation of
new discretionary budget authority. Accordingly, the House may take up any
spending measure that is within the appropriate committee allocations, even if it
would cause total spending to be exceeded. Neither chamber bars spending
legislation that would cause functional allocations in the budget resolution to be
Section 302(f) of the 1974 Congressional Budget Act bars the House and Senate
from considering any spending measure that would cause the relevant committee’s
spending allocations to be exceeded; in the House, the point of order applies only to
violations of allocations of new discretionary budget authority. Further, the point of
order also applies to suballocations of spending made by the Appropriations
The Senate, but not the House, enforces revenue and spending levels for Social
Security contained in the budget resolution. Section 311 bars the consideration of any
legislation that would cause an increase in Social Security deficits, or a decrease in
Social Security surpluses, relative to the levels set forth in the budget resolution, for
the budget year or the full period covered by the budget resolution.
In addition to points of order to enforce compliance with the budget resolution
and the allocations and subdivisions made pursuant to it, the 1974 Congressional
Budget Act contains points of order to ensure compliance with its procedures.
Perhaps the most important of these is Section 303, which bars consideration of any
revenue, spending, entitlement, or debt-limit measure prior to adoption of the budget
resolution. However, the rules of the House permit it to consider regular
appropriations bills after May 15, even if the budget resolution has not yet been
When the House or Senate considers a revenue or a spending measure, the
chairman of the respective Budget Committee sometimes makes a statement advising
the chamber as to whether the measure violates any of these points of order. If no
point of order is made, or if the point of order is waived, the House or Senate may
consider a measure despite any violations of the 1974 Congressional Budget Act. The
House often waives points of order by adopting a special rule. The Senate may waive
points of order by unanimous consent or by motion under Section 904 of the act. The
Senate requires a three-fifths vote of the membership to waive certain provisions of
the act.

The Reconciliation Process
Beginning in 1980, Congress has used reconciliation legislation to implement
many of its most significant budget policies. Section 310 of the 1974 Congressional
Budget Act sets forth a special procedure for the development and consideration of
reconciliation legislation. Reconciliation legislation is used by Congress to bring
existing revenue and spending law into conformity with the policies in the budget
resolution. Reconciliation is an optional process, but Congress has used it more years
than not; during the period covering 1980 through 1997, a total of 14 reconciliation
measures in 11 different years were enacted into law (and one was vetoed).
The reconciliation process has two stages—the adoption of reconciliation
instructions in the budget resolution and the enactment of reconciliation legislation
that implements changes in revenue or spending laws. Although reconciliation has
been used since 1980, specific procedures tend to vary from year to year.
Reconciliation is used to change the amount of revenues, budget authority, or
outlays generated by existing law. In a few instances, reconciliation has been used to
adjust the public debt limit. On the spending side, the process focuses on entitlement
laws; it may not be used, however, to impel changes in Social Security law.
Reconciliation sometimes has been applied to discretionary authorizations (which are
funded in annual appropriations acts), but this is not the usual practice.
Reconciliation Directives. Reconciliation begins with a directive in a budget
resolution instructing designated committees to report legislation changing existing
law or pending legislation (see Exhibits 4-J and 4-K). These instructions have three
components: (1) they name the committee (or committees) that are directed to report
legislation; (2) they specify the amounts by which existing laws are to be changed (but
do not identify how these changes are to be made, which laws are to be altered, or the
programs to be affected); and (3) they usually set a deadline by which the designated
committees are to recommend the changes in law. The instructions typically cover
the same fiscal years covered by the budget resolution.
The dollar amounts are computed with reference to the CBO baseline. Thus, a
change represents the amount by which revenues or spending would decrease or
increase from baseline levels as a result of changes made in existing law. This
computation is itself based on assumptions about the future level of revenues or
spending under current law (or policy) and about the dollar changes that would ensue
from new legislation. Hence, the savings associated with the reconciliation process
are assumed savings. The actual changes in revenues or spending may differ from
those estimated when the reconciliation instructions are formulated.
Although the instructions do not mention the programs to be changed, they are
based on assumptions as to the savings or deficit reduction (or, in some cases,
increases) that would result from particular changes in revenue provisions or spending
programs. These program assumptions are sometimes printed in the reports on the
budget resolution. Even when the assumptions are not published, committees and
Members usually have a good idea of the specific program changes contemplated by
the reconciliation instructions.

Exhibit 4-J.
House Reconciliation Directives
Sec. 105. Reconciliation in the House of Representatives.
(a) Purpose.—The purpose of this section is to provided for two separate
reconciliation bills: the first for entitlement reform and the second for tax relief.
(b) Submissions.—
(1) Entitlement Reforms.—Not later than June 13, 1997, the House
committees named in subsection (c) shall submit their recommendations to the
House Committee on the Budget. After receiving those recommendations, the
House Committee on the Budget shall report to the House a reconciliation bill
carrying out all such recommendations without any substantive revision.
(2) Tax Relief and Miscellaneous Reforms.—Not later than June 14, 1997,
the House committees named in subsection (d) shall submit their
recommendations to the House Committee on the Budget...
(c) Instructions Relating to Entitlement Reforms.—
(1) Committee on Agriculture.—The House Committee on Agriculture shall
report changes in laws within its jurisdiction that provide direct spending such
that the total level of direct spending for that committee does not exceed:
$34,571,000,000 in outlays for fiscal year 1998, $37,008,000,000 in outlays for
fiscal year 2002, and $179,884,000,000 in outlays in fiscal years 1998 through


(1)The reconciliation directives are contained in the budget resolution.
Reconciliation is an optional procedure that is not used every year. It has
been used principally to reduce the deficit by raising revenues or reducing
direct spending through changes in existing law. In recent years, it has
been used to reduce revenues, and in a few instances, to increase spending.
(2)The reconciliation directives set a deadline for committees to report their
legislative recommendations; sometimes the deadline is extended.
(3)Separate House and Senate directives name the committees that must make
legislative recommendations. In most years, at least several committees in
each House are subject to directives; their recommendations usually are
consolidated into an omnibus bill, but sometimes committees are directed
to proceed separately with their legislation (particularly on revenue
(4)The House often uses directives that differ in form from those used in the
Senate. In this example, the directive is stated as a ceiling on the total
direct spending of the committee for the first year, the last year, and the
full five-year period covered by the budget resolution. The form of House
directives has changed over the years. Compare this example to the next
exhibit, which makes clear that reconciliation involved an increase for this
particular committee.
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget for Fiscal Year 1998), June 4, 1997, page


Exhibit 4-K.
Senate Reconciliation Directives
Sec. 104. Reconciliation in the Senate
(a) Reconciliation of Spending Reductions.—Not later than June 13, 1997, the
committees named in this subsection shall submit their recommendations to the
Committee on the Budget of the Senate. After receiving those recommendations, the
Committee on the Budget shall report to the Senate a reconciliation bill carrying out all
such recommendations without any substantive revision.
(1) Committee on Agriculture, Nutrition, and Forestry.—The Senate
Committee on Agriculture, Nutrition, and Forestry shall report changes in laws
within its jurisdiction that provide direct increase outlays by not
more than $300,000,000 in fiscal year 2002 and by not more than
$1,500,000,000 for the period of fiscal years 1998 through 2002.
(2) Committee on Banking, Housing, and Urban Affairs.—The Senate
Committee on Banking, Housing, and Urban Affairs shall report changes in laws
within its jurisdiction that reduce the deficit $434,000,000 in fiscal year 2002
and $1,590,000,000 for the period of years 1998 through 2002.
* * * * * *
(b) Reconciliation of Revenue Reductions.—Not later than June 20, 1997, the
Senate Committee on Finance shall report to the Senate a reconciliation bill proposing
changes in laws within its jurisdiction necessary to reduce revenues by not more than
$20,500,000,000 in fiscal year 2002 and $85,000,000,000 for the period of fiscal years

1998 through 2002.

(1)The Senate directives contemplate that the recommendations for spending
reductions will be incorporated into an omnibus bill that the Senate Budget
Committee will report (without any substantive revision), but that the
Senate Finance Committee will report its recommendations for the $85
billion tax cut directly to the Senate as a separate bill.
(2)Like the House reconciliation directives, the Senate directives provide a
deadline for the submission by committees of their recommendations. In
the case of the omnibus bill, the instructed committees must submit both
legislative language (for incorporation into the omnibus bill) and report
language (for incorporation into the accompanying report).
(3)The Senate directives differ in form from those used in the House. In this
example, the directive is stated as a specific amount of outlay increase or
deficit reduction for each committee for the last fiscal year and the full five-
year period covered by the budget resolution. The form of Senate
directives has changed over the years.
Source: H.Rept. 105-116 (conference report to accompany H.Con.Res. 84,
Concurrent Resolution on the Budget for Fiscal Year 1998), June 4, 1997, pages


A committee has discretion to decide on the legislative changes to be
recommended. It is not bound by the program changes recommended or assumed by
the Budget Committees in the reports accompanying the budget resolution. Further,
a committee has to recommend legislation estimated to produce dollar changes for
each category delineated in the instructions to it.
When a budget resolution containing a reconciliation instruction has been
approved by Congress, the instruction has the status of an order by the House and
Senate to designated committees to recommend legislation, usually by a date certain.
It is expected that committees will carry out the instructions of their parent chamber,
but the 1974 Congressional Budget Act does not provide any sanctions against
committees that fail to do so.
Development and Consideration of Reconciliation Measures. When
more than one committee in the House and Senate is subject to reconciliation
directives, the proposed legislative changes usually are consolidated by the Budget
Committees into an omnibus bill. The 1974 Congressional Budget Act does not
permit the Budget Committees to revise substantively the legislation recommended
by the committees of jurisdiction. This restriction pertains even when the Budget
Committees estimate that the proposed legislation will fall short of the dollar changes
called for in the instructions. Sometimes, the Budget Committees, working with the
leadership, develop alternatives to the committee recommendations, to be offered as
floor amendments, so as to achieve greater compliance with the reconciliation
The 1974 Congressional Budget Act requires that amendments offered to
reconciliation legislation in either the House or the Senate be deficit neutral (see Box
4-C). To meet this requirement, an amendment reducing revenues or increasing
spending must offset these deficit increases by equivalent revenue increases or
spending cuts. Additionally, nongermane amendments may not be offered in either
This deficit-neutrality requirement pertains only to floor amendments. It does
not pertain to deficit-increasing provisions recommended by a committee instructed
to produce reconciliation savings (however, such provisions in the Senate could
violate the Byrd rule, discussed below). One effect of this restriction is to make it
difficult to amend reconciliation bills in the House or Senate. Although deficit-neutral
amendments may be offered, the requirement that they contain offsets usually makes
them politically unattractive. Of course, amendments may be offered that reduce the
deficit below the budgeted level.
During the first several years’ experience with reconciliation, the legislation
contained many provisions that were extraneous to the purpose of reducing the
deficit. The reconciliation submissions of committees included such things as
provisions that had no budgetary effect, that increased spending or reduced revenues,
or that violated another committee’s jurisdiction.

Box 4-C.
Deficit Neutrality of Amendments
Section 310 of the Congressional Budget Act of 1974
(d) Limitation on Amendments to Reconciliation Bills and Resolutions.—
(1) It shall not be in order in the House of Representatives to consider
any amendment to a reconciliation bill or reconciliation resolution if such
amendment would have the effect of increasing any specific budget outlays
above the level of such outlays provided in the bill or resolution (for the fiscal
years covered by the reconciliation instructions set forth in the most recently
agreed to concurrent resolution on the budget), or would have the effect of
reducing any specific Federal revenues below the level of such revenues
provided in the bill or resolution (for such fiscal years), unless such
amendment makes at least an equivalent reduction in other specific budget
outlays, an equivalent increase in other specific Federal revenues, or an
equivalent combination thereof (for such fiscal years), except that a motion
to strike a provision providing new budget authority or new entitlement
authority may be in order.
In 1985, the Senate adopted the Byrd rule (named after its principal sponsor,
Senator Robert C. Byrd) on a temporary basis as a means of curbing these practices
(see Box 4-D). The Byrd rule allows Senators to strike extraneous provisions from
reconciliation legislation on a point of order, both during initial consideration of such
legislation and during consideration of the conference report. It has been extended
and modified several times over the years. In 1990, the Byrd rule was incorporated
into the 1974 Congressional Budget Act as Section 313 and made permanent.
A Senator opposed to the inclusion of extraneous matter in reconciliation
legislation has two principal options for dealing with the problem. First, the Senator
may offer an amendment (or a motion to recommit the measure with instructions) that
strikes such provisions from the legislation. Second, under the Byrd rule, the Senator
may raise a point of order against extraneous matter. In general, a point of order
authorized under the Byrd rule may be raised to strike extraneous matter already in
the bill as reported or discharged (or in the conference report), or to prevent the
incorporation of extraneous matter through the adoption of amendments or motions.
A motion to waive the Byrd rule, or to sustain an appeal of the ruling of the chair on
a point of order raised under the Byrd rule, requires the affirmative vote of three-fifths
of the membership (60 Senators, if no seats are vacant).
Under the Byrd rule, several categories of extraneous matter are established,
including (among other things) items that would cause the estimated deficit for future
fiscal years to rise. The Byrd rule supplements the prohibition against the offering in
the Senate of nongermane amendments to reconciliation measures set forth elsewhere
in the 1974 Congressional Budget Act.

Box 4-D.
The Senate’s “Byrd Rule” on Extraneous Matter
Section 313 of the Congressional Budget Act of 1974
(b) Extraneous Provisions.—
(1)(A) Except as provided in paragraph (2), a provision of a
reconciliation bill or reconciliation resolution considered pursuant to section
641 of this title shall be considered extraneous if such provision does not
produce a change in outlays or revenues, including changes in outlays and
revenues brought about by changes in the terms and conditions under which
outlays are made or revenues are required to be collected (but a provision in
which outlay decreases or revenue increases exactly offset outlay increases
or revenue decreases shall not be considered extraneous by virtue of this
subparagraph); (B) any provision producing an increase in outlays or decrease
in revenues shall be considered extraneous if the net effect of provisions
reported by the committee reporting the title containing the provision is that
the committee fails to achieve its reconciliation instructions; (C) a provision
that is not in the jurisdiction of the committee with jurisdiction over said title
or provision shall be considered extraneous; (D) a provision shall be
considered extraneous if it produces changes in outlays or revenues which are
merely incidental to the non-budgetary components of the provision; (E) a
provision shall be considered to be extraneous if it increases, or would
increase, net outlays, or if it decreases, or would decrease, revenues during
a fiscal year after the fiscal years covered by such reconciliation bill or
reconciliation resolution, and such increases or decreases are greater than
outlay reductions or revenue increases resulting from other provisions in such
title in such year; and (F) a provision shall be considered extraneous if it
violates section 310(g).
Although the House has no rule comparable to the Senate’s Byrd rule, it may use
other devices to control the inclusion of extraneous matter in reconciliation
legislation. In particular, the House has used special rules to make in order
amendments that strike such matter. Any extraneous matter passed by the House may
have to be deleted in conference because of Senate insistence on adherence to the
Byrd rule.

Chapter 5. Revenues and Borrowing
In addition to appropriations and other forms of spending, Congress’s
constitutional “power of the purse” (see Box 1-A) extends to revenues and
borrowing. Article I, Section 8 of the Constitution gives Congress the power to levy
“taxes, duties, imposts, and excises.” Section 8 also empowers Congress to borrow
funds “on the credit of the United States.”
Section 7 of Article I of the Constitution requires that all revenue measures
originate in the House. Beyond this, the Constitution does not prescribe any
procedures for action on revenue and debt legislation. Over many decades, however,
the House and Senate have developed complex rules and practices that govern
consideration of such measures.
Although the procedures of the two chambers have many elements in common,
each house has tailored its rules and practices to fit its role in revenue and debt
matters. For example, the House usually considers revenue measures under a more
restrictive amendment process than the Senate; the Senate considers revenue (and
direct spending) legislation under budget enforcement procedures that extend over a
much longer time frame than does the House (10 years versus five years); and the
House, unlike the Senate, has used special procedures in an attempt to eliminate the
need for votes directly on increasing the debt limit.
With respect to revenue and debt matters, the legislative process is sufficiently
flexible to accommodate a variety of political and legislative circumstances. For
example, in some years, when the Senate has chosen to initiate action on major
revenue proposals, it has adhered to the letter of the constitutional requirement for
House origination by taking up a narrow, House-passed revenue measure and
substituting its own comprehensive revenue provisions for the other chamber’s brief
text. Further, although the annual budget resolution (which sets forth total revenue
for the next five fiscal years) often originates in the Senate, this sequence does not
violate the Constitution because the resolution itself does not raise revenues.
In the House, revenue legislation is under the jurisdiction of the Ways and Means
Committee; in the Senate, jurisdiction is held by the Finance Committee. These
committees also have jurisdiction over certain spending programs, such as Social
Security and unemployment compensation, some of which are funded by earmarked
The House rules (in Clause 5(b) of Rule XXI) bar committees other than the
Ways and Means Committee from reporting revenue legislation (see Box 5-A). The
reference in the rule to the Senate pertains to situations in which the Senate adds
revenue provisions to a House-passed measure. This part of the clause bars House
consideration of revenue provisions added by the Senate to a House-passed measure
not reported by the Ways and Means Committee.

Box 5-A.The House sometimes
Bar Against Revenue Provisionsallows committees with
in Non-Revenue Measures: House Rulesjurisdiction over particular
programs to report
House Rule XXI, Clause 5(b)legislation containing
revenue provisions related
(b) No bill or joint resolution carrying a tax orto those programs. In
tariff measure shall be reported by any committeeapplying this rule, the House
not having jurisdiction to report tax and tariffdistinguishes between levies
measures, nor shall an amendment in the House oron the general public (such
proposed by the Senate carrying a tax or tariffas income taxes and social
measure be in order during the consideration of ainsurance premiums), which
bill or joint resolution reported by a committee notare in the exclusive
having that jurisdiction. A question of order on ajurisdiction of the Ways and
tax or tariff measure in any such bill, jointMeans Committee, and fees,
resolution, or amendment thereto may be raised atwhich are imposed on
any time.beneficiaries of particular
services or to regulate
certain activities. In the
latter case, legislation containing the user charge may be reported by other
committees. This type of measure is sometimes jointly or sequentially referred to the
Ways and Means Committee.
The Senate has no rule comparable to Clause 5(b) of House Rule XXI, but
Senate practices hardly differ in this respect from those of the House because all
general revenue legislation is under the jurisdiction of the Senate Finance Committee.
Revenues of the federal government (also referred to as receipts) have fluctuated
over the last several decades between 17% and 20% of GDP. As Exhibit 5-A shows,
revenues are expected to be at about the top of this range at the turn of the century.
Revenues derive from a number of sources. The top part of the exhibit shows that
individual and corporate income taxes account for more than half of the receipts of
the government. Social insurance taxes are an increasingly prominent source of
revenues and they now provide more than one third of total receipts. Additional
amounts accrue to the government from various excise taxes, customs fees, gifts and
bequests, and miscellaneous receipts. These revenues do not include various
offsetting receipts, which, as will be discussed below, are not accounted for as budget
Exhibit 5-A also indicates that there has been remarkable stability in federal
revenues as a share of the GDP over an extended period of time. Revenues totaled
just over 19% of GDP in FY1970 and are expected to amount to just under 20% of
GDP in FY2000. The portion of receipts that are federal funds (the general funds of
the government that, unlike trust funds, are available for all purposes) has
progressively declined over the years—from 15 percent of GDP in 1960 to only 12
percent today. This means that an increasing portion of federal revenues are restricted
to particular uses.

Exhibit 5-A.
Sources of Revenue
Fiscal Year19601970198019902000*
As a Percentage of Total Receipts
Individual Income Taxes44.046.947.245.244.9
Corporate Income Taxes23.
Social Insurance Taxes15.923.030.536.834.7
All Other Receipts16.813.
Total Receipts
On-Budget 88.5 82.6 78.1 72.7 74.7
Off-Budget 11.5 17.4 21.9 27.3 25.3
As a Percentage of GDP
Individual Income Taxes7.
Corporate Income Taxes4.
Social Insurance Taxes2.
All Other Receipts3.
Total Receipts17.819.
On-Budget 15.8 15.8 14.9 13.2 14.8
Off-Budget 2.1 3.3 4.2 5.0 5.0
* estimate
Details may not add to totals due to rounding.
(1)The top part of this table shows major sources of federal revenues (also
called receipts) as a percentage of total revenues; the bottom part shows
each source as a percentage of GDP.
(2)Over the past several decades, there has been a shift in the composition of
federal revenues. Corporate income taxes account for a declining share of
total revenues and social insurance taxes account for a higher share. The
“all other receipts” category includes excise taxes, which also have
declined as a proportion of total revenues.
(3)Off-budget receipts are the taxes paid into the Social Security trust funds.
(4)Although there has been a shift in the sources of federal revenue, total
receipts are expected to comprise nearly the same share of GDP in FY2000
that they did in FY1970.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Historical Tables, February 1998, Table 2.2,
pages 29-30, and Table 2.3, pages 31-32.

Most receipts derive from existing provisions of the tax code or Social Security
law which continue in effect from year to year unless changed by Congress. This tax
structure can be expected to produce increasing amounts of revenue in future years
as the economy expands and incomes rise. Nevertheless, Congress usually makes
some changes in the tax laws each year, either to raise or lower revenues or to
redistribute the tax burden. In most years, these changes have only a marginal impact
on total revenues, though the effects on particular categories of taxpayers can be
As displayed in Exhibit 5-B, Congress enacted almost 20 major revenue
measures during the 1980s; these cumulatively reduced federal revenues for FY1990
by an estimated $186 billion. The most sizeable of these changes by far was the 1981
tax reduction act. From time to time, Congress also alters the tax burdens in ways
which greatly affect specific taxpayers, even if total revenues are not changed very
much. Such was the case in 1986 when Congress enacted far-reaching tax reform
Revenue Legislation in Congress
Congress typically acts on revenue legislation pursuant to proposals in the
President’s budget. An early step in congressional work on revenue legislation is
publication by CBO of its baseline budget projections and its estimates of the revenue
impact of the President’s budget proposals. The Congressional Budget Act of 1974
requires that CBO use
Box 5-B.estimates of revenue
Joint Committee on Taxationlegislation developed by the
Joint Committee on
Section 201(f) of the Congressional Budget ActTaxation (JCT) (see Box 5-
of 1974B). This requirement, which
was adopted in 1985,
(f) Revenue Estimates.—For the purposes ofcontributes to a close
revenue legislation which is income, estate and gift,working relationship
excise, and payroll taxes (i.e., Social Security),between CBO and JCT on
considered or enacted in any session of Congress,revenue matters generally.
the Congressional Budget Office shall use
exclusively during that session of Congress revenueCongressional
estimates provided to it by the Joint Committee onestimates often differ
Taxation ....significantly from those
presented in the President’s
budget. The revenue impact
often is estimated to be far greater in future years than in the year immediately ahead.
Consequently, differences between congressional and executive revenue estimates
usually are greatest in the outyears.
Revenue estimates are used by Congress in establishing baseline budget
projections, formulating the annual budget resolution, and scoring revenue legislation.
The budget resolution sets forth total revenues for each of the next five fiscal years
and the amount (if any) by which these totals are to be increased or decreased by
legislative action. The budget resolution also may contain reconciliation instructions
directing the House Ways and Means Committee and the

Exhibit 5-B.
Revenue Effects of Major Enacted Legislation
(in billions of dollars)
(1)The estimates in this table take account of: (a) the direct effects of
legislative changes at an assumed level of economic activity, and (b) the
indirect effects of induced changes in economic activity on incomes.
(2)The 1981 legislation outweighed all other tax measures in the 1980s in
terms of its impact on federal revenues, with its effects persisting into the
next decade. It lowered FY1991 receipts by an estimated $350 billion; all
other revenue legislation enacted during the 1980s added an estimated
$139 billion to FY1991 receipts.
(3)A variety of measures—reconciliation bills, Social Security legislation,
continuing resolutions, and others—were used during the 1980s to enact
changes in federal revenues.
(4)The projections made at the time revenue legislation is considered are not
always realized. The Tax Reform Act of 1986 was expected to be “revenue
neutral” over the five years following its enactment. However, the
estimates shown here indicate that it resulted in a reduction in federal
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1990, January 1989, page 4-4.

Senate Finance Committee to report legislation changing the total amount of
revenues. Legislation reported pursuant to these instructions often is considered as
part of an omnibus budget reconciliation bill, but sometimes it is considered as a
separate revenue reconciliation measure.
The revenue totals in the budget resolution establish the framework for
subsequent action on revenue measures. Congress generally may not consider
legislation increasing or decreasing revenues for the next fiscal year until it has
adopted the budget resolution for that year. Congress sometimes waives this
requirement—in the House, usually by means of a special rule reported by the Rules
Committee; in the Senate, usually by unanimous consent or by a waiver motion
authorized by the 1974 Congressional Budget Act.
The budget resolution contains only revenue totals and total recommended
changes; it does not allocate these totals among revenue sources (although it does set
out Medicare receipts separately), nor does it specify which provisions of the tax code
are to be changed. These specific decisions are made in the revenue legislation
reported by the House and Senate committees with jurisdiction over such matters.
Revenue legislation usually is considered in the House under a special rule
(typically either a “closed” or “modified” rule) that either bars any floor amendments
or specifies those that may be offered. The House rarely acts on such measures under
an “open” rule, which would allow any floor amendment to be offered. In addition,
the special rule may waive one or more points of order that otherwise would apply to
a measure. In 1995, the House amended Clause 5 of Rule XXI to require a three-
fifths majority to pass legislation containing a “federal income tax rate increase” and
to bar measures containing any such increase that is retroactive.
The Senate does not restrict floor amendments like the House, but it does have
strict budget rules that can block revenue legislation or amendments which would
cause the deficit to rise. In particular, the Senate adopted (as part of a budget
resolution) a “pay-as-you-go” point of order that requires revenue and direct spending
legislation to be deficit neutral over a ten-year period. This provision, which
supplements the statutory pay-as-you-go process discussed below, expires at the end
of FY2002, unless the Senate chooses to extend it.
Pay-As-You-Go (PAYGO) Rules
The BEA of 1990 established pay-as-you-go (PAYGO) rules that affect the
consideration of revenue and direct spending legislation in Congress. The PAYGO
rules currently are in effect through FY2002. (For a discussion of the PAYGO
process generally, see Chapter 2.)
The basic PAYGO rule is that congressional action on revenue and direct
spending legislation should not increase the deficit or reduce the surplus. (Direct
spending consists of entitlement and other mandatory spending programs.)
Legislation reducing federal revenues must be offset by measures increasing revenues
or decreasing direct spending by an equal or greater amount, or a sequestration of
certain direct spending programs will occur.

In enforcing PAYGO, it is necessary to distinguish between baseline revenues
derived from existing laws and increases or decreases in revenues resulting from new
legislation. Congress is not required to offset any drop in baseline revenues due to
changing economic conditions or technical re-estimates. It would, however, be
required to act if baseline revenues decline because of new legislation.
Although it covers five fiscal years, PAYGO is enforced one year at a time. This
means that revenue increases or decreases enacted for one fiscal year are not netted
against increases or decreases for another year (except under the “look-back” feature
discussed in Chapter 2). Moreover, PAYGO is enforced against all revenue (and
direct spending) legislation affecting a fiscal year, not against individual measures.
PAYGO does not bar Congress from considering a measure that would reduce
revenues; its enforcement procedures are triggered only if all legislation enacted for
a fiscal year would increase the deficit above the baseline estimate.
PAYGO emphasizes deficit neutrality, not deficit reduction. Thus, legislation
producing additional revenue can finance increased direct spending or reductions in
other revenue and does not have to be applied to deficit reduction. PAYGO simply
requires that the net effect of revenue and direct spending enacted for a fiscal year not
increase the estimate of the deficit (or reduce the estimate of the surplus) for that
Tax Expenditures
In enacting revenue legislation, Congress often establishes or alters tax
expenditures. The term tax expenditures is defined in the 1974 Congressional Budget
Act to include revenue losses due to deductions, exemptions, credits, and other
exceptions to the basic tax structure.
Tax expenditures are a means by which the federal government pursues public
policy objectives and, as the term denotes, can be regarded as alternatives to other
policy instruments such as direct spending. The President’s budget presents two
different measures of tax expenditures: revenue losses and outlay equivalents.
Revenue losses measure the amount of revenue that the federal government forgoes;
outlay equivalents measure the amount of spending that would be required to provide
taxpayers the same after-tax income that would be received on the basis of a revenue
loss measure. The President’s budget for FY1999 lists 131 different tax expenditures;
about 40 of them involve revenue losses of $1 billion or more (see Exhibit 5-C).
Legislation proposing the creation of new tax expenditures, or the expansion of
an existing ones, is subject to restrictions under both the congressional budget process
and PAYGO because revenue losses are involved.
Tax expenditures are classified by budget function to facilitate the comparison
of spending programs and tax expenditures. The Joint Committee on Taxation
estimates the revenue effects of legislation changing tax expenditures, and it also
publishes five-year projections of these provisions as an annual committee print.

Exhibit 5-C.
Tax Expenditures
(1)Tax expenditures come in various forms—exclusions of income from
taxation, deduction of certain income in computing taxable income,
preferential treatment of certain activities, tax credits, and deferral of
(2)This exhibit shows the largest of the more than 100 tax expenditures listed
in the President’s budget for FY1999. They are computed in terms of
estimated revenue losses; the budget also reports tax expenditures in terms
of outlay equivalents.
(3)The first three items on this list account for more than one third of total tax
expenditures. These and many other tax expenditures have enjoyed special
treatment since the early years of the federal income tax.
(4)It is generally agreed that the value of individual tax expenditures cannot
be added to calculate total tax expenditures. The reason for this is that
changing one tax expenditure provision might result in more or less
reliance on other tax expenditures. These interactions are netted out in
computing total tax expenditures by function; they are not netted out for the
budget as a whole.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Table

5-3, page 98.

Offsetting Collections
Offsetting collections are collections or receipts that are counted as negative
spending, not as revenue. These collections offset—that is, reduce—budget outlays
(and, where applicable, budget authority) by an equivalent amount. For example, if
$50 million of offsetting collections were credited to an account, the budget outlays
in that account would be reduced by $50 million.
Offsetting collections include income from business or market-type activities,
income from the sale of assets, voluntary user fees, and certain flows of funds among
the accounts maintained by the federal government. Compulsory user fees (in which
the payer has no discretion) resemble taxes and are, therefore, accounted for as
The distinction between budget receipts and offsetting collections is sometimes
vague. In general, any income received by the federal government in the exercise of
its sovereign power is recorded as a receipt; any arising from the sale of goods and
services or other business-like charges are budgeted as offsetting collections.
Although classifying income as revenue or as an offsetting collection does not
affect the size of the budget deficit or surplus, it does affect the enforcement of the
budget rules adopted in 1990. When income is classified as a receipt, it is included
in the PAYGO process discussed earlier. When it is recorded as an offsetting
collection, it must be classified as either discretionary or mandatory spending. A
discretionary offsetting collection would affect spending computations under the
discretionary spending limits (discussed in Chapter 2); a mandatory offsetting
collection would be considered direct spending and would be covered by the PAYGO
process. An increase in discretionary offsetting collections would allow an equivalent
amount of additional spending within the discretionary spending limits. An increase
in mandatory offsetting collections would allow an equivalent reduction in revenue
or increase in direct spending under the PAYGO requirement.
Exhibit 5-D indicates that offsetting collections, including the income of the
U.S. Postal Service and excluding intragovernmental transactions, totaled almost
$130 billion in FY1997. The President frequently proposes changes in offsetting
Each year the federal government borrows funds to meet various purposes,
repays a portion of its outstanding debt, and services the debt with interest payments.
Borrowed funds are not treated as revenues. Similarly, debt repayments are not
counted as spending, but interest payments on the debt are treated as budget authority
and outlays.
Borrowing occurs for two main reasons: (1) to finance a deficit; and (2) to
satisfy legal requirements that surplus amounts in trust funds and certain other funds
in the federal budget be invested in Treasury securities.

Exhibit 5-D.
Offsetting Collections
(1)Offsetting collections are budgeted as deductions against outlays, not as
revenues. There are three main types of offsetting collections: user fees
and other charges, proprietary receipts from the public, and
intragovernmental transactions. Only the first two types of offsetting
collections are exhibited here. Intragovernmental transactions are flows
of money between budget funds or accounts.
(2)The distinction between receipts and offsetting collections is not always
clear and the government sometimes changes the classification. Prior to
the 1983 budget, for example, Medicare premiums paid into the
supplementary medical insurance fund were classified as receipts; since
then, they have been recorded as offsetting collections.
(3)The offsetting collections credited to appropriation accounts are usually
available to be spent without any further action by Congress. Congress
sometimes limits the amount of these collections that can be spent in a
single year.
Source: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Analytical Perspectives, February 1998, Table

4-1, page 80.

The gross federal debt consists of monies borrowed from the public to finance
the deficit and debt issued to federal government accounts that invest their surpluses
as required by law. For FY1999, the gross federal debt is expected to exceed $5.7
trillion. Two-thirds of that amount—about $3.8 trillion—is debt held by the public;
the remainder, about $1.9 trillion, is held by U.S. government accounts. Debt held
by the public is an important measure in fiscal policy because of the large impact that
federal borrowing has on credit markets and for other reasons. Federal borrowing
competes in these markets with private borrowing and thereby influences interest
rates. The issuance of federal debt to government accounts, on the other hand, does
not have the same economic effects.
At the end of World War II, the federal debt exceeded 100% of GDP. Over the
next several decades, this figure steadily declined. Economic disruptions during the
late 1970s, and the burgeoning deficits of the 1980s, reversed this decline and caused
the federal debt to grow significantly. As a consequence, interest payments on the
public debt escalated to over $350 billion by the end of the 1990s (net interest costs,
which deduct interest earned by government trust funds, rose to more than $240
billion). The realization of projected surpluses may cause the debt held by the public,
and associated interest payments, to decline markedly in future years. Nonetheless,
the gross federal debt will continue to increase as trust fund surpluses (particularly for
the Social Security trust funds) are invested in Treasury securities.
Nearly all of the federal debt has been issued by the Treasury Department, but
a small portion of it has been issued by other federal agencies. The latter is referred
to as agency debt.
Virtually all federal borrowing is subject to a statutory limit. The Second Liberty
Bond Act of 1917 established the current framework, under which the statutory limit
on the public debt is adjusted periodically by legislative action. Congress has revised
the nature of the debt limit over the years, including temporary limits, permanent
limits, combinations of temporary and permanents limits, and limitations by dollar
amount and time (i.e., expiration dates).
The House and Senate may use any one of three distinct procedures to develop
debt-limit legislation: (1) regular legislative procedures; (2) the House’s Gephardt
rule; and (3) the reconciliation process. For decades, the usual practice was for the
House to originate a bill increasing the debt limit (the House Ways and Means
Committee and the Senate Finance Committee have jurisdiction over such measures),
which the House and Senate considered under regular legislative procedures. Such
measures often attracted controversy, affording Members an opportunity to register
their dissatisfaction with various facets of budgetary and economic policy. In the
Senate, significant nongermane issues sometimes were added by amendment. Debt-
limit measures sometimes were defeated, bringing the federal government to the brink
of default. In some instances, a series of short-term laws raising the debt limit was
enacted before the impasse on the matter was broken.
In 1979, the House added a new rule, Rule XLIX (commonly referred to as the
Gephardt rule, after its sponsor, Representative Richard Gephardt) in an effort to
make debt-limit adjustment an automatic extension of congressional action on the
budget resolution. (Although the appropriate levels of the public debt for each fiscal

year are set forth as one of the required elements in the budget resolution, a statute
must be enacted subsequently to actually increase the debt limit.) The Gephardt rule
provides that upon the adoption by Congress of the conference report on a budget
resolution, the clerk of the House automatically engrosses and transmits to the Senate
a joint resolution containing a debt-limit increase consistent with the budget
resolution; the measure is deemed to have passed the House by the same vote by
which the House agreed to the conference report on the budget resolution.
The Senate did not adopt any special procedures for the consideration of debt-
limit measures. Although several joint resolutions originating under the Gephardt rule
were enacted into law during the 1980s, these measures usually were subject to full
debate in the Senate and during House-Senate conference action. Beginning in the
104th Congress, the House decided to no longer use procedures under the Gephardt
rule to originate debt-limit measures.
In recent years, the House and Senate have incorporated debt-limit increases into
omnibus budget reconciliation bills and other types of measures (see Exhibit 5-E).
Permanent increases in the debt limit were included in the omnibus budget
reconciliation bills in 1990, 1993, and 1997 that were enacted to implement the terms
of budget summit agreements reached between the President and Congress.

Exhibit 5-E.
Increases in the Statutory Debt Limit During the 1990s
DateType of ActNature of increase($ trillions)
08-09-90Debt-limit IncreaseTemporary increase3.195
10-02-90Debt-limit IncreaseTemporary increase3.195
10-09-90Continuing ResolutionTemporary increase3.195
10-19-90Continuing ResolutionTemporary increase3.195
10-25-90Continuing ResolutionTemporary increase3.195
10-28-90Continuing ResolutionTemporary increase3.230
11-05-90OmnibusPermanent increase4.145
04-06-93Debt-limit IncreaseTemporary increase4.370
08-10-93OmnibusPermanent increase4.900

02-08-96Timely Payment ofTemporary exemption—-

Soc. Security Benefitsfor certain borrowing

03-12-96Timely Payment ofTemporary exemption—-

Soc. Security Benefitsfor certain borrowing
03-29-96Contract with AmericaPermanent increase5.500
08-05-97OmnibusPermanent increase5.950
(1)This exhibit lists the 11 debt-limit measures enacted so far during the
1990s, which raised the limit by $2.755 trillion over seven years. (In
addition, two measures were enacted in 1996 to exempt Treasury
borrowing to ensure the timely payment of Social Security benefits.)
(2)Various types of acts were used to raise the debt limit, including simple
debt-limit measures, continuing resolutions, and budget reconciliation acts.
(3)In 1990, six short-term increases were enacted while Congress and the
President concluded budget summit negotiations. During the 1990s,
reconciliation acts have been the main vehicle for permanent increases.
Source: Table prepared by the Congressional Research Service from
information in: Office of Management and Budget, Budget of the United States
Government, Fiscal Year 1999, Historical Tables, February 1998, Table 7.3,
pages 115-116.

Chapter 6. Authorizations and Direct Spending
The rules of the House and Senate contemplate a two-step process for
establishing and funding federal agencies and programs. First, Congress enacts
legislation authorizing an agency or program; then, it makes appropriations for the
authorized purpose. While the rules have certain exceptions and are sometimes
waived or not enforced, they delineate the basic functions of authorizing legislation
and appropriations measures. (This chapter discusses the authorizations process; the
next one describes the appropriations process.)
Congress bypasses the usual two-step funding process for some agencies and
programs. In these cases, the legislative committees exercise jurisdiction over the
legislation that controls spending. This type of spending is referred to as direct
spending (also called mandatory spending); it is distinguished from discretionary
spending, which is controlled through the annual appropriations process. At present,
roughly two-thirds of all spending in the federal budget is direct spending and it is
growing at a faster rate than discretionary spending.
Direct spending is used primarily, but not exclusively, to fund entitlement
programs such as Social Security, Medicare, federal employees’ retirement and
disability programs, and unemployment compensation. Most entitlement funding is
provided automatically each year under permanent appropriations in substantive law.
Some direct spending programs, such as Medicaid, are funded in annual
appropriations acts each year, but the spending levels effectively are controlled in the
substantive legislation establishing the entitlement. Legislative committees sometimes
report hybrid legislation that commingles authorizing provisions and direct spending
The Authorization Process
Authorizing legislation has a dual purpose: (1) it is the means by which
Congress establishes policy and exercises control of federal agencies, and (2) it
provides the authority under House and Senate rules for Congress to appropriate
funds. Accordingly, an authorization act is legislation that both establishes, continues,
or modifies an agency or program, and authorizes the enactment of appropriations for
that agency or program. Authorizing legislation establishes the terms and conditions
under which each agency operates. This type of legislation typically sets forth the
responsibilities of agency officials and often specifies the agency’s organizational
structure. The basic purposes of authorizations acts are illustrated in Exhibit 6-A.

Exhibit 6-A.
Basic Purposes of Authorizations Acts
An Act
To reauthorize the Sea Grant Program
* * * * * *
Sec. 5. National Sea Grant College Program.
Section 204 (33 U.S.C. 1123) is amended to read as follows:
“Sec. 204. National Sea Grant College Program.
“(a) Program Maintenance.—The Secretary shall maintain within the
Administration a program to be known as the national sea grant college program. The
national sea grant college program shall be administered by a national sea grant office
within the Administration.
“(c) Responsibilities of the Secretary.—
“(1) The Secretary, in consultation with the panel, sea grant colleges, and sea
grant institutes, shall develop a long-range strategic plan which establishes priorities
for the national sea grant college program and which provides an appropriately
balanced response to local, regional, and national needs....
“(d) Director of the National Sea Grant College Program.—
“(1) The Secretary shall appoint, as the Director of the National Sea Grant
College Program, a qualified individual...The Director shall be appointed and a rate payable under section 5376 of title 5, United States Code...
Sec. 9. Authorization of Appropriations.
(a) Grants, Contracts, and Fellowships.—Section 212(a) (33 U.S.C. 1131(a)) is
amended to read as follows:
“(a) Authorization.—
“(1) In General.—There is authorized to be appropriated to carry out this
“(A) $56,000,000 for fiscal year 1999;
“(B) $57,000,000 for fiscal year 2000;
“(C) $58,000,000 for fiscal year 2001;
“(D) $59,000,000 for fiscal year 2002; and
“(E) $60,000,000 for fiscal year 2003.
(1)These excerpts from a recent law illustrate some of the basic purposes of
authorizations: to establish federal agencies or programs and to set forth
their duties and functions (in Section 5 of the act) and to provide an
authorization of appropriations (in Section 9).
(2)This multi-year reauthorization extends authorized amounts for five fiscal
years. Because these authorizations are for specific fiscal years, Congress
will have to pass a new authorization for FY2004 and beyond so that the
consideration of appropriations for those fiscal years will be in order.
(3)The funds mentioned here can be spent only to the extent provided in
Source: Public Law 105-160, National Sea Grant College Program
Reauthorization Act of 1998, March 6, 1998 (112 Stat. 21-27).

Authorizations also define committee jurisdictions in Congress. Most House and
Senate committees are authorizing committees with jurisdiction over designated
programs or activities. Most of what these committees do revolves around their
authorizing responsibilities. The legislation they produce defines the relationship
between these committees and the Appropriations Committees. Authorizing
legislation often establishes the financial boundaries within which appropriations are
Authorizations represent the exercise by Congress of its legislative power. (At
one time, what is now termed an “authorization” was referred to simply as
“legislation.”) In the exercise of its legislative powers, Congress can place just about
any type of provision (other than appropriations or revenue provisions) in authorizing
legislation. It can prescribe what an agency must do or may not do in the
performance of its assigned responsibilities. It can give the agency a broad grant of
authority or legislate in great detail. There is no uniform structure or format for
authorizing legislation. However, virtually all contemporary authorization measures
contain one or more provisions authorizing funds to be appropriated for designated
House and Senate Rules. House Rule XXI and Senate Rule XVI establish
the basic relationship between authorizations and appropriations (see Box 6-A).
House rules do not expressly require authorizations; they bar unauthorized
appropriations. Under Clause 2(a) of House Rule XXI, before the House can
consider most appropriations measures, the purposes for which the money is to be
provided have to be authorized in law. The House sometimes waives the rule against
unauthorized appropriations by adopting a special rule before taking up an
appropriations bill. The rule applies only to general appropriations bills. Under the
precedents of the House, a continuing appropriations act is not deemed to be a
general appropriations bill; hence, it can fund unauthorized programs.
House Rule XXI also bars legislative provisions in general appropriations bills.
Changes in existing law constitute new legislation and are proscribed by Clauses 2(b)
and (c) of the rule. (Clause 5(a) of the rule, shown in Box 7-A, contains a parallel
provision that bars the insertion of appropriations into authorizing legislation.) The
rule makes an exception for germane provisions which retrench expenditures; this
exception, known as the “Holman Rule,” was devised in the 1870s but rarely is used
Senate Rule XVI (in Paragraph 1) bars unauthorized appropriations as well, but
it allows many exceptions. As a consequence, the House is much stricter in its
enforcement of the rule. Unlike the House, Senate rules do not bar appropriations in
authorizing legislation.
Legislation in appropriations also is prohibited by Senate Rule XVI (in
Paragraphs 2 and 4). However, during the Senate’s consideration of a supplemental
appropriations bill in 1995, the chair’s ruling that a particular amendment offered by
a Senator was out of order as legislation was overturned by the full Senate. The
Senate has not enforced this portion of the rule since that time.

Box 6-A.
House and Senate Rules on Authorizing Legislation
House Rule XXI, Clause 2(a) and (b)
(a) No appropriation shall be reported in a general appropriation bill, or
shall be in order as an amendment thereto, for any expenditure not previously
authorized by law, except to continue appropriations for public works and objects
which are already in progress.
(b) No provision changing existing law shall be reported in a general
appropriation bill, including a provision making the availability of funds
contingent on the receipt or possession of information not required by existing law
for the period of the appropriation, except germane provisions that retrench
expenditures by the reduction of amounts of money covered by the bill, which may
include those recommended to the Committee on Appropriations by direction of
a legislative committee having jurisdiction over the subject matter thereof, and
except rescissions of appropriations contained in appropriation Acts.
Senate Rule XVI, Paragraphs 1 and 2
1. On a point of order made by any Senator, no amendments shall be
received to any general appropriation bill the effect of which will be to increase
an appropriation already contained in the bill, or to add a new item of
appropriation, unless it be made to carry out the provisions of some existing law,
or treaty stipulation, or act or resolution previously passed by the Senate during
that session; or unless the same be moved by direction of the Committee on
Appropriations or of a committee of the Senate having legislative jurisdiction of
the subject matter, or proposed in pursuance of an estimate submitted in
accordance with law.
2. The Committee on Appropriations shall not report an appropriation bill
containing amendments to such bill proposing new or general legislation or any
restriction on the expenditure of the funds appropriated which proposes a
limitation not authorized by law if such restriction is to take effect or cease to be
effective upon the happening of a contingency, and if an appropriation bill is
reported to the Senate containing amendments to such bill proposing new or
general legislation or any such restriction, a point of order may be made against
the bill, and if the point is sustained, the bill shall be recommitted to the
Committee on Appropriations.
The Relationship of Authorizations and Appropriations. It is a basic
rule of federal law that funds provided in appropriations acts are to be spent according
to the terms set in authorizing legislation. The ideal division of labor between these
two types of enactments would be for the appropriations act to determine the amounts
available for expenditure and the authorization act to determine the purposes for
which the funds are to be used. In practice, however, the relationship is not so clear
cut. Some authorization acts provide budget authority and some appropriations acts
contain substantive provisions affecting the use of available resources.
Permanent Versus Temporary Authorizations. An authorization is
presumed to be permanent unless the authorizing law limits its duration. Most of the
provisions in an authorizing statute pertaining to the operations of the affected agency
are permanent, although some may be effective only for a single fiscal year or other
period of time. The permanent provisions continue in effect year after year, until such

time as they are terminated or revised by new authorizing legislation. In many areas
of federal activity, therefore, there is no need for Congress to consider new
authorizing legislation each year.
The portion of authorization law which provides the authority under House and
Senate rules for Congress to make appropriations often is limited in its period of
effectiveness. These “authorized to be appropriated” provisions can be classified into
three categories, depending on their duration. Permanent authorizations do not have
any time limit and continue in effect until they are changed by Congress. An agency
having a permanent authorization need only obtain appropriations to continue in
operation. Annual authorizations are for a single year and, usually, for a fixed
amount of money. These authorizations have to be renewed each year. Strictly
speaking, all Congress has to do is to extend the “authorized to be appropriated”
language for another fiscal year, but in the course of doing so it often makes other
changes in authorizing law. Multi-year authorizations are typically in effect for a
two- to five-year period and have to be renewed when they expire. (Exhibit 6-B
provides examples of the three types of authorizations.)
Until the 1950s, virtually all authorizations were permanent. Since then,
however, there has been a trend toward temporary (annual or multi-year)
authorizations. The shift from permanent to temporary authorizations can be
mandated either by law or by the rules of the House or Senate, as shown in Exhibit


There are two main reasons for the trend to temporary authorizations,
corresponding to the two functions of authorizing legislation identified earlier in this
chapter. First, an annual or multi-year authorization act gives Congress frequent
opportunities to review an agency’s activities and to make such changes in law as it
deems appropriate. Congress is likely to seek additional control when it lacks
confidence in the agency. Second, temporary authorizations enhance the influence of
authorizing committees in Congress, especially with respect to the amounts
subsequently appropriated to affected agencies.
This influence arises out of a feature of temporary authorizations which generally
distinguish them from permanent ones. While permanent authorizations rarely specify
amounts of money, temporary authorizations usually do. In fact, some of these
authorizations have become quite detailed in specifying amounts that are authorized
to be appropriated for particular activities. Although the amount appropriated does
not have to conform to the authorized level—under the rules, the appropriation can
be as much as or less than the authorized amount—there often is a close
correspondence between the authorized and appropriated amounts. This is
particularly true for annually-authorized programs. Inasmuch as the annual
authorization normally is enacted first, it directly influences the amount subsequently
provided in the appropriations act.

Exhibit 6-B.
Types of Discretionary Authorizations
National Defense Authorization Act for Fiscal Year 1998
Sec.101. Army.
Funds are hereby authorized to be appropriated for fiscal year 1998 for
procurement for the Army as follows:
(1) For aircraft, $1,316,233,000.
(2) For missiles, $742,639,000.
(3) For weapons and tracked combat vehicles, $1,297,641,000.
(4) For ammunition, $1,011,193,000.
(5) For other procurement, $2,566,208,000.
Birth Defects Prevention Act of 1998
(f) Authorization of Appropriations.—For the purpose of carrying out this
section, there are authorized to be appropriated $30,000,000 for fiscal year 1999,
$40,000,000 for fiscal year 2000, and such sums as may be necessary for each of the
fiscal years 2001 and 2002.
Individuals With Disabilities Education Act
(j) Authorization of Appropriations.—For the purpose of carrying out this part,
other than section 619, there are authorized to be appropriated such sums as may be
(1)The three examples on this page are of discretionary authorizations;
budget authority is provided in annual appropriations acts.
(2)Annual authorizations are renewed every year (unless Congress terminates
the program or makes unauthorized appropriations). They usually specify
the amount authorized for the fiscal year.
(3)Multi-year authorizations typically cover five fiscal years or less, with
amounts specified for each year, and often authorize escalating amounts
for successive years. This four-year authorization doesn’t specify
authorized levels for the last two fiscal years covered.
(4)A permanent authorization has no time limit; no fiscal year is specified.
It usually is open-ended (without dollar limits) and authorizes “such sums
as may be necessary.”
Source: Annual, Public Law 105-85, November 18, 1997 (111 Stat. 1629-
2078); multi-year, Public Law 105-168, April 21, 1998 (112 Stat. 43-45); and
permanent, Public Law 105-17, June 4, 1997 (111 Stat. 37-157).

Exhibit 6-C.
Reauthorization Requirements
Bar Against Obligation
(a)(1) Notwithstanding any provision of law enacted before October 26, 1974, no
money appropriated to the Department of State under any law shall be available for
obligation or expenditure with respect to any fiscal year commencing on or after July

1, 1972 -

(A) unless the appropriation thereof has been authorized by law enacted on
or after February 7, 1972; or
(B) in excess of an amount prescribed by law enacted on or after such date.
Bar Against Appropriation
9. Subject to the rules of the House, no funds shall be appropriated for any fiscal
year, with the exception of a continuing bill or resolution continuing appropriations, or
amendment thereto, or conference report thereon, to, or for use of, any department or
agency of the United States to carry out any of the following activities, unless such
funds shall have been previously authorized by a bill or joint resolution passed by the
House during the same or preceding fiscal year to carry out such activity for such fiscal
(a) The activities of the Central Intelligence Agency and the Director of
Central Intelligence.
(b) The activities of the Defense Intelligence Agency.
(c) The activities of the National Security Agency.
(d) The intelligence and intelligence-related activities of other agencies and
subdivisions of the Department of Defense...
(1)Some requirements of prior authorization, such as for the State
Department, are enacted into law; others, such as for the intelligence
agencies, are prescribed by the rules of the House or Senate. The effect on
congressional operations is about the same in both cases.
(2)Congress often enacts appropriations for ongoing programs whose
temporary authorizations have expired. Agencies usually may spend
unauthorized appropriations, but sometimes their availability is affected
by a statutory requirement for prior authorization.
(3)Because this statutory provision bans the obligation of funds, the State
Department would not be able to use unauthorized appropriations unless
the appropriations act expressly waived this prohibition.
(4)This provision requires annual authorization of intelligence activities, in
contrast to the language shown above for the State Department which does
not specify the period for which authorization shall be made.
Source: 22 U.S.C. 2680(a); House Rule XLVIII, Clause 9.

Congress sometimes sets aside its rules and makes unauthorized appropriations.
(An appropriation in excess of the authorized amount is also deemed to be
unauthorized.) In most such cases, the full appropriation is available for expenditure,
except when a law prohibits the obligation or expenditure of such unauthorized funds.
Congress rarely makes an unauthorized appropriation for a new program, concerning
which no authorizing law has been enacted. The typical unauthorized appropriation
occurs because the “authorized to be appropriated” provision has not been renewed.
In these instances, the agency receiving the unauthorized appropriation is subject to
the permanent law governing its operations.
Means of Influencing Appropriations. The authorizations discussed thus
far do not permit agencies to incur obligations or spend money; the authorized funds
are available only to the extent provided in appropriations acts. These conventional
(or discretionary) authorizations cover less than half of the funds spent each year by
the federal government. Although discretionary authorizations do not provide budget
authority, they often influence the amount of funds subsequently appropriated or the
activities on which funds are spent. One means of influence is to earmark funds in
authorizing legislation, in the manner displayed in Exhibit 6-D. Earmarking has
become more prevalent and more detailed in recent years and it has sometimes
resulted in conflicts between the priorities spelled out in authorizing legislation and
the priorities sought by the Appropriations Committees.
Congress sometimes inserts “appropriations forcing” provisions in authorizing
legislation. In these cases, the funds are provided in appropriations acts, but under
circumstances that either give the Appropriations Committees little flexibility in the
matter or induces them to provide the desired funds. In some instances, the
authorization bars the use of funds for one purpose unless a minimum amount is
appropriated for another purpose. The Appropriations Committees do not have to
provide the minimum amount, but if they fail to do so, funds provided may then
remain unused. This and other appropriations-forcing techniques are used by
authorizing committees when their spending priorities differ from those of the
Appropriations Committees.
Direct Spending
As mentioned at the opening of this chapter, a sizeable portion of the budgetary
resources spent by the federal government is provided or controlled by laws under the
jurisdiction of the legislative committees rather than the Appropriations Committees.
Spending of this type is referred to as direct spending. (Section 250 of the 1985
Balanced Budget Act defines the term to mean three things: (1) budget authority
provided by law other than appropriation acts; (2) entitlement authority; and (3) the
Food Stamp program.) Such budgetary resources are either provided directly by
substantive law, or are effectively controlled by the substantive law but provided in
annual appropriation acts.

Exhibit 6-D.
Earmarking and Other Features of Authorizations
Sec. 102. Authorization of Appropriations.
(a) Fiscal Year 1998—
(1) In General—There are authorized to be appropriated to the Foundation
$3,505,630,000 for fiscal year 1998.
(2) Specific Allocations—Of the amount authorized under paragraph (1)—
(A) $2,576,200,000 shall be made available to carry out Research and
Related Activities, of which—
(i) $370,820,000 shall be made available for Biological Sciences;
(ii) $289,170,000 shall be made available for Computer and
Information Science and Engineering;
(iii) $360,470,000 shall be made available for Engineering;
(iv) $455,110,000 shall be made available for Geosciences;
(v) $715,710,000 shall be made available for Mathematical and
Physical Sciences;
(vi) $130,660,000 shall be made available for Social, Behavioral, and
Economic Sciences, of which up to $1,000,000 may be made available for
the United States-Mexico Foundation for Science; ...
Sec. 103. Proportional Reduction of Research and Related Activities
If the amount appropriated pursuant to section 102(a)(2)(A) or (b)(2)(A) is less
than the amount authorized under that paragraph, the amount available for each
scientific directorate under that paragraph shall be reduced by the same proportion.
(1)Some authorizations measures—such as this one for the National Science
Foundation (NSF)—contain earmarked amounts for specific areas or
programs. When this occurs, conflicts can arise between the amounts
authorized and appropriated for particular programs.
(2)Authorizations measures that earmark amounts sometimes contain
“proportionality language” to maintain the authorizing committee’s
priorities when less than the full amounts authorized are appropriated.
Each authorized category is reduced to its pro-rata share of the total
(3)Earmarked authorizations sometimes are accompanied by flexibility to shift
funds among programs. This discretion usually has a percentage
limitation and a requirement that relevant congressional committees be
informed of the action. These shifts are comparable to “reprogrammings”
(discussed in Chapter 8).
Source: Public Law 105-207, the National Science Foundation
Authorization Act of 1998, July 29, 1998 (112 Stat. 869-878).

There are several types of direct spending, the most prominent of which is
entitlement authority—provisions of law that mandate payments to eligible recipients.
Direct spending also includes borrowing authority (provisions authorizing agencies
to spend borrowed funds), contract authority (provisions authorizing agencies to
enter into obligations), and authority to forgo offsetting receipts (provisions
authorizing agencies not to collect certain user fees or other charges). The 1974
Congressional Budget Act bars Congress—with certain exceptions—from considering
new contract authority or new borrowing authority unless it is made effective only to
the extent provided in appropriations acts. This bar does not apply to entitlements.
(Examples of contract, borrowing, and entitlement authority appear in Exhibits 6-E
and 6-F.)
Although entitlements are established in authorizing legislation, the rules and
procedures for them are somewhat different than for discretionary authorizations.
Entitlements are laws that give eligible recipients (usually persons, but sometimes
governments) a legal right to payments from the federal government. The federal
government is obligated to make these payments, even if the budget does not provide
sufficient funds for them. Most entitlement laws are open-ended; they do not specify
or limit the total to be spent. Instead, the law typically spells out eligibility criteria
and establishes a formula for computing the size of payments. The total spent
depends on the number of eligible persons and the amount each is entitled to receive.
Some entitlements (such as Social Security) have permanent appropriations; the
necessary funds become available without annual action by Congress. Other
entitlements (such as veterans’ pensions) go through the annual appropriations
process, though Congress does not really control them at this stage. If the amount
appropriated does not suffice, Congress will have to provide a supplemental
The 1974 Congressional Budget Act bars the House and Senate from
considering entitlement legislation until the budget resolution for the next fiscal year
has been adopted. This sequence enables Congress to determine whether the new
entitlement is consistent with the spending policies adopted in the budget resolution.
Congress makes this determination principally by means of the Section 302
procedures discussed in Chapter 4. That is, it determines whether the estimated cost
of the entitlement legislation is within the amounts allocated to the committees of
jurisdiction pursuant to Section 302 of the 1974 Congressional Budget Act.
The BEA regulates the enactment of new entitlements and other direct spending
by means of a pay-as-you-go (PAYGO) process intended to ensure that such
legislation does not increase the deficit. (The PAYGO process is discussed more fully
in Chapter 2.) In general, PAYGO requires that legislation increasing direct spending
or reducing revenues be offset by reductions in other direct spending or increases in
revenues or a sequester of certain direct spending programs will occur.
Several years ago, the Senate adopted (as part of a budget resolution) a “pay-as-
you-go” point of order that requires direct spending and revenue legislation to be
deficit-neutral over a 10-year period. This provision, which augments the statutory
PAYGO process, can only be waived by a three-fifths vote of the Senate and expires
at the end of FY2002.

Exhibit 6-E.
Borrowing and Contract Authority
Borrowing Authority
Act title
Sec. 1304. (a) The Panama Canal Commission may borrow from the Treasury,
for any of the purposes of the Commission, not more than $100,000,000 outstanding
at any time. For this purpose, the Commission may issue to the Secretary of the
Treasury its notes or other obligations...
Contract Authority
Transportation Equity Act for the 21st Century
Sec. 3029. Authorizations.
(a) In General.—Section 5338 is amended to read as follows:
``Sec. 5338. Authorizations
``(a) Formula Grants.—
``(1) Fiscal year 1998.—
``(A) From the trust fund.—There shall be available from the Mass
Transit Account of the Highway Trust Fund to carry out sections 5307,

5310, and 5311, $2,260,000,000 for fiscal year 1998.

* * * * * *
``(g) Grants as Contractual Obligations.—
``(1) Grants financed from the highway trust fund.—A grant or contract
approved by the Secretary, that is financed with amounts made available under
subsection (a)(1)(A),...or (f)(2)(A) is a contractual obligation of the United States
Government to pay the Government’s share of the cost of the project.
(1)Borrowing authority permits an agency (such as the Panama Canal
Commission) to borrow funds from the Treasury Department or the public.
Borrowing authority often is in the form of a revolving fund, with payment
of old debt replenishing an agency’s authority to borrow. The 1974
Congressional Budget Act requires that new borrowing authority be
effective only to the extent provided in appropriations acts.
(2)Contract authority permits an agency to incur obligations in advance of
appropriations. The 1974 Congressional Budget Act requires that new
contract authority be effective only to the extent provided in appropriations
acts. However, it exempts self-financed trust funds (such as the Highway
Trust Fund) from this requirement.
(3)“Shall be available” language has the effect of providing the funds to an
agency, even when the language appears (as it does here) in authorizing
Source: Borrowing authority, Section 5424 of Public Law 100-203,
December 22, 1987 (101 Stat. 1330-273); contract authority, Public Law

105-178, June 9, 1998 (112 Stat. 107-509).

Exhibit 6-F.
Entitlement Authority
Permanent Appropriation
Sec. 8348. Civil Service Retirement and Disability Fund
(a) There is a Civil Service Retirement and Disability Fund. The Fund—
(1) is appropriated for the payment of—
(A) benefits as provided by this subchapter or by the provisions of
chapter 84 of this title which relate to benefits payable out of the Fund; and
(B) administrative expenses incurred by the Office of Personnel
Management in placing in effect each annuity adjustment granted under
section 8340 or 8462 of this title, ...;
(2) is made available, subject to such annual limitation as the Congress may
prescribe, for any expenses incurred by the Office in connection with the
administration of this chapter, chapter 84 of this title, and other retirement
and annuity statutes; and...
Annual Appropriation
Payments to Health Care Trust Funds
For payment to the Federal Hospital Insurance and the Federal Supplementary
Medical Insurance Trust Funds, as provided under sections 217(g) and 1844 of the
Social Security Act, sections 103(c) and 111(d) of the Social Security Amendments of
1965, section 278(d) of Public Law 97-248, and for administrative expenses incurred
pursuant to section 201(g) of the Social Security Act, $60,904,000,000.
(1)Entitlement authority stems from provisions in law that mandate payments
to eligible beneficiaries. Entitlement laws usually set forth eligibility
criteria and a schedule of benefit payments. Some entitlements are funded
by permanent appropriations and others are funded by annual
(2)The entitlement for Civil Service retirement and disability pay has a
permanent appropriation. All receipts of the trust fund become available
for expenditure without further action by Congress. Hence, the receipts of
the trust fund are classified as budget authority.
(3)Congress sometimes places limits in annual appropriations acts (not shown
here) on the administrative expenses that can be incurred in a fiscal year
for programs financed by permanent appropriations.
(4)This entitlement (for a portion of the Medicare program) is financed by
annual appropriations. In the case of such provisions, called
“appropriated entitlements,” the Appropriations Committees regularly
provide the funds mandated by law.
Source: 5 U.S.C. 8348(a); Public Law 105-78, Labor-HHS-Education
Appropriations Act for Fiscal Year 1998, November 13, 1997 (111 Stat. 1467-


Because entitlements usually are established in permanent law, the only way for
Congress to modify these spending levels is to change the laws establishing
entitlements. Congress frequently relies on the reconciliation process (see Chapter

4) to make such changes in law.

Direct spending legislation may authorize a federal agency to make or guarantee
loans. The Federal Credit Reform Act of 1990 made significant changes in budgeting
for direct and guaranteed loans. (These changes are discussed in Chapter 2.)

An appropriations act is a law passed by Congress that provides federal agencies
legal authority to incur obligations and the Treasury Department authority to make
payments for designated purposes. Appropriations provide budget authority—that
is, authority to obligate funds—to agencies. Appropriations measures, as explained
in the previous chapter, are distinct from authorizing and direct spending legislation
and are a principal, but not the only, means of providing budget authority.
The power of appropriation is part of Congress’s constitutional “power of the
purse” (see Box 1-A). Article I, Section 9 of the Constitution states in part that “[n]o
money shall be drawn from the Treasury but in consequence of appropriations made
by law.” The power to appropriate is exclusively a legislative power; it functions as
a limitation on the executive branch. An agency may not spend more than the amount
appropriated to it, and it may use available funds only for the purposes and according
to the conditions provided by Congress. In contemporary times, appropriations also
have been viewed as mandates that the funds be used to carry out the activities
intended by Congress.
The Constitution does not require annual appropriations, but since the First
Congress the practice has been to make appropriations for a single fiscal year.
Appropriations must be used (obligated) in the fiscal year for which they are provided,
unless the law provides that they shall be available for a longer period of time. All
provisions in an appropriations act, such as limitations on the use of funds, expire at
the end of the fiscal year, unless the language of the act extends their period of
In the federal government, an appropriation makes funds available for obligation;
it does not usually require that outlays be made in any particular fiscal year. This is
in contrast to the practices of most state and local governments, which have
outlay-based appropriations; the amount provided is the amount to be paid out during
the fiscal year. In the federal government, outlays often ensue years after the
appropriations are obligated. (The relationship between budget authority provided
in appropriations acts and annual outlays is explained in Chapter 1.)
The Constitution does not specify the form in which appropriations shall be
made. Established practice predating the Constitution, and recognized in the rules of
the House and Senate, provides for appropriations to be made in appropriations acts
that are distinct from other types of legislation. This distinction was discussed in the
previous chapter and is reflected in Rule XXI of the House and Rule XVI of the
Senate, which deal with “general appropriation bills.”
Box 7-A presents excerpts from House Rule XXI and Senate Rule XVI. As
previously noted, these rules establish a two-step authorizations-appropriations
process (and should be read in tandem with Box 6-A). Clause 5(a) of House Rule
XXI bars appropriations in authorizing legislation; it is sometimes waived by the
House to permit the inclusion of permanent appropriations in authorizing legislation.
Senate Rule XVI bars unauthorized appropriations and legislation in appropriations.
Paragraph 4 of the rule, for example, prohibits Senators from offering floor
amendments to general appropriations bills that are legislative. In 1995, however,
during Senate consideration of a supplemental appropriations bill, the chair’s ruling
that a particular amendment offered by a Senator was out of order as legislation was

Box 7-A.
Appropriations Jurisdiction:
House and Senate Rules
House Rule XXI, Clause 5(a)
No bill or joint resolution carrying appropriations shall be reported by any
committee not having jurisdiction to report appropriations, nor shall an amendment
proposing an appropriation be in order during the consideration of a bill or joint
resolution reported by a committee not having that jurisdiction. A question of
order on an appropriation in any such bill, joint resolution, or amendment thereto
may be raised at any time.
Senate Rule XVI, Paragraph 4
On a point of order made by any Senator, no amendment offered by any other
Senator which proposes general legislation shall be received to any general
appropriation bill, nor shall any amendment not germane or relevant to the subject
matter contained in the bill be received; nor shall any amendment to any item or
clause of such bill be received which does not directly relate thereto; nor shall any
restriction on the expenditure of funds appropriated which proposes a limitation
not authorized by law be received if such restriction is to take effect or cease to be
effective upon the happening of a contingency; and all questions of relevancy of
amendments under this rule, when raised, shall be submitted to the Senate and be
decided without debate; and any such amendment or restriction to a general
appropriation bill may be laid on the table without prejudice to the bill.
overturned by the full Senate. As a consequence of the Senate’s action, this portion
of Rule XVI has not been enforced since that time.
The President requests annual appropriations in his budget submitted in January
or February of each year. The President’s budget displays, for each account, the
appropriation language for the current fiscal year, and the proposed text for the next
fiscal year. In support of the President’s appropriations requests, agencies submit
justification materials to the House and Senate Appropriations Committees. These
materials provide considerably more detail than is contained in the President’s budget
and are used in support of agency testimony during Appropriations subcommittee
hearings on the President’s budget.

Types of Appropriations Measures
Congress passes three main types of appropriations measures. Regular
appropriations acts provide budget authority to agencies for the next fiscal year.
Supplemental appropriations acts provide additional budget authority during the
current fiscal year when the regular appropriation is insufficient or to finance activities
not provided for in the regular appropriation. Continuing appropriations acts, also
called continuing resolutions, provide stop-gap (or full-year) funding for agencies that
have not received a regular appropriation. Exhibit 7-A lists the various types of
appropriations measures considered in a recent session of Congress.
House Rule XXI and Senate Rule XVI pertain only to general appropriations
bills. For purposes of these rules, all regular appropriations bills, as well as
supplemental appropriations measures covering two or more agencies or purposes,
are considered to be general appropriation bills. The House and Senate usually do not
consider supplemental appropriations for a single agency or purpose to be general
appropriation bills (nor does the House consider continuing appropriations to be
general appropriation bills). Hence, the restrictions in these House and Senate rules
do not apply to certain appropriations. In fact, Congress often inserts legislation into
continuing appropriations acts. Moreover, the House often waives Rule XXI with
respect to particular appropriations measures, and the Senate sometimes chooses not
to enforce Rule XVI.
In a typical session, Congress acts on more than 15 appropriations measures.
Thirteen of these are regular appropriations bills. Jurisdiction over these measures is
vested in the House and Senate Appropriations Committees, each of which is divided
into 13 parallel subcommittees. Each set of subcommittees has jurisdiction over one
of the regular appropriations bills. After the House and Senate have considered each
of these bills separately, the House and Senate Appropriations Committees sometimes
consolidate all or some of them into an omnibus measure.
Congress typically acts on one or more supplemental appropriations measures
each year. The number and size of supplementals have declined in recent years,
principally because of constraints imposed by the Budget Enforcement Act and
congressional budget enforcement rules. Some supplemental appropriations, usually
those prompted by an emergency such as a natural disaster, are for a single purpose.
But at least one of the supplementals enacted during the session is likely to cover a
multitude of activities.
Because of recurring delays in the appropriations process, Congress typically
passes one or more continuing appropriations each year. The scope and duration of
these measures depend on the status of the regular appropriations bills and the degree
of budgetary conflict between the President and Congress. In some years, the final
continuing appropriations has been turned into an omnibus measure for enactment of
regular appropriations bills.

Exhibit 7-A.
Types of Appropriations Measures
Number ofTitleReportedPassedPassed
H.R. 1469Emergency Supplemental, 1997Apr. 29May 15May 16
H.R. 1871Emergency Supplemental, 1997———June 12June 12
H.R. 2016Military Construction, 1998June 24July 8July 22
H.R. 2107Interior, 1998July 1July 15Sept. 18
H.R. 2158VA, HUD, 1998July 11July 16July 22
H.R. 2159Foreign Assistance, 1998July 14Sept. 4Sept. 5
H.R. 2160Agriculture, 1998July 14July 24Sept. 3
H.R. 2169Transportation, 1998July 16July 23July 30
H.R. 2203Energy and Water, 1998July 21July 25July 28
* * * * ** * * * ** * ** * ** * *
H.J.Res. 94Continuing, 1998———Sept. 29Sept. 30
H.J.Res. 97Continuing, further, 1998———Oct. 22Oct. 23
H.J.Res. 101Continuing, further, 1998———Nov. 7Nov. 7
(1)Congress usually acts on three types of appropriations measures each
year: (a) regular appropriations for the next fiscal year; (b) supplemental
appropriations for the fiscal year in progress; and (c) continuing
appropriations for programs and agencies lacking regular appropriations.
(2)Each appropriations measure has either an “H.R.” (House of
Representatives) or “H.J.Res.” (House Joint Resolution) number,
indicating that the measure originated in the House. (The Senate
sometimes acts on its own appropriations measures up to the stage of final
passage, when it then switches to the House-passed measure.)
(3)There is no substantive difference between a bill and a joint resolution.
Joint resolutions are used for some supplemental, and usually all
continuing, appropriations.
(4)There usually is only a brief interval from the time that an appropriations
measure is reported and its consideration in the House. The House usually
takes up regular appropriations bills in June and July, and the Senate
usually follows suit in July, August (if it is in session), and September. This
schedule does not usually enable Congress to complete action on all
regular appropriations by the start of the fiscal year on October 1.
(5)Congress often passes more than one continuing appropriations measure
during a session. The first such measures usually have an expiration date;
hence, Congress must pass additional continuing resolutions if all regular
appropriations measures have not yet been enacted. The last continuing
resolution sometimes is in effect for the remainder of the fiscal year.
Source: Calendars of the United States House of Representatives, 105th
Congress, First Session.

Congress sometimes makes appropriations in substantive legislation (reported
by an authorizing committee) rather than in appropriations acts. These usually are
permanent appropriations which become available each year without current action
by Congress. Because of the growth of permanent appropriations (for example, the
Social Security trust funds and interest on the public debt), only about half of the
budget authority available each year is in the jurisdiction of the Appropriations
Committees. Moreover, a sizeable portion of the budget authority provided in annual
appropriations acts is mandatory (principally for entitlements). The Appropriations
Committees have effective discretion over about one-third of each year’s total new
budget authority.
Appropriations Procedures in Congress
By precedent, appropriations originate in the House of Representatives. In the
House, appropriations measures are originated by the Appropriations Committee
(when it marks up or reports the measure) rather than being introduced by a Member
beforehand. Appropriations bills do not have “H.R.” or “H.J.Res.” numbers until they
are about to be reported by the committee, and they cannot generally be tracked in
legislative databases until that point. Exhibit 7-B traces the path of an appropriations
act through the House and Senate.
Before the full committee acts on the bill, it is considered in the relevant
Appropriations subcommittee. The House subcommittees typically hold extensive
hearings on appropriations requests shortly after the President’s budget is submitted.
In marking up their appropriations bills, the various subcommittees are guided by the
discretionary spending limits established by the Budget Enforcement Act and the
allocations made to them under Section 302 of the 1974 Congressional Budget Act.
The discretionary spending limits (which are more fully discussed in Chapter 2) set
limits on budget authority and outlays for broad categories of spending. Inasmuch as
all discretionary spending is in the jurisdiction of the Appropriations Committees, the
caps limit the amount that these committees can provide in annual appropriations
Specific dollar limitations on appropriations also are set, following the adoption
of a budget resolution, by the process under Sections 302 of the 1974 Congressional
Budget Act discussed in Chapter 4. Pursuant to this process, the House and Senate
Appropriations Committees receive total spending allocations, which they subdivide
among their 13 subcommittees. When an appropriations bill is reported, the spending
provided in it is compared to the amount allocated or subdivided to the relevant
In acting on appropriations, the subcommittees closely review the extensive
justification material submitted in connection with hearings at which agency officials
defend their budget requests. The justification material typically breaks down the
agency’s request into discrete projects, activities, and line items. Although the format
of these materials (which are published in the appropriations hearings) varies among
subcommittees, it is common for the agency to compare the amount requested for the
next fiscal year with the amount provided for the current year and to explain variances
between them.

Exhibit 7-B.
Sequence of an Appropriations Act Through Congress
Subcommittee hearingsSubcommittee hearings
Subcommittee markup (no bill numberSubcommittee markup (usually a
is assigned yet)House-passed bill; sometimes an
unnumbered Senate bill)
Full committee markup and reportFull committee markup and report
(bill number is assigned)(usually a House-passed bill; sometimes
a Senate-numbered bill)
House floor actionSenate floor action (if Senate bill is
considered, it is held at stage of final
passage so that the Senate can amend
and pass the House bill)
House-Senate conference
(on House-numbered bill)
House agrees to conference reportSenate agrees to conference report
(and any amendments in disagreement)(and any amendments in disagreement)
Enrolled measure sent to President for approval
(1)Appropriations bills originate in the House; the House usually passes an
appropriations bill before it is considered in the Senate. However, the
Senate sometimes expedites its actions by considering a Senate-numbered
bill up to the stage of final passage. When the House-passed bill is
received in the Senate, it is amended with the text that the Senate already
has agreed to and then the Senate passes the House-numbered bill.
(2)The reports accompanying appropriations bills usually are drafted by the
relevant subcommittees, but only the full committee reports the measure.
(3)The conference report is the version of the bill approved by the conferees.
Explanations of the conference report are presented in the joint statement
of the managers (conferees).
(4)Some items, referred to as amendments in disagreement, are considered
separately from the conference report; such items nearly always are
referred to as “disagreements” only for technical reasons.
Source: Table prepared by the Congressional Research Service.

The subcommittees are generally quite influential, and it is not uncommon for the
full Appropriations Committee to report the bill prepared for it by the subcommittee
without making substantive changes. The subcommittees also draft the report which
will accompany the bill to the floor and will establish much of the legislative history
used to determine congressional intent.
Exhibit 7-C identifies the main steps in House action on appropriations.
Because general appropriations bills are privileged for floor consideration, they can
be brought to the House without first obtaining a special rule (a simple House
resolution setting the terms of consideration) through the Rules Committee.
Nevertheless, most appropriations measures do come to the House under a rule
waiving one or more of the standing rules, such as the rule against unauthorized
appropriations. The House first adopts the special rule (see Exhibit 7-D), then it
takes up the appropriations bill.
When debate on an appropriations bill begins, the managers of the bill usually
provide a summary of the main features, including a comparison of the budget
authority and outlays in the bill to the amounts appropriated for the previous year and
requested in the President’s budget. Sometimes, the bill’s managers (or the chairman
of the House Budget Committee) will indicate how the measure complies with the
subdivisions under Section 302(b).
The House also is advised of any issues raised by the White House or OMB.
The advice takes the form of a Statement of Administration Policy (SAP). A SAP
outlines the administration’s position on the appropriations measure as it progresses
through the appropriations process. A SAP normally is issued at six stages of
congressional action: (1) House Appropriations subcommittee action; (2) House
Appropriations Committee markup; (3) House floor action; (4) Senate Appropriations
subcommittee action; (5) Senate Appropriations Committee markup; and (6) Senate
floor action. A SAP also may be issued during conference action. The SAP
concentrates on items in the most recent version of the appropriations measure that
the Administration finds objectionable. Excerpts from a SAP are provided in Exhibit


The Senate usually considers appropriations measures after they have been
passed by the House. When House action on appropriations bills is delayed, however,
the Senate sometimes expedites its actions by considering a Senate-numbered bill up
to the stage of final passage. Upon receipt of the House-passed bill in the Senate, it
is amended with the text that the Senate already has agreed to (as a single
amendment) and then passed by the Senate.
The sequence of Senate actions is outlined in Exhibit 7-F. Hearings in the
Senate Appropriations subcommittees generally are not as extensive as those held by
counterpart subcommittees in the House. The Senate routinely uses unanimous
consent agreements to frame the consideration of measures. These agreements are
printed in the Senate’s daily Calendar of Business. Sometimes, the Senate uses such
agreements to expedite the consideration of appropriations bills (see Exhibit 7-G).
When the Senate (either in committee or on the floor) changes a House-passed
appropriations measure, it does so by inserting consecutively numbered amendments
(see Exhibit 7-H).

Exhibit 7-C.
Sequence of House Actions on Appropriations Measures
!Special Rule
Although appropriations bills are privileged and can be considered by the
House at any time, the House normally considers them under special rules (in the
form of a simple House resolution) waiving one or more points of order, such as
those arising out of the House rule barring unauthorized appropriations.
!Committee of the Whole
After the House adopts the special rule, it takes up the appropriations bill in
the Committee of the Whole rather than in the House itself; the Committee of the
Whole has a much smaller quorum requirement than that of the House.
!General Debate
Debate on the bill is opened by the floor managers—the chairman and
ranking minority member of the relevant Appropriations subcommittee. Opening
statements may also be made by the chairman of the Appropriations Committee
who may remark on the overall status of appropriations bills and by the chairman
of the Budget Committee who may advise the House as to whether the particular
bill conforms to the 302(b) subdivision.
Regular appropriations bills usually are considered under an open rule which
does not preclude consideration of any floor amendments. An amendment must
be offered in a timely manner; that is, when the portion of the bill to which it
pertains is being read (except for en bloc amendments that are completely
!Points of Order
Points of order may be raised against either the bill reported by the
committee or a floor amendment. In the House, it is rare for the ruling of the chair
on a point of order to be challenged.
Floor amendments inserting certain limitations into the appropriations bill
may be offered only after consideration of funding levels has been completed. At
this point, it is in order to move that the Committee of the Whole “rise and report.”
If this motion is adopted, there may be no opportunity to offer limitation
!Final Passage
After the Committee of the Whole reports, final consideration is in the House
itself. Under certain circumstances, the House may reconsider matters decided in
the Committee of the Whole, but it usually concurs in the previous vote.

Exhibit 7-D.
Special Rules on Appropriations Bills
H.Res. 477
Resolved, That at any time after the adoption of this resolution the
Speaker may, pursuant to clause 1(b) of rule XXIII, declare the House
resolved into the Committee of the Whole House on the state of the Union
for consideration of the bill (H.R. 4059) making appropriations for military
construction, family housing, and base realignment and closure for the
Department of Defense for the fiscal year ending September 30, 1999, and
for other purposes. The first reading of the bill shall be dispensed with.
General debate shall be confined to the bill and shall not exceed one hour
equally divided and controlled by the chairman and ranking minority
member of the Committee on Appropriations. After general debate the bill
shall be considered for amendment under the five-minute rule. Points of
order against provisions in the bill for failure to comply with clause 2 or 6
of rule XXI are waived. During consideration of the bill for amendment,
the Chairman of the Committee of the Whole may accord priority in
recognition on the basis of whether the Member offering an amendment has
caused it to be printed in the portion of the Congressional Record
designated for that purpose ...
(1)Although appropriations bills are privileged in the House and can be taken
up at any time, their consideration typically is preceded by the adoption of
a special rule (in the form of a simple House resolution) waiving certain
points of order that otherwise would apply and establishing other terms for
consideration. The House acts first on the rule and then, if the rule is
adopted, considers the appropriations bill.
(2)The appropriations bill which was the subject of this rule did not involve
any violations of the 1974 Congressional Budget Act, but it did violate
House Rule XXI, which, among other things, bars unauthorized
appropriations and legislation in appropriations bills. The rule exhibited
here waived any points of order under Clauses 2 or 6 of the House rule.
(3)Note that the waivers pertain to the entire measure. In the past, rules used
to protect only particular portions of the appropriations bill, which were
specified by page and line numbers.
(4)Pursuant to the rule, Members who have their amendments printed
beforehand in the Congressional Record may be recognized first.
Source: House Resolution 477, 105th Congress (see the Congressional
Record of June 19, 1998, at page H 4843).

Exhibit 7-E.
Statement of Administration Policy
This Statement of Administration Policy provides the Administration’s views on
the Department of Defense Appropriations Bill, FY 1999, as reported by the
House Appropriations Committee. Your consideration of the Administration’s
views would be appreciated.
The Committee has developed a bill providing requested funding for many of the
Administration’s priorities. We appreciate the Committee’s decision to fully fund
the military pay raise and to fund critical readiness programs at sufficient levels.
Also, we are pleased that most of the modernization priorities of the Department
of Defense (DoD) are funded at or near requested levels. The Administration,
however, is disappointed that the Committee bill, based on OMB’s preliminary
scoring, provides $255 million below the President’s request in order to increase
funding for lower priority military construction projects ....
The Administration strongly opposes any provision in the House version of the bill
that could be read to require prior congressional authorization of actions taken by
the President pursuant to his authority under the Constitution. The President must
be able to act decisively to protect U.S. national security and foreign policy
interests. This provision would send the wrong signal to the world, including
U.S. resolve regarding Iraqi compliance with its obligations with respect to
weapons of mass destruction, the SFOR operation in Bosnia, and efforts to deter
Serbian President Milosevic from attacks on the people of Kosovo. The
President’s senior national security advisers would recommend veto of a bill with
a provision such as this one that could be interpreted to restrict the President’s
exercise of constitutional authority.
(1)A Statement of Administration Policy (SAP) is issued for each annual
appropriations bill at each stage of congressional action. It typically
enumerates Administration objections to provisions in the appropriations
bill, which may include funding increases above the President’s request,
restrictions on the use of the funds, legislative provisions inserted in the
bill, or other variances between congressional and executive priorities.
(2)This SAP is for the FY1999 Defense appropriations act as reported by the
House Appropriations Committee. The excerpt shown here focuses on the
Administration’s position on the bill generally; specific funding issues
involving more than a dozen different programs also were discussed.
(3) SAPs sometimes state that a bill will be vetoed if objectionable provisions
are not removed; instead, it usually declares that OMB (or some other
executive agency) will recommend a veto. The explicitness of the veto
threat varies with the level of the Administration’s objections.
Source: Office of Management and Budget, Statement of Administration
Policy: H.R. 4103—Department of Defense Appropriations Bill, FY1999, June

24, 1998 (available at:

Exhibit 7-F.
Sequence of Senate Action on Appropriations Measures
!Waiver Motion (if necessary)
The 1974 Congressional Budget Act prohibits the consideration of legislation
in the Senate (as well as the House) if certain procedural or substantive
requirements would be violated. In the Senate, these prohibitions may be set aside
by unanimous consent or by the adoption of a waiver motion. While the Budget
Enforcement Act is in effect, many of these prohibitions may be waived only by
the affirmative vote of three-fifths of the membership.
!Unanimous Consent Agreement
Major legislation in the Senate often is considered under a unanimous
consent agreement (sometimes referred to as a time limitation agreement) which
may limit the amount of time that the measure can be debated, restrict
amendments, or otherwise expedite consideration. The unanimous consent
agreement usually is propounded by the majority leader.
!Managers’ Statements
The chairman and ranking minority member of the relevant Appropriations
subcommittee provide an overview of the bill, usually comparing the amounts in
it to the previous year’s level, the President’s request, and the House-passed bill.
!Committee Amendments
Changes recommended by the Senate Appropriations Committee to the
House-passed bill are usually voted on en bloc (all together) and approved by
voice vote. This procedure pertains only to appropriations bills considered by the
Senate after the House has acted.
!Floor Amendments
Unlike the House, the entire appropriations bill is open to floor amendment
at any time during Senate consideration. However, the time limitation agreement
sometimes specifies the sequence in which amendments are to be taken up.
!Points of Order
Points of order also may be raised at any time. When a point of order is
made that an item is legislation on an appropriations bill, another member may
raise the defense of germaneness. If this occurs, the Senate decides the question
and if the item is deemed to be germane, the original point of order falls.
!Final Passage
After all amendments have been disposed of (or when the time for vote on
final passage stipulated in the time limitation agreement arrives), the Senate votes
on the bill. Some appropriations bills are agreed to by voice—rather than
recorded—vote in the Senate.

Exhibit 7-G.
Unanimous Consent Agreements on Appropriations Bills
4.—Ordered, That when the Senate receives from the House the IMF
Supplemental Appropriations Bill, the Senate proceed to its immediate
consideration; that all after the enacting clause be stricken; that the text of
the IMF title of S. 1768 be inserted in lieu thereof; that the bill be advanced
to third reading and passed; and that the motion to reconsider be laid upon
the table, all without further action or debate.
Ordered further, That the Senate insist on its amendment, request a
conference with the House on the disagreeing votes thereon, and that the
Chair be authorized to appoint conferees on the part of the Senate, all
occurring without further action or debate. (Mar. 26, 1998.)
(1)In March 1998, the Senate initiated action on an omnibus supplemental
appropriations bill (S. 1768) providing funds for responses to natural
disasters, peacekeeping operations of the Defense Department, the
International Monetary Fund (IMF), and other matters. The Senate
finished consideration and amendment of the bill on the floor, but stopped
short of final passage; it waited to receive a House-numbered bill in order
to adhere to the practice of the House “originating” appropriations bills.
(2)Shortly thereafter, the House passed an omnibus supplemental
appropriations bill, but it excluded the IMF funding. The Senate quickly
passed the bill without the IMF funding; after conference action with the
House, it was sent to the President and signed into law.
(3)The unanimous consent agreement shown here provides for the immediate
disposition of a House-passed bill providing supplemental appropriations
for the IMF. It requires that the IMF-related text of S. 1768, which the
Senate passed earlier, be incorporated into the House-passed bill as a
complete substitute and that the Senate then go directly to conference with
the House.
Source: U.S. Senate, Calendar of Business, Monday, July 10, 1998, page 2.

Exhibit 7-H.
Numbered Senate Amendments

11 For construction, improvements, repair or replace-

12ment of physical facilities¥25¦, including the modifica-

13tions authorized by section 104 of the Everglades Na-

14tional Park Protection and Expansion Act of 1989,

15¥26¦$148,391,000 $173,444,000 to remain available until

16expended¥27¦: Provided, That $500,000 for the Ruther-

17ford B. Hayes Home and $600,000 for the Sotterly Plant-

18ation House shall be derived from the Historic Preserva-

19tion Fund pursuant to 16 U.S.C. 470A:

(1)The Senate does not initiate its own appropriations bill. Instead, it amends
the House-passed appropriations bill.
(2)The numbers shown here in bolded parentheses (25, 26, and 27) designate
Senate amendments to the House-passed appropriations bill. These
amendments are numbered sequentially and are referred to in the
conference report on the appropriations bill (see next exhibit).
(3)The lined-out text immediately following the number is the House-passed
language struck by the Senate. The italicized text is language inserted by
the Senate. The remaining text is the House-passed language to which the
Senate made no changes.
(4)The Senate may change the amount appropriated and any provision or
other material in the House-passed appropriations bill.
Source: H.R. 2107 (105th Congress), Department of the Interior
Appropriations Act for Fiscal Year 1998, as ordered to be printed with the
amendments of the Senate numbered, September 19, 1997, page 17.

The conference to resolve differences in the measures passed by the two
chambers considers each of the numbered amendments (see Exhibit 7-I). Some
matters resolved by the conferees may be excluded from the conference report as
amendments in disagreement. In nearly all instances, the “disagreement” is merely
technical and the language is excluded only to protect the conference report from a
potential point of order; the amendments in disagreement are considered immediately
after the conference report has been agreed to and usually are disposed of routinely.
Congressional action on a measure is not complete until both the House and Senate
have successfully completed action on all numbered amendments.
Continuing Appropriations
Continuing appropriations measures (often called continuing resolutions) have
become increasingly important during the past two decades and their scope has
become much broader than was the case in earlier years. In some years, the major
continuing appropriations act has covered all of the regular appropriations bills for
that year. Moreover, rather than providing interim funding until the regular
appropriations bills are enacted, some continuing resolutions have provided funds for
the entire fiscal year. When this occurs, the continuing resolution becomes an
omnibus appropriations act for the fiscal year. Exhibit 7-J displays a portion of a
continuing resolution.
This development has been accompanied by two other changes in the character
of continuing appropriations. First, these measures frequently provide funding at
levels other than a “continuation rate.” Some recent continuing resolutions have
contained the full text of regular appropriations bills, or have incorporated these bills
by reference to the version passed by the House or Senate, or agreed to in conference.
Some have specified definite amounts for particular programs or accounts in the same
manner as is done in regular appropriations bills.
Second, continuing resolutions have been increasingly used to enact substantive
legislation. The opportunity to do so is based in part on the fact that they are not
deemed to be general appropriations bills in the House (and, therefore, the
requirement that appropriations and authorizing legislation be in separate measures
does not apply to them). The manner in which these measures are considered—late
in the session and with the threat that government agencies will have to suspend
operations if funds are not speedily provided—invites use of the continuing resolution
as a vehicle for substantive legislation.
Interpreting Appropriations Measures
Appropriations are vital to the ongoing operations of federal agencies. In the
course of conducting their activities, agencies have to know not only how much
money they have to spend, but also any restrictions on the use of funds and directives
as to what the money should be used for. The text of the appropriations act will offer
some guidance, but it will not be sufficiently detailed to cover all the issues facing

Exhibit 7-I.
Conference Action on Appropriations Measures
[To accompany H.R. 2107]
The committee of conference on the disagreeing votes of the two Houses on
the amendments of the Senate to the bill (H.R. 2107) “making appropriations for
the Department of the Interior and Related Agencies, for the fiscal year ending
September 30, 1998, and for other purposes” having met, after full and free
conference, have agreed to recommend and do recommend to their respective
Houses as follows:
That the Senate recede from its amendments numbered 4, 6, 7, 13, 28, 30, 35,

40, 54, 61, 91, 95, 106, 131.

That the House recede from its disagreement to the amendments of the Senate
numbered 2, 5, 10, 16, 18, 20, 25, 31, 33, 38, 39, 41, 44, 45, 46, 47, 48, 49, 52,

53, 56, 58, 59, 60, 62, 63, 64, 66, 71, 72, 73, 75, 76, 79, 85, 86, 92, 94, 100, 107,

112, 113, 116, 117, 119, 120, 122, 123, 125, 126, 127, 133, 135, 139, 140, 141,

145, 147, 148, 149, 154, 155, 159, 160, and 161; and agree to the same.

Amendment numbered 1:
That the House recede from its disagreement to the amendment of the Senate
numbered 1, and agree to the same with an amendment, as follows:
In lieu of the sum proposed by said amendment insert: $583,270,000; and the
Senate agree to the same.
(1)The numbered amendments referenced in the conference reports are the
changes made by the Senate (in the committee or on the floor) in the
amount or language of the House-passed appropriations measure. These
amendments are numbered consecutively and appear in the version of the
measure as passed by the Senate.
(2)To interpret the conference report, one must have both a copy of the
conference report and the Senate-passed version of the bill. The
Senate-passed bill contains both the House-passed language and the Senate
amendments, and the conference report contains any compromise
(3)The conference can resolve House-Senate differences by dropping the
Senate amendments (for example, amendments numbered 4 and 6 in the
exhibit), adopting the Senate amendments (amendments numbered 2 and
5), or revising the amendments with further amendments that constitute
compromises (amendment numbered 1).
(4)Congressional action on a measure is not complete until both the House
and Senate have successfully disposed of all numbered amendments.
Source: H.Rept. 105-337 (conference report to accompany H.R. 2107,
Department of the Interior Appropriations Act for Fiscal Year 1998), October 22,

1997, page 1.

Exhibit 7-J.
Continuing Appropriations
Joint Resolution
Making continuing appropriations for the fiscal year 1998, and for other purposes.
Resolved by the Senate and House of Representatives of the United States of
America in Congress assembled, That the following sums are hereby appropriated,
out of any money in the Treasury not otherwise appropriated, and out of applicable
corporate or other revenues, receipts, and funds, for the several departments, agencies,
corporations, and other organizational units of Government for the fiscal year 1998,
and for other purposes, namely:
Sec. 101. (a) Such amounts as may be necessary under the authority and
conditions provided in the applicable appropriations Act for the fiscal year 1997 for
continuing projects or activities including the costs of direct loans and loan guarantees
(not otherwise specifically provided for in this joint resolution) which were conducted
in the fiscal year 1997 and for which appropriations, funds, or other authority would
be available in the following appropriations Acts:
(1) the Agriculture, Rural Development, Food and Drug
Administration, and Related Agencies Appropriations Act, 1998;
(2) the Departments of Commerce, Justice, and State, the Judiciary,
and Related Agencies Appropriations Act, 1998, notwithstanding section

15 of the State Department Basic Authorities Act of 1956 ...;

* * * * * *
Sec. 106. Unless otherwise provided for in this joint resolution or in the
applicable appropriations Act, appropriations and funds made available and authority
granted pursuant to this joint resolution shall be available until: (1) enactment into law
of an appropriation for any project or activity provided for in this joint resolution; or
(2) the enactment into law of the applicable appropriations Act by both Houses
without any provision for such project or activity; or (3) October 23, 1997, whichever
(1)A continuing appropriations act (often referred to as a “continuing
resolution”) is enacted for agencies that have not received their regular
appropriation for a fiscal year. It has the same legal effect as a regular
appropriations act but may be in effect for only part of the fiscal year.
(2)The continuing resolution specifies the regular appropriations measures
covered (in this case, two of the 13 covered by this resolution are shown).
(3)The continuing resolution is superseded by enactment of the regular
appropriations bills. In this case, the continuing resolution expired on
October 23. Although all 13 of the regular appropriations bills eventually
were enacted separately that year, five more continuing resolutions were
enacted in October and November.
Source: Public Law 105-46, Continuing Appropriations Act for Fiscal Year

1998, September 30, 1997 (111 Stat. 1153-1158).

an agency. In addition to reviewing the act, an agency must consult authorization
law, the supporting material submitted in justification of its budget request, and
relevant reports of the Appropriations Committees.
The Structure and Content of Appropriations Measures. Regular
appropriations acts contain a number of features. These include the enacting clause,
which designates the fiscal year for which the appropriations are made, the
appropriation for each account, including any provisions attached to it, and the
general provisions. Some of these features are displayed in Exhibits 7-K, 7-L, and


The basic unit of an appropriation is an account. A single unnumbered
paragraph in an appropriations act comprises one account and all provisions of that
paragraph pertain to that account and to no other, unless the text expressly gives them
broader scope. Any provision limiting the use of funds enacted in that paragraph is
a restriction on that account alone.
Over the years, appropriations have been consolidated into a relatively small
number of accounts. It is typical for a federal agency to have a single account for all
its expenses of operation and additional accounts for other purposes such as
construction. Accordingly, most appropriation accounts encompass a number of
activities or projects. The appropriation sometimes earmarks specific amounts to
particular activities within the account, but the more common practice is to provide
detailed information on the amounts intended for each activity in other sources
(principally the committee reports accompanying the measures).
In addition to the substantive limitations (and other provisions) associated with
each account, each appropriations act has “general provisions” that apply to all of the
accounts in a title or in the whole act. These general provisions appear as numbered
sections, usually at the end of the title or the act.
The standard appropriation is for a single fiscal year—the funds have to be
obligated during the fiscal year for which they are provided; they lapse if not obligated
by the end of that year. An appropriation that does not mention the period during
which the funds are to be available is a one-year appropriation. Congress also makes
no-year appropriations by specifying that the funds shall remain available until
expended. No-year funds are carried over to future years, even if they have not been
obligated. Congress sometimes makes multiyear appropriations which provide for the
funds to be available for two or more fiscal years. Exhibit 7-N shows appropriations
with different periods of availability.
Appropriations measures also contain other types of provisions that serve
specialized purposes. These include provisions that liquidate (pay off) obligations
made pursuant to backdoor contract authority; reappropriate funds provided in
previous years; transfer funds from one account to another; rescind funds (or release
deferred funds); or set ceilings on the amount of obligations that can be made under
permanent appropriations, on the amount of direct or guaranteed loans that can be
made, or on the amount of administrative expenses that can be incurred during the
fiscal year. Exhibit 7-O offers examples of provisions in appropriations acts that limit
the amount of resources provided.

Exhibit 7-K.
Structure of a Regular Appropriations Act
An Act
Making appropriations for the Department of Transportation and related agencies for thefiscal year ending September 30, 1998, and for other purposes.
Enacting Clause
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That the following sums are appropriated, out
of any money in the Treasury not otherwise appropriated, for the Department of
Transportation and related agencies for the fiscal year ending September 30, 1998,
and for other purposes, namely:
Appropriations to Specified Accounts
Salaries and Expenses
For necessary expenses of the Office of the Secretary, $61,000,000, of which
not to exceed $40,000 shall be available as the Secretary may determine for allocation
within the Department for official reception and representation expenses: Provided,
That notwithstanding any other provision of law, there may be credited to this
appropriation up to $1,000,000 in funds received in user fees: Provided further, That
none of the funds appropriated in this Act or otherwise made available may be used
to maintain custody of airline tariffs that are already available for public and
departmental access at no cost; to secure them against detection, alteration, or
tampering; and open to inspection by the Department.
General Provisions
Sec. 307. None of the funds appropriated in this Act shall remain available for
obligation beyond the current fiscal year, nor may any be transferred to other
appropriations, unless expressly so provided herein.
(1)An appropriations act has three main components: (a) the enacting clause
(which specifies the fiscal year for which the appropriations are made), (b)
appropriations to specified accounts, and (c) general provisions.
(2)Each unnumbered paragraph is a separate appropriation account.
Provisions in this paragraph pertain only to this account.
(3)The general provisions (which may limit the use of funds or contain new
legislation) are numbered sections. These provisions apply to all accounts
in the title or in the entire act, as specified.
Source: Public Law 105-66, Department of Transportation Appropriations
Act for Fiscal Year 1998, October 27, 1997 (111 Stat. 1425-1451).

Exhibit 7-L.
Structure of an Appropriations Account
Federal Bureau of Investigation
For necessary expenses of the Federal Bureau of Investigation for detection,
investigation, and prosecution of crimes against the United States; including purchase
for police-type use of not to exceed 3,094 passenger motor vehicles, of which 2,270
will be for replacement only, without regard to the general purchase price limitation
for the current fiscal year, and hire of passenger motor vehicles; acquisition, lease,
maintenance, and operation of aircraft; and not to exceed $70,000 to meet unforeseen
emergencies of a confidential character, to be expended under the direction of, and to
be accounted for solely under the certificate of, the Attorney General, $2,750,921,000;
of which not to exceed $50,000,000 for automated data processing and
telecommunications and technical investigative equipment and not to exceed
$1,000,000 for undercover operations shall remain available until September 30, 1999;
of which not less than $221,050,000 shall be for counterterrorism investigations,
foreign counterintelligence, and other activities related to our national security; of
which not to exceed $98,400,000 shall remain available until expended; of which not
to exceed $10,000,000 is authorized to be made available for making advances for
expenses arising out of contractual or reimbursable agreements with State and local
law enforcement agencies while engaged in cooperative activities related to violent
crime, terrorism, organized crime, and drug investigations; and of which $1,500,000
shall be available to maintain an independent program office dedicated solely to the
relocation of the Criminal Justice Information Services Division and the automation
of fingerprint identification services: Provided, That not to exceed $45,000 shall be
available for official reception and representation expenses: Provided further, That
no funds in this Act may be used to provide ballistics imaging equipment to any State
or local authority which has obtained similar equipment through a Federal grant or
subsidy unless the State or local authority agrees to return that equipment or to repay
that grant or subsidy to the Federal Government.
(1)This entire paragraph comprises a single appropriation account; all
provisions in the paragraph pertain only to this account.
(2)The first part of the paragraph sets forth the purposes for which the funds
are provided and the total amount appropriated ($2,750,921,000).
Virtually all appropriations are for definite amounts. A lump sum is
provided for the entire account, but committee reports accompanying the
bill and other documents specify the particular activities funded by the
(3)The remainder of the paragraph consists of several earmarks to specific
purposes and two provisos which limit the use of appropriated funds.
Source: Public Law 105-119, Commerce-Justice-State
Appropriations Act for Fiscal Year 1998, November 26, 1997 (111
Stat. 2440-2526).

Exhibit 7-M.
Other Types of Appropriations Accounts
Liquidation of Contract Authorization
Mass Transit Capital Fund
For payment of obligations incurred in carrying out 49 U.S.C. 5338(b)
administered by the Federal Transit Administration, $2,350,000,000, to be derived
from the Highway Trust Fund and to remain available until expended.
Environmental Restoration, Navy
For the Department of the Navy, $275,500,000 to remain available until
transferred: Provided, That the Secretary of the Navy shall, upon determining that
such funds are required for environmental restoration ... transfer the funds made
available by this appropriation to other appropriations made available to the
Department of the Navy, to be merged with and to be available for the same purposes
and for the same time period as the appropriations to which transferred: Provided
further, That upon a determination that all or part of the funds transferred from this
appropriation are not necessary for the purposes provided herein, such amounts may
be transferred back to this appropriation.
Offsetting Collections
Copyright Office
For necessary expenses of the Copyright Office, including publication of the
decisions of the United States courts involving copyrights, $34,361,000, of which not
more than $17,340,000 shall be derived from collections credited to this appropriation
during fiscal year 1998 under 17 U.S.C. 708(d), and not more than $5,086,000 shall
be derived from collections during fiscal year 1998 under 17 U.S.C. 111(d)(2), ... and
1005: Provided: That the total amount available for obligation shall be reduced by
the amount by which collections are less than $22,426,000: ...
(1)A “liquidating appropriation” does not provide new budget authority;
rather, it pays off (liquidates) an existing contractual obligation. The
budget authority was provided beforehand by direct spending legislation.
(2)The next provision directs the Navy Secretary to transfer funds from this
account to other Navy accounts. Budget authority in the receiving account
is increased while budget authority in the source account is reduced.
(3)When offsetting collections can be credited to a particular account, they
add to the resources that may be obligated for that account. In this exhibit,
about $22 million of the $34 million made available to the Copyright
Office for FY1998 is derived from offsetting collections.
Source: Public Law 105-66, Transportation Appropriations Act for Fiscal
Year 1998, October 27, 1997 (111 Stat. 1439); Public Law 105-56, Defense
Appropriations Act for Fiscal Year 1998, October 8, 1997 (111 Stat. 1209); and
Public Law 105-55, Legislative Branch Appropriations Act for Fiscal Year 1998
(111 Stat. 1192).

Exhibit 7-N.
Availability of Funds
One-Year Funds
United States Parole Commission
For necessary expenses of the United States Parole Commission as authorized by
law, $5,009,000.
Multi-year Funds
Military Construction, Air Force Reserve
For construction, acquisition, expansion, rehabilitation, and conversion of
facilities for the training and administration of the Air Force Reserve as authorized by
chapter 133 of title 10, United States Code, and Military Construction Authorization
Acts, $30,243,000, to remain available until September 30, 2002.
No-Year Funds
North Atlantic Treaty Organization
Security Investment Program
For the United States share of the cost of the North Atlantic Treaty Organization
Security Investment Program for the acquisition and construction of military facilities
and installations (including international military headquarters) and for related expenses
for the collective defense of the North Atlantic Treaty Area as authorized in Military
Construction Authorization Acts and section 2806 of title 10, United States Code,
$152,600,000, to remain available until expended.
(1)Appropriations differ in the period for which the budget authority is
available for obligation. The three excerpts displayed here are one-year,
multi-year, and no-year appropriations.
(2)Appropriations typically are available for a single fiscal year, but may be
made available for shorter or longer periods if the text expressly so
provides. One-year funds lapse if they are not obligated by the end of the
fiscal year for which they were provided.
(3)The provision for Air Force Reserve construction extends appropriations
in a FY1998 act through FY2002—four fiscal years beyond the fiscal year
for which the appropriation was made. Although the funds are available
for five fiscal years, the entire appropriation is counted in FY1998.
(4)The phrase “to remain available until expended” provides “no-year” funds
which do not have to be obligated in a particular fiscal year.
Source: Public Law 105-119, Commerce-Justice-State Appropriations Act
for Fiscal Year 1998 (111 Stat. 2440-2526) and Public Law 105-45, Military
Construction Appropriations Act for Fiscal Year 1998 (111 Stat. 1142-1152).

Exhibit 7-O.
Limitations on Amount
Highway Trust Fund
None of the funds in this Act shall be available for the implementation or
execution of programs the obligations for which are in excess of $21,500,000,000 for
Federal-aid highways and highway safety construction programs for fiscal year 1998.
Credit Activity
Bureau of Reclamation Loan Program Account
For the cost of direct loans and/or grants, $10,000,000, to remain available until
expended, as authorized by the Small Reclamation Projects Act of August 6, 1956, as
amended (43 U.S.C. 422a-422l): Provided, That such costs, including the cost of
modifying such loans, shall be as defined in section 502 of the Congressional Budget
Act of 1974: Provided further, That these funds are available to subsidize gross
obligations for the principal amount of direct loans not to exceed $31,000,000.
Administrative Expenses
Social Security Administration
Limitation on Administrative Expenses
For necessary expenses, including the hire of two passenger motor vehicles, and
not to exceed $10,000 for official reception and representation expenses, not more than
$5,894,040,000 may be expended, as authorized by section 201(g)(1) of the Social
Security Act, from any one or all of the trust funds referred to therein: ...
(1)The first provision shown here establishes an “obligation limitation” for
the fiscal year. This type of limitation is used for programs financed by
trust funds. The limitation effectively sets a cap on the amount of the trust
funds that can be obligated during the fiscal year.
(2)Credit activity is controlled primarily by the Federal Credit Reform Act of
1990 (which is Title V of the 1974 Congressional Budget Act). In this
example, an appropriation of $10 million is provided to the Bureau of
Reclamation for the subsidy costs of its direct loans. The appropriation is
supplemented by a $31 million limit on gross direct loan obligations.
(3)Budget authority sometimes is provided in the form of a limitation on
administrative expenses. This form of limitation is used for an
account—such as Social Security—which is financed by a permanently
appropriated trust fund. Without the limitation, the agency would not be
limited in the amount that it could spend on administrative expenses.
Source: Public Law 105-66, Transportation Appropriations Act for Fiscal
Year 1998, October 27, 1997 (111 Stat. 1431); Public Law 105-62, Department
of Interior Appropriations Act for Fiscal Year 1998, October 13, 1997 (111 Stat.
1329); and Public Law 105-78, Labor-HHS-Education Appropriations Act for
Fiscal Year 1998, November 13, 1997 (111 Stat. 1513).

In addition to providing funds, appropriations acts often contain substantive
limitations on government agencies. Rulings in the House and Senate have held that
certain limitations (examples of which are in Exhibit 7-P) may be included in
appropriations measures.
Impact of Authorization Law. In the previous chapter, it was noted that
appropriations must be spent according to the terms and conditions set in
authorization law. It does not suffice to review the appropriations act and any
pertinent legislative history; one must also examine relevant substantive law. In many
instances, the relationship between the authorizations and appropriations laws is
straightforward, but there are instances where the two laws conflict or where the
authorizing statute is silent. A particularly difficult complication arises when the
report on the appropriations bill specifies a somewhat different pattern of expenditure
than is prescribed in substantive law.
In sorting out conflicts between the two sets of law, one should keep in mind
that seemingly slight differences in wording can spawn major differences in legal
interpretation. Hence, one should not draw conclusions about how appropriated
funds are to be spent without reviewing the actual text of appropriations and
authorization law.
Budget Justifications. Although appropriations accounts often span many
activities, each agency supplements account-level data with detailed budget
justifications. While agencies have discretion to vary their actual expenditures from
the detailed supporting schedules, the Appropriations Committees expect them to
adhere to their justifications to the extent practicable. When an agency shifts funds
from one program to another in the same account, it must go through the
reprogramming procedures discussed in Chapter 8. Less significant changes are
handled informally, or by the agency unilaterally, but there has been a pronounced
trend for Congress to hold agencies more closely to the spending patterns set forth
in their budget justifications.
Appropriations Committee Reports. Detailed information on how funds
are to be spent, along with other directives or guidance, is provided in the reports
accompanying the various appropriations measures (see Exhibits 7-Q and 7-R).
Agencies ordinarily abide by report language in spending the funds appropriated by
The appropriations reports do not comment on every item of expenditure.
Report language is most likely when the Appropriations Committee prefers to spend
more or less on a particular item than the President has requested or when the
committee wants to earmark funds for a particular project or activity. When a
particular item is mentioned by the committee, there is a strong expectation that the
agency will adhere to the instructions.

Exhibit 7-P.
Limitations on Use of Appropriated Funds
Limitation by Account
Office of Management and Budget
For necessary expenses of the Office of Management and Budget ...
$57,444,000 ... Provided further, That none of the funds appropriated in this Act for
the Office of Management and Budget may be used for the purpose of reviewing any
agricultural marketing orders or any activities or regulations under the provisions of
the Agricultural Marketing Agreement Act of 1937 ....
Limitation by Act
Title V—General Provisions
Sec. 513. No funds appropriated by this Act shall be available to pay for an
abortion, or the administrative expenses in connection with any health plan under the
Federal employees health benefit program which provides any benefits or coverage
for abortions.
Governmentwide Limitation
Title VI—General Provisions
Sec. 630. No part of any appropriation contained in this or any other Act shall
be used for publicity or propaganda purposes within the United States not heretofore
authorized by the Congress.
(1)Although House (and until recently, Senate) rules bar legislation in general
appropriations bills, “limitations” (which preclude any use of the funds for
certain purposes) may be included in them. Limitations often begin with
the phrase, “Provided [or Provided further], That none of the funds ....”
(2)The scope of a limitation depends on its wording and placement in an
appropriations act. When placed in an unnumbered paragraph, the
limitation pertains only to the funds appropriated to that account, unless
the language of the limitation gives it a broader effect. In the first
example, none of the funds in the Executive Office Appropriations Act (part
of the FY1998 Treasury Appropriations Act) for the Office of Management
and Budget—not just in the OMB account—may be used to review
agricultural marketing orders or related activities ad regulations.
(3)Some limitations appear in the “general provisions” of appropriations
acts. The annual Treasury and General Government Appropriations Act,
unlike the other regular appropriations acts, contains both a general
provisions title pertaining to accounts covered by the act (in this example,
Title V) and another that is governmentwide in its application (Title VI).
Source: Public Law 105-61, Treasury and General Government
Appropriations Act for Fiscal Year 1998 (111 Stat. 1293, 1305, and 1315).

Exhibit 7-Q.
Committee Report: Account and Program Amounts
Salaries and Expenses
The Committee recommends $2,886,065,000 for the Federal Bureau of
Investigation (FBI) for fiscal year 1998, which includes $179,121,000 from the
Violent Crime Reduction Trust Fund. This amount is $150,094,000 above the
appropriation for the current year and $6,804,000 below the request.
The Committee recommendation provides for adjustments to base, including
the cost of the 1998 pay raise. Included in this amount is $59,977,000 to
annualize and sustain 1,539 positions provided in the 1997 appropriation. The
Committee recommendation assumes all of these positions will be on-board, with
the exception of 300 support positions, by the end of the current fiscal year. In
addition, the recommendation includes $40,000,000 which may be deposited in
the Telecommunications Carrier Compliance Fund for the purpose of reimbursing
telecommunications carriers pursuant to the Communications Assistance for Law
Enforcement Act. The recommendation also provides for the following program
Counterterrorism.—The recommendation includes an increase of
$38,803,000 and 167 new agents to continue to build the FBI’s capability
to counter, investigate and prevent acts of terrorism. Included in this amount
+$27,227,000 and 245 positions (including 133 agents) for
counterterrorism activities; and
+$11,576,000 and 56 positions (including 34 agents) to establish new
Computer Investigative and Infrastructure Threat Assessment (CITAC)
Teams, to identify the nature and scope of the computer crime problem and
investigate significant intrusions or threats to major information
infrastructures or networks ...
(1)The reports on appropriations bills typically compare, for each account,
the amounts recommended by the committee with the amounts for the
current fiscal year and the President’s request.
(2)The Appropriations Committees often use report language to earmark
funds in an account to designated projects or activities; sometimes, the
committees insert earmarks into the text of the bill itself.
(3)Summary information on amounts provided by agency and account is
presented at the end of each committee report in the “Comparative
Statement of New Budget Authority.”
Source: House Report No. 105-207 (report of the House Appropriations
Committee to accompany H.R. 2267, Commerce-Justice-State Appropriations Act
for Fiscal Year 1998), July 25, 1997, page 22.

Exhibit 7-R.
Committee Report: Directives to Agencies
National Oceanic and Atmospheric Administration
NOAA Budgetary and Financial Management.—The Committee is concerned
about NOAA’s lack of progress in addressing the serious budgetary and financial
management problems which have been highlighted by this Committee for the last two
years. The Committee remains frustrated by NOAA’s inability to project its funding
requirements for any given fiscal year. Further, the Committee was disturbed to learn
of actions by some NOAA line offices which appeared to be deliberate attempts to
provide misleading information to the Committee regarding funding requirements....
In addition, the Committee is concerned that NOAA failed to respond to the
direction included in both the fiscal year 1996 and 1997 House Reports and Statement
of Managers of the conference reports ... to develop a revised budget structure that
displays the amounts requested under a true program office and activity structure....
Therefore, the Committee directs NOAA, through the Department of Commerce,
to take the following actions to improve its budgetary and financial management
practices: (1) submit to the Committee, not later than December 1, 1997, an operating
plan for expenditure of funds available to NOAA in fiscal year 1998 based on the
Committee’s distribution shown in the accompanying table, and report to the
Committee on a quarterly basis the status of obligations against the Committee’s
distribution; (2) provide a report to the Committee, not later than September 1, 1997,
as to the progress of development of a revised budget structure; and (3) provide to the
Committee a plan for implementing the independent auditor’s recommendations
regarding the presentation of its financial information.
(1)The report of the Appropriations Committee explains the committee’s
actions and provides guidance to the affected agency. Although report
language generally does not have legal effect, agencies normally heed the
directives to them in Appropriations Committee reports. These directives
may be positive—telling them how appropriated funds are to be spent, or
negative—instructing them not to undertake certain activities.
(2)The directives do not comment on all items in the appropriations bill. They
often concentrate on increases over the previous year’s level, or on matters
where their recommendation differs from the President’s budget request.
(3)The language used here to convey the committee’s position—”is
concerned”—is strong. The Appropriations Committees use other words
which may convey different meanings, such as “assumes”, “believes”,
“expects,” or “requests.” They often direct agencies to take certain
actions or to provide progress reports by specified dates.
Source: House Report No. 105-207 (report of the House Appropriations
Committee to accompany H.R. 2267, Commerce-Justice-State Appropriations Act
for Fiscal Year 1998), July 25, 1997, page 75.

The legal basis of managing and spending public funds is established by Congress
when it makes appropriations (and provides other forms of budget authority) and
when it enacts laws prescribing the rules and procedures for financial management.
This chapter discusses the legal basis of expenditure management, including ongoing
efforts to improve financial management and the efficiency with which federal
agencies use resources.
Implementation of Spending Laws
The federal government has a decentralized system of expenditure management.
The size of the federal government and the diversity of its activities preclude the
maintenance of a centralized operation in which all major financial decisions are made
at a single command post. OMB has year-round responsibility in overseeing the
expenditure of funds, but after it has apportioned funds to agencies, OMB’s role is
necessarily limited and selective. On any particular matter, OMB can intervene to
influence the use of money, but most expenditure decisions are made by the spending
agency itself, with little specific guidance from OMB.
In a decentralized environment for expenditure management, agencies receiving
appropriations and other financial resources from Congress have primary
responsibility to ensure the legality and propriety of expenditures. Agencies generally
make their own determination on these matters, but they sometimes consult with
GAO, which serves as the principal accounting and auditing arm of the federal
government. In addition, GAO often undertakes studies and evaluations on its own
initiative to determine whether financial resources have been managed in an
appropriate and efficient manner. (Box 8-A lists the main financial management roles
and responsibilities in the federal government.)
Spending Available Funds. Appropriated funds are not automatically
available to agencies for their use. A key step in making these funds available is for
OMB to apportion them to spending agencies. The Antideficiency Act requires that
appropriated funds be apportioned among time periods (usually quarters) during the
fiscal year or among the projects on which the funds are to be spent in order for them
to become available for obligation. The purpose of the apportionment process is to
prevent agencies from spending at a rate that would exhaust their appropriations
before the fiscal year has been completed. In some instances (such as for national
defense and some other emergencies), the Antideficiency Act permits apportionment
at a rate that would necessitate additional appropriations.
The apportionment process is managed by OMB, using the standard form
excerpted in Exhibit 8-A. Agency requests for apportionment are reviewed by

Box 8-A.
Major Financial Management Roles and Responsibilities

BudgetAudit andFinancial manage-
Entityexecutionevaluationment systems
CongressActs onImposes reportingEstablishes account
supplementals,requirements; conductsstructure; legislates
impoundments, andoversight; requestspolicy on financial
reprogrammings;audits and evaluationsmanagement systems
sometimes monitorsfrom GAO and others.and practices.
activities or
Office ofApportions budgetReviews agencyIssues directives on
Managementresources; maintainsspending andinternal control,
and BudgetFTE controls;programs; focuses onaccounting rules, and
monitors agencyhigh-risk areas;other management
performance.promotes performancepractices; oversees
measurement.CFO and GPRA
AgenciesSpend resources andConduct internalDesign and use
carry out activities;audits and evaluations;financial management
report to Congress,respond tosystems; maintain
OMB, and others.congressional andinternal controls;
executive requests;report on material
measure performanceweaknesses.
and results.
TreasuryManages cash andNone.Maintains
Departmentdebt; matchesgovernment-wide
spending againstaccounting system.
GeneralReviews and reportsReviews programs andApproves agency
Accountingon impoundments;operations; auditsaccounting systems;
Officesettles certainfinancial statements ofadvises Congress on
claims.governmentmaterial weaknesses in
corporations.internal control
Agency chiefMonitors financialPrepares auditablePromotes integration
financialexecution of statements,of accounting and
officerincluding data onbudgeting systems.
InspectorNone.Audits financialRecommends changes
generalstatements;to improve systems and
investigates spendingperformance.
and other actions.
FederalNone.None.Formulates accounting
Accountingstandards and
Standards principles.

Exhibit 8-A.
Apportionment Procedures
Standard Form 132
AgencyAppropriation of Fund Title and Symbol
DescriptionAmount onAgencyAction by
Latest S.F. 132RequestOMB
Budgetary Resources
1. Budget authority
A. Appropriations
B. Borrowing authority
C. Contract authority
D. Net transfers...
E. Other
* * * * * *
7. Total budgetary resources
Application of Budgetary Resources
8. Apportioned
Category A:
(1) First quarter
(2) Second quarter
(3) Third quarter
(4) Fourth quarter...
(1)The Antideficiency Act requires the apportionment of appropriated funds
as a means of preventing agencies from incurring obligations at a rate that
would compel Congress to provide additional funds during the fiscal year.
Apportionment is a process by which agencies request, and OMB divides,
appropriated funds by time periods or projects. The President must notify
Congress of all proposed rescissions or deferrals.
(2)A single apportionment is made for an entire appropriation or fund
account (using Standard Form 132). OMB does not generally exercise
formal control—except through the impoundment process—below the
account level, but it has other informal means of influencing agency
expenditures and activities.
(3)The top part of this schedule itemizes the resources available for
apportionment. These may come from a number of sources: new
appropriations, permanent appropriations, other sources of budget
authority, and transfers to and from other accounts. The amount
apportioned may not exceed the total of these resources.
(4)Category A apportionments divide funds by fiscal year quarters; category
B apportionments (not shown here) are made by projects or activities.
Source: Office of Management and Budget, Standard Form 132.

OMB; any funds withheld from apportionment must be reported to Congress under
the procedures of the Impoundment Control Act of 1974 (discussed below).
A key requirement of expenditure management is that funds be used only for the
purposes for which they were provided. This requirement is embodied in a number
of statutes (excerpts of which are presented in Box 8-B) which provide that
expenditures and obligations may not exceed the appropriated amounts and that funds
shall be applied only to the objects for which they were appropriated. Another
fundamental tenet is that funds be used only for public purposes. The distinction
between public and private is not always clear, and GAO sometimes is called upon to
render a decision on whether a particular expenditure is allowable (see Exhibit 8-B).
Box 8-B.
Restrictions on the Use of Funds
Title 31, United States Code
Sec. 1301. Application
(a) Appropriations shall be applied only to the objects for which the
appropriations were made except as otherwise provided by law.
(b) The reappropriation and diversion of the unexpended balance of an
appropriation for a purpose other than that for which the appropriation originally
was made shall be construed and accounted for as a new appropriation. The
unexpended balance shall be reduced by the amount to be diverted....
Sec. 1341. Limitations on expending and obligating amounts
(a)(1) An officer or employee of the United States Government or of the
District of Columbia government may not -
(A) make or authorize an expenditure or obligation exceeding an amount
available in an appropriation or fund for the expenditure or obligation;
(B) involve either government in a contract or obligation for the
payment of money before an appropriation is made unless authorized by
The obligation of funds is a key point in expenditure management. An obligation
represents a legal commitment by an agency of the government to another party; as
shown in Box 8-C, each obligation has to be supported by documents attesting to the
commitment of funds. Once the goods or services for which the funds have been
obligated have been provided, the ensuing outlay normally is a matter of
administrative routine. Obligated funds carry over from year to year, even when the
appropriation is made for a single fiscal year.
Although they are not usually an effective point of financial control, outlays are
an essential part of the financial management process. For one thing, the timing of
outlays is important for cash and debt management by the Treasury Department; for
another, the difference between outlays and receipts determines the size of the budget
deficit (or surplus). As concern over the budget deficit deepened in the 1980s and
early 1990s, closer attention was paid to the volume of outlays. Some

Exhibit 8-B.
GAO Decisions on the Legality of Expenditure
DecisionThe Comptroller General
of the United States
File: B-215640Date: January 14, 1985
Matter of: Purchase of Heavy-Duty Office Chair
This decision is in response to a request from the Department of the Navy
for a decision as to whether the agency is authorized to purchase a heavy-duty
chair for an employee for his use in performing official duties. For the reasons
hereafter stated, the purchase of the chair for the employee’s use in performing
his official duties is authorized from appropriated funds.
The facts, briefly stated, are as follows. The employee has worked for the
Department of the Navy since 1966. He is 6’6” in height and weighs about 330
pounds. Since the inception of his employment with the Navy, due to his height
and weight, he has broken approximately 15 normal office chairs. The chairs
usually bend or break and have to be discarded. The cost of each chair is about
$200. In addition, the employee has a medical condition that is aggravated by
the narrowness and shallowness of the seat of the normal office chair which
does not provide adequate support for his thighs and cuts off the circulation of
blood in his legs.
(1)The Comptroller General (head of GAO) is often asked to rule whether
appropriated funds may be used for a specific purpose. In deciding on the
legality of a proposed expenditure, the Comptroller General may have to
analyze the purpose for which the funds are to be used. If he finds a
“private” purpose—such as providing employees with special equipment
which would benefit only them—the expenditure would be disallowed. If he
finds, as in this case, that a reasonable public purpose would be served, the
expenditure would be permitted.
(2)Agencies may rely on the decisions of the Comptroller General, and one
ruling may establish a precedent for later cases which present similar
issues. Agencies do not refer every question to the Comptroller General.
They often interpret previous rulings or rely on their own interpretation of
an appropriation’s legislative history in determining the legality of an
Source: General Accounting Office, Decision of the Comptroller General,
File No. B-215640, January 14, 1985, page 1.

agencies—the Defense Department is the most prominent—have been required to
operate under an outlay ceiling, in addition to the ceilings on budget authority and
Box 8-C.
Evidence of Obligation
Title 31, United States Code
Sec. 1501. Documentary evidence requirement for Government
(a) An amount shall be recorded as an obligation of the United States
Government only when supported by documentary evidence of -
(1) a binding agreement between an agency and another person
(including an agency) that is -
(A) in writing, in a way and form, and for a purpose authorized by
law; and
(B) executed before the end of the period of availability for
obligation of the appropriation or fund used for specific goods to be
delivered, real property to be bought or leased, or work or service to be
(2) a loan agreement showing the amount and terms of repayment;
(3) an order required by law to be placed with an agency;...
(b) A statement of obligations provided to Congress or a committee of
Congress by an agency shall include only those amounts that are obligations
consistent with subsection (a) of this section.
other resources. They have been prodded to improve the care with which spendout
rates are calculated and to make more accurate projections of outlays.
Disbursements of government funds may be made only pursuant to an approved
voucher (or, in certain circumstances, an invoice) which has sufficient information to
enable the transaction to be audited. Prior to payment, the affected agency must
pre-audit the voucher to determine, among other things, whether: (1) any required
administrative authorizations have been obtained; (2) the payment is permitted by law
and the amount of the payment is correct; (3) the goods received or services
performed were in accordance with relevant contracts or other agreements; and (4)
the appropriation or fund from which the payment is to be made is available for that
purpose. Payments themselves are made through a system of disbursing officers
operated by the Treasury Department.
Reprogramming. Although most appropriations are made in broad
categories, with a single appropriation often covering all of an agency’s salary and
operating expenses, each appropriation is supported by detailed schedules of how the
requested funds are to be spent. If an agency wants to spend for somewhat different
purposes (within the same account) than were submitted to the Appropriations
Committees, it reprograms the money—that is, it shifts funds from one project or
activity to another within the same account. (A shift between appropriations accounts
is a transfer and may be done only pursuant to statutory authority.)

Reprogrammings are not always easy to define. In the course of managing their
expenditures, agencies often make minor adjustments in the use of funds. They may
experience a higher-than-expected vacancy rate and shift some funds budgeted for
personnel expenses to other objects such as consultants or office equipment. Many
such adjustments are made without bringing into play formal reprogramming
procedures. Nevertheless, a reprogramming would occur if the shift were from one
activity to another, or if the pattern of expenditure deviated from that set forth in the
Appropriations Committee report. (Many, perhaps most, specific items of
expenditure are not noted in these reports; hence, an agency may have somewhat
more discretion in making minor adjustments. But when a report directs that a
particular expenditure be made, the spending agency would probably go through the
reprogramming process in the unlikely event it proposed to use the funds for a
different purpose.)
Reprogramming rules and procedures vary among Appropriations subcommittees
and federal agencies. In some instances, only the relevant Appropriations
subcommittees are drawn into the process; in others, the authorizing committees also
participate. Some reprogrammings require advance approval by the participating
congressional committees; for others, the relevant committees must be notified in
advance, and the reprogramming takes effect (after a waiting period) if they do not
object; in still others, Congress is notified of reprogrammings, but it takes no action
on them. Reprogramming rules often are set forth in the reports accompanying
appropriations bills; in some cases, the rules are incorporated into the act itself.
Exhibit 8-C deals with reprogramming rules for the Commerce Department.
Closing Accounts. The final step in the spending process (other than the
payment of funds which normally is a routine operation) is the closing of
appropriation and fund accounts. Once an account is closed, all remaining balances
are canceled and it is no longer available for obligation or expenditure.
The procedures for closing accounts were substantially revised by Public Law
101-510, enacted in 1990. Under the old procedures, when an appropriation expired
after the period during which it was available for obligation ended, remaining
obligated and unobligated balances retained their fiscal year identity for another two
years. After this time, remaining balances lost their fiscal year identity and separate
accounts were no longer maintained for them. Obligated balances were transferred
to an “M” account and remained available indefinitely to pay previously recorded
obligations. Unobligated balances were transferred to “merged surplus authority
accounts” maintained by the Treasury Department and were available to cover
adjustments in obligations.
Under the new system, which terminated the “M” accounts and the merged
surplus authority accounts, when the period during which funds are available for
obligation ends, the account expires but all obligated and unobligated balances retain
their fiscal year identity for an additional five years. During this five-year period,
obligated balances are available to liquidate obligations chargeable to that account
while unobligated balances are available for adjustments in obligations or
expenditures. At the end of five years, the account is closed and all remaining
balances are canceled. From this point, up to one percent of unexpired

Exhibit 8-C.
Reprogramming Rules
Sec. 605. (a) None of the funds provided under this Act, or provided under
previous appropriations Acts to the agencies funded by this Act that remain available
for obligation or expenditure in fiscal year 1998, or provided from any accounts in the
Treasury of the United States derived by the collection of fees available to the agencies
funded by this Act, shall be available for obligation or expenditure through a
reprogramming of funds which: (1) creates new programs; (2) eliminates a program,
project, or activity; (3) increases funds or personnel by any means for any project or
activity for which funds have been denied or restricted; (4) relocates an office or
employees; (5) reorganizes offices, programs, or activities; or (6) contracts out or
privatizes any functions, or activities presently performed by Federal employees; unless
the Appropriations Committees of both Houses of Congress are notified 15 days in
advance of such reprogramming of funds.
(b) None of the funds provided under this Act,...shall be available for obligation
or expenditure for activities, programs, or projects through a reprogramming of funds
in excess of $500,000 or 10 percent, whichever is less, that: (1) augments existing
programs, projects, or activities; (2) reduces by 10 percent funding for any existing
program, project, or activity, or numbers of personnel by 10 percent as approved by
Congress; or (3) results from any general savings from a reduction in personnel which
would result in a change in existing programs, activities, or projects as approved by
Congress; unless the Appropriations Committees of both Houses of Congress are
notified 15 days in advance of such reprogramming of funds.
(1)Reprogramming occurs when an agency shifts funds from one program or
purpose to another within the same appropriation account. (A shift of
funds between accounts constitutes a transfer.)
(2)There are no governmentwide rules for reprogramming. The rules vary
among Appropriations subcommittees (and sometimes the authorizing
committees), which often include their reprogramming rules in the reports
accompanying the appropriations bills but sometimes include them in the
acts themselves. Each agency has its own procedures for initiating these
actions and submitting them to Congress for review.
(3)In the case of the Commerce Department (from which this exhibit is
drawn), the Appropriations subcommittees placed reprogramming rules in
the annual appropriations act. The rules in Section 605(a) of the act bar
actions that would, among other things, create new programs, terminate
existing programs, or relocate offices or employees without prior
notification to the House and Senate Appropriations Committees. The
committees must also be notified when reprogrammings would exceed a
$500 thousand or 10% threshold.
Source: Public Law 105-119, Commerce-Justice-State Appropriations Act
for Fiscal Year 1998, November 26, 1997 (111 Stat. 2440-2526).

appropriations (for the same purpose) are available to pay obligated balances of
closed accounts. In addition, Congress may specifically appropriate new funds or
provide other legislative authority to pay old obligations.
Impoundment. Although an appropriation limits the amounts that can be
spent, it also establishes the expectation that the available funds will be used to carry
out authorized activities. Hence, when an agency fails to use all or part of an
appropriation, it deviates from the intentions of Congress. The Impoundment Control
Act of 1974 (Title X of the Congressional Budget and Impoundment Control Act of
1974, as amended) prescribes rules and procedures for instances in which available
funds are impounded.
An impoundment is an action or inaction by the President or a federal agency
that delays or withholds the obligation or expenditure of budget authority provided
in law. The Impoundment Control Act of 1974 divides impoundments into two
categories and establishes distinct procedures for each. A deferral delays the use of
funds; a rescission is a presidential request that Congress rescind (cancel) an
appropriation or other form of budget authority. Deferral and rescission are exclusive
and comprehensive categories; an impoundment is either a rescission or a deferral—it
cannot be both or something else.
Although impoundments are defined broadly by the Impoundment Control Act
of 1974, in practice they are limited to major actions which affect the level or rate of
expenditure. If every “action or inaction”—the phrase used in the Impoundment
Control Act of 1974—that slowed the rate of expenditure were deemed to be an
impoundment, there probably would be many thousands of impoundments each year.
In fact, at most only a few hundred are reported. As a general practice, only
deliberate curtailments of expenditure are reported as impoundments; actions having
other purposes which incidently affect the rate of spending are not recorded as
impoundments. For example, if an agency were to delay the award of a contract
because of a dispute with a vendor, the delay would not be an impoundment; if the
delay were for the purpose of reducing expenditure, it would be an impoundment.
The line between routine administrative actions and impoundments is not clear and
controversy occasionally arises as to whether a particular action constitutes an
A particularly difficult-to-identify impoundment occurs when the rate or level of
spending is deliberately slowed through indirect administrative means. For example,
if an agency cuts the size of the staff processing grant applications it might spend less
on grants than the amount provided by Congress, even if it does not expressly
impound the funds. These actions have come to be known as “de facto”
Rescissions. To propose a rescission, the President must submit a message
to Congress specifying the amount to be rescinded, the accounts and programs
involved, the estimated fiscal and program effects, and the reasons for the rescission.
Multiple rescissions can be grouped in a single message. After the message has been
submitted to it, Congress has 45 days of “continuous session” (usually a larger
number of calendar days) during which it can pass a rescission bill. Congress may
rescind all, part, or none of the amount proposed by the President.

If Congress does not approve a rescission in legislation by the expiration of this
period, the President must make the funds available for obligation and expenditure.
If the President fails to release funds at the expiration of the 45-day period for
proposed rescissions, the comptroller general may bring suit to compel their release.
This has been a rare occurrence, however.
The rescission process has both similarities to and differences with the line-item
veto process invalidated by the Supreme Court. In both, the President proposes to
cancel appropriations enacted into law. But unlike the line-item veto, which had to
be initiated within five days after the President signed an appropriations act, the
rescission process operates throughout the year. And unlike a line-item veto, which
cancels an appropriation unless the cancellation is disapproved by Congress, a
rescission takes effect only if it is approved by Congress. Thus, if Congress fails to
act, a line-item veto would be effective but a proposed rescission would lapse.
Deferrals. To defer funds, the President submits a message to Congress setting
forth the amount, the affected account and program, the reasons for the deferral, the
estimated fiscal and program effects, and the period of time during which the funds
are to be deferred. (An excerpt from such a message in presented in Exhibit 8-D.)
The President may not propose a deferral for a period of time beyond the end of the
fiscal year, nor may he propose a deferral that would cause the funds to lapse or
otherwise prevent an agency from spending appropriated funds prudently. In
accounts where unobligated funds remain available beyond the fiscal year, the
President may defer the funds again in the next fiscal year.
At present, the President may defer only for the reasons set forth in the
Antideficiency Act, including to provide for contingencies, to achieve savings made
possible by or through changes in requirements or greater efficiency of operations,
and as specifically provided by law. He may not defer funds for policy reasons (for
example, to curtail overall federal spending or because he is opposed to a particular
The comptroller general reviews all proposed rescissions and deferrals and
advises Congress of their legality and possible budgetary and program effects. The
comptroller general also notifies Congress of any rescission or deferral not reported
by the President and he may reclassify an improperly classified impoundment.
(Exhibit 8-E contains an excerpt from a report of the comptroller general.) In all
cases, a notification to Congress by the comptroller general has the same legal effect
as an impoundment message of the President.
Congress can rescind funds or disapprove impoundments in ordinary legislation
or in appropriations acts.

Exhibit 8-D.
Presidential Impoundment Messages
(1)Every deferral and rescission has a unique alpha-numeric identification.
Deferrals are prefaced with the letter “D”; rescissions begin with the letter
“R.” Rescissions and deferrals are numbered sequentially by fiscal year.nd
R98-2 is the 2 rescission reported for FY1998.
(2)The President notifies Congress of every rescission or deferral in a
message that sets forth the reasons for the action and the estimated fiscal
and program effects. If the President fails to report a rescission or
deferral, the comptroller general may notify Congress. His notification has
the same status as a presidential report.
Source: H.Doc. 105-215, Proposed Rescissions of Budgetary Resources,
February 24, 1998, page 8.

Exhibit 8-E.
GAO Review of Impoundment Messages
Department of Agriculture
R98-2Animal and Plant Health Inspection Service
Salaries and Expenses
Amount Proposed for Rescission: $350,000
According to a letter apportionment schedule and other information provided
by the agency, total budgetary resources are $577,237,377 and not
$577,282,000 as reported by the President.
The Office of Management and Budget (OMB) recently exempted some agencies from
the requirement of preparing the standard apportionment form, SF 132, which provides
detailed, current information on an account’s budgetary resources and the amount being
withheld pending rescission. OMB permits exempted agencies to prepare letter
apportionments which provide summary information for several accounts. Most of the
letter apportionments relevant to the rescissions contained in the President’s second
special message were prepared during the first quarter of the fiscal year and did not
contain current information. In those cases, we have obtained more current, detailed
information from the agency.
(1)The comptroller general reviews each impoundment. He notifies Congress
of the accuracy of the information in the President’s special message and,
as appropriate, relevant facts and probable effects of the rescission or
(2)This review by the comptroller general pertains to rescission R98-2, shown
in the previous exhibit. The note in the comptroller general’s report
indicates that the agency was exempted from preparing Standard Form 132
(see Exhibit 8-A) for this account and that information was obtained by
other means.
(3)If the comptroller general finds that a rescission or deferral is not
authorized, the funds must be made available for obligation. If they are
not, the Comptroller General can bring a suit to compel their release.
(4)Presidential impoundment messages and the GAO reports that review them
are printed as House Documents; GAO also issues its reports separately
(as identified by the number in the lower right, GAO/OGC-98-36).
Source: H.Doc. 105-265, Review of Impoundment Message, June 5, 1998,
page 1.

Financial Management
In the course of operating its programs, a federal agency takes many actions
affecting its financial condition. To ensure that resources are properly and efficiently
used, an agency must be informed of the financial implications of its actions and the
status of budgeted resources. It must know, for example, the amount of appropriated
funds that have already been obligated and the amount of unobligated funds that may
be carried over to the next fiscal year. It also must establish practices and procedures
governing how its resources are used.
These practices and procedures comprise the financial management systems of
federal agencies. Broadly conceived, financial management extends beyond the purely
financial operations of an agency to its capacity to perform the tasks required of it
with the resources provided by Congress.
OMB has defined financial management to include all systems that: (1) collect,
analyze, and report data for financial decision-making; (2) process, control, and
account for financial transactions and resources; and (3) generate financial information
in support of an agency’s mission. Financial management reaches to budget
formulation and implementation, accounting and information systems, property and
inventory control, personnel and payroll systems, and the management of grants,
contracts, and purchases.
Some of the laws governing federal financial management were enacted during
the 19th century, when the government was much smaller; others date back to the
early years of federal budgeting in the 1920s; still others to the postwar period during
the 1950s when management practices and concepts were adapted to a much enlarged
federal government. A dozen major laws affecting financial management have been
enacted since 1978; some of these are briefly described in Box 8-D. The two most
important of these laws are the Chief Financial Officers Act of 1990 (see Exhibit 8-F)
and the Government Performance and Results Act of 1993 (see Box 8-E).
Box 8-D lists these laws in chronological order. It shows a clear difference
between the earlier laws on the list and the more recent ones. The earlier laws were
designed to identify and eliminate wrongdoing and inadequacies in financial
management; the later laws have been designed to establish systems and procedures
that promote efficiency in federal operations.
These recent laws set forth two basic requirements—that agencies maintain
accounting and other information systems that provide timely and reliable information,
and that they maintain systems of management accountability and control to ensure
that resources are properly and prudently used. Their information systems determine
what agencies know (and report) about their operations and whether they are
sufficiently informed to take corrective action when problems arise. Management and
accountability controls are designed to ensure that an agency has systems in place to
protect against the misuse of resources and to promote their efficient use.

Box 8-D.
Major Federal Laws Affecting Financial Management
Inspector General Act of 1978 (P.L. 95-452)
Establishes independent inspector general offices in all federal departments
and major agencies to conduct audits and investigations; recommend policies to
promote economy, efficiency, and effectiveness; detect and prevent fraud and
abuse; and inform the agency head and Congress on problems and deficiencies.
Federal Managers’ Financial Integrity Act of 1982 (P.L. 97-255)
Requires agencies to maintain internal accounting and administrative controls
in compliance with standards prescribed by the comptroller general, to evaluate
their management accountability and control systems, and to report yearly (to
Congress and the President) on plans to correct material weaknesses.
Chief Financial Officers Act of 1990 (P.L. 101-576)
Requires 24 federal agencies to have a chief financial officer (CFO)
responsible for overseeing all financial management activities relating to the
agency’s programs and operations and to prepare five-year plans, including
milestones, for improving financial management. The CFO Council, headed by the
OMB deputy director for management, reviews and recommends improvements
in financial management.
Government Performance and Results Act of 1993 (P.L. 103-62)
Mandates that agencies submit initial strategic plans by September 30, 1997,
with updates every three years, and (beginning with FY1999) performance plans
covering each program activity. On the basis of these plans, OMB must include
a performance plan for the federal government in the President’s budget.
Beginning in 2000, agencies must report each year on the previous year’s
Government Management Reform Act of 1994 (P.L. 103-356)
Requires the audit of agency financial statements and the preparation and
audit of a consolidated financial statement for the federal government beginning
with FY1997.
Federal Financial Management Improvement Act of 1996 (P.L. 104-208)
Directs auditors to report on whether agency financial statements comply with
federal financial management systems requirements, federal accounting standards,
and the U.S. government’s Standard General Ledger.
OMB Circular A-123 provides guidance on agency responsibility for
management and accountability controls. It defines such controls as the organization,
policies, and procedures used by agencies to reasonably assure that: (1) programs
achieve their intended results; (2) resources are used consistent with agency missions;
(3) programs and resources are protected from waste, fraud, and mismanagement; (4)
laws and regulations are followed; and (5) reliable and timely information is obtained,
reported, and used for decision-making. The circular further stipulates that agency
managers have primary responsibility for monitoring and assessing controls.

Exhibit 8-F.
Chief Financial Officer
Sec. 902. Authority and functions of agency Chief Financial Officers
(a) An agency Chief Financial Officer shall -
(1) report directly to the head of the agency regarding financial management
(2) oversee all financial management activities relating to the programs and
operations of the agency;
(3) develop and maintain an integrated agency accounting and financial
management system, including financial reporting and internal controls, which -
(A) complies with applicable accounting principles, standards, and
requirements, and internal control standards;
(B) complies with such policies and requirements as may be
prescribed by the Director of the Office of Management and Budget;
(C) complies with any other requirements applicable to such systems;
(D) provides for -
(i) complete, reliable, consistent, and timely information which
is prepared on a uniform basis and which is responsive to the financial
information needs of agency management;
(ii) the development and reporting of cost information;
(iii) the integration of accounting and budgeting information; and
(iv) the systematic measurement of performance;
(4) make recommendations to the head of the agency regarding the selection
of the Deputy Chief Financial Officer of the agency;
(5) direct, manage, and provide policy guidance and oversight of agency
financial management personnel, activities, and operations, including....
(1)The Chief Financial Officers Act of 1990 established in law a Chief
Financial Officer (CFO) and deputy CFO for all executive departments and
certain major executive agencies. Until recently, the chief financial officer
in most federal agencies was an administrative appointment. The
Department of Housing and Urban Development was the first department
to have the position established in law.
(2)The CFO of a department or agency reports directly to the agency head;
the CFO’s responsibilities cover accounting, internal control, the overall
financial management system, and budget execution.
(3)The Chief Financial Officers Act established in OMB a deputy director for
management and an Office of Federal Financial Management (headed by
the controller). The act also established a Chief Financial Officers
Council, chaired by the OMB deputy director for management.
Source: 31 U.S.C. 902, as added by Section 205(a) of the Chief Financial
Officers Act of 1990 (104 Stat. 2843).

Box 8-E.
Major Features of the Government Performance and Results Act of 1993

PurposeTo shift the focus of government management from
inputs and outputs to outcomes and accomplishments,
from process to results, from compliance to
performance, and from management control to
managerial initiative.
Basic requirementsAll agencies must define long-term goals and strategic
plans, set annual performance targets derived from
these goals, and annually compare actual performance
to targets.
Pilot testsThree sets of pilot tests: performance plans and
reports; enhanced managerial accountability and
flexibility; and performance budgeting. (Many of the
pilot tests were not conducted, and agencies moved
directly to implementation.)
Implementation scheduleEight-year implementation schedule to provide
feedback from pilot tests.
1993Selection of at least 10 agencies as pilot sites for
testing performance plans and reports.
1994At least five of these agencies selected as pilot sites for
testing managerial accountability and flexibility.
1997OMB reports to Congress on results of pilot tests and
GAO reports to Congress on agency readiness for full
Agencies submit 5-year strategic plans (to be updated
every three years).
Agencies submit annual performance plans for
FY1999, with annual plans each subsequent year.
Selection of at least five agencies as pilot sites for
tests of performance budgeting.
1998OMB submits governmentwide performance plan as
part of FY1999 budget, with annual update thereafter.
2000Agencies submit annual performance reports for
FY1999, with annual updates thereafter.
2001OMB reports to Congress on pilot test of performance

Accounting and Budgeting. The accounting system is the source of basic
data on an agency’s financial condition and operations. As indicated by the title of the
1921 law that established the presidential budget system, at one time budgeting and
accounting were integrated activities that shared the same database and operated in
close relation to one another. The budget was a plan of expenditures for a future
fiscal period; the accounting system reported on expenditures during a past period.
In this integrated relationship, the accounting system fed financial information to
budget makers, and the budget fed data to those who compiled financial statements.
Over time, however, the two activities drifted apart, and accounting came to be
viewed as a specialized activity that was isolated from the overall management of an
agency. Moreover, budget systems accumulated conventions and practices on the
treatment of revenue and expenditure that differed in some key aspects from the way
they were recorded in financial statements. Many federal agencies relied on budgetary
information systems rather than accounting data to prepare budget requests.
Modern financial management reintegrates accounting and budgeting and views
them as connected, interdependent, consistent processes. This reintegration was the
main objective of the Chief Financial Officers Act of 1990 (see Box 8-E), which
directs OMB to develop a five-year plan for improving financial management and
assigns agency chief financial officers (CFOs) broad responsibility for overseeing
financial systems.
A key part of this development is a changed perspective on accounting systems.
Rather than being isolated, accounting is now viewed as a vital part of each agency’s
managerial capacity. In line with this broad, managerial orientation, substantial effort
has been made in recent years to upgrade and modernize federal accounting systems.
These efforts have led to important progress in developing accounting principles and
standards, integrating accounting with other financial management activities, and
reporting on financial condition.
Standardization of Accounting Systems. From about 1950 to 1980,
accounting was highly decentralized. Agencies were encouraged to install accounting
systems that served their particular needs, and within big departments, individual
bureaus and operating units also were permitted to design their own specialized
systems. Decentralization led to extreme fragmentation, with the federal government
operating hundreds of separate systems that were unable to communicate with one
another. It was not uncommon for the various systems to record transactions
inconsistently and for the accounts maintained at the bureau level to be incompatible
with those maintained by the department.
Within this fragmented arrangement, GAO took the lead in prescribing
governmentwide accounting standards and in certifying agency compliance with these
standards. From time to time, GAO reviewed agency accounting systems—it
generally did not audit particular transactions, leaving this responsibility to the
agencies and their inspectors general. But GAO was not the sole participant in the
account field; as displayed in Box 8-A, responsibility for financial management is
shared with the Treasury Department and OMB. The Treasury Department issued
rules and requirements that enabled it to report periodically on the financial condition
of the federal government, and OMB issued guidelines for assembling and executing

the executive budget. Having a pluralism of standard-setting agencies left the federal
government without genuine accounting standards. GAO, the Treasury Department,
and OMB cooperated from time to time through the Joint Financial Management
Improvement Program (JFMIP), a small unit that disseminates information on
financial management developments, but each took the position that it had the
authority to promulgate accounting standards.
With passage of the Chief Financial Officers Act, however, the three agencies
recognized a need to set aside their differences and cooperate in developing
accounting standards that would enable federal entities to prepare auditable financial
statements. Accordingly, GAO, the Treasury Department, and OMB established the
Federal Accounting Standards Advisory Board (FASAB) and agreed that each would
accept and issue accounting standards recommended by FASAB. During the 1990s,
FASAB has devised, and OMB has issued, a series of Statements of Federal Financial
Accounting Standards (SFFAS). The major standards are listed in Box 8-F. Note
that the initial standards are broad statements of principle while the later standards
apply to particular problems or practices.
Standardization has enabled federal agencies to prepare annual financial
Box 8-F.
Statements of Federal Financial Accounting Standards
SFFAS 1.Accounting for Selected Assets and Liabilities
SFFAS 2.Accounting for Direct Loans and Loan Guarantees
SFFAS 3.Accounting for Inventory and Related Property
SSFAS 4.Managerial Cost Accounting Concepts and Standards for the
Federal Government
SSFAS 5.Accounting for Liabilities of the Federal Government
SSFAS 6.Accounting for Property, Plant, and Equipment
SSFAS 7.Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting
SSFAS 8.Supplementary Stewardship Reporting
statements (see Exhibit 8-G) and for the Treasury Department to develop a
consolidated statement for the entire federal government. Not surprisingly, GAO has
found many of these financial statements to have material weaknesses, but it
anticipates steady improvement as agencies remedy deficiencies and gain experience
in complying with accounting standards.

Exhibit 8-G.
Agency Financial Statements
Consolidated Statement of Financial Position(in millions)
as of September 30, 1996
Agency Assets
Fund Balance with Treasury (Note 2)$10,911
Investments (Note 3)6,402
Accounts Receivable (Note 4)688
* * * * * ** * *
Total Assets$94,033
Liabilities Covered by Budgetary Resources
Intragovernmental Liabilities
Accounts Payable$776
Debt (Note 9)2,456
* * * * * ** * *
Total Liabilities$264,579
Net Position
Unexpended Appropriations (Note 17)5,841
Invested Capital56,714
Cumulative Results of Operations2,690
Future Funding Requirements(235,791)
Total Net Position($170,546)
Total Liabilities and Net Position($94,033)
The accompanying notes are an integral part of these financial statements.
(1)This financial statement for the Energy Department covers FY1996. Each
of the main entries in this statement is supported by more detailed
statements or by notes accompanying the financial statement.
(2)This statement shows that the Energy Department contributed to a
reduction in the equity (the excess of assets over liabilities) of the federal
government for FY1996. The department’s liabilities amounted to about
$264.6 billion, an excess of nearly $170.6 billion over assets of about $94
(3)The notes accompanying the financial statement set forth significant
accounting policies used in preparing the statement and elaborate the
assumptions used in computing various assets and liabilities.
Source: Department of Energy, Consolidated Financial Statements for
Fiscal Year 1996 (available at the department’s website on the Internet at ).

In tandem with the new standardization, agencies have been encouraged to
supplement core requirements with accounting practices and reports that meet their
particular needs. These customized features are important to make accounting useful
for managerial purposes.
Financial Management for Agencies. Traditionally, financial management
has served external requirements, such as those concerning the legal basis of
expenditure. For this limited purpose, it sufficed to account for federal finances in
terms of obligations authorized or incurred (budget authority) and cash received or
paid out (receipts and outlays). Accounting for obligations is essential to ensure that
funds are spent properly, while accounting for cash is essential for the Treasury
Department’s management of the government’s debt operations.
In addition to these external requirements, an agency needs timely and accurate
financial data to manage its own operations efficiently. Two steps have been taken
to make accounting systems more useful for agency management. One has been to
integrate accounting with other financial management activities and the agency’s
management information systems. The second step has been to supplement
accounting for obligations and cash with cost-based (or accrual-based) accounts. The
cost basis is compared to alternative methods of accounting in Exhibit 8-H. The
main differences between traditional practices and cost-based accounting arise when
obligations or outlays occur in one fiscal period but the cost is incurred in another
period. This situation commonly occurs in procurement and construction programs,
certain credit programs, and in programs which maintain large, variable inventories.
A cost-based budget records costs in terms of the goods and services consumed
by each activity. This type of budget is useful in measuring the cost of providing a
service or carrying out an activity. It sensitizes managers to their responsibility for
controlling expenses and in improving the efficiency of operations. Cost-based
budgets have made it possible for federal agencies to apply cost accounting techniques
in managing their operations.
Relationship to the Budget Process. As noted previously, the Budget
and Accounting Act of 1921 conceived of accounting and budgeting as
interdependent process, with decisions made in the budget providing the basis for the
accounting structure, and the information collected by the accounting system
providing a basis for new budget decisions. But as also noted, over the years
accounting and budgeting drifted apart. Typically, they were assigned to different
organizational units, and there was little contact between them.
During the 1990s, however, significant progress has been made in linking the
two processes. The key development has been the establishment of a chief financial
officer in 24 federal departments and agencies. As prescribed by the Chief Financial
Officers Act of 1990, each CFO is to report to the head of the agency regarding all
financial management matters. The CFO’s responsibilities vary somewhat among
agencies, but they generally include developing and maintaining an integrated
accounting and financial management system, overseeing all financial management
activities relating to programs and operations of the agency, and monitoring the
financial execution of the budget. The 1990 act does not expressly assign a role to

Exhibit 8-H.
Flow of Financial Transactions
When order isWhen materials arematerials areWhen bill is
Transaction placed delivered used paid
(obligation)(accrued expenditure)(expense)(outlay)
Order forObligation is
materials isrecorded as an
placed. undelivered
order and a
decrease to
Materials areThis is recorded as a
received orliability (accounts
constructivelypayable), as a charge inventory, and as a
decrease in
undelivered orders.
Materials areCost is
used orrecorded as a
consumed.decrease in
inventory and
a charge to
program or
(1)This chart shows four types of expenditure entries: obligation, accrued
expenditure, expense, and outlay.
(2)The authority to obligate is provided by budget authority, such as
appropriations. When the obligation is incurred, the amount of available
budget authority is reduced. An accrued expenditure is recorded and a
liability is incurred when goods are received or when other transactions
requiring payment occur.
(3)A cost (expense) is recorded when goods or materials are consumed or
withdrawn from inventory, not when they are received. In this flow, outlays
follow the recording of an expense or cost. The outlay precedes the cost
when payment is made before the goods are used.
Source: General Accounting Office, Policy and Procedures Manual for
Guidance of Federal Agencies, Title 2 (Accounting), Appendix I, August 1987,
page 12.

the CFO in formulating the agency budget, and actual practice in this regard varies
significantly among federal agencies.
The 1990 act strengthened the leadership structure for federal financial
management by creating within OMB the position of deputy director for Management
(to serve as the CFO for the federal government) and the Office of Federal Financial
Management, by designating CFO (and deputy CFO) positions for each executive
department and major agency, and by setting up a Chief Financial Officers Council.
Management Control (Internal Control). The basic principle of
management control is that each agency should have the primary responsibility for
ensuring that its resources are used properly and efficiently. The term management
control generally has replaced the term internal control, although the latter still is
used in various documents and reports. While the two terms sometimes are used
interchangeably, management control conveys a broader sense of the responsibility
of federal managers for the resources they use and the results achieved.
The Federal Managers’ Financial Integrity Act requires each agency to establish
management accountability and control systems, in accordance with standards
prescribed by the comptroller general, which provide reasonable assurance that: (1)
obligations and costs are in compliance with applicable law; (2) funds, property, and
other assets are safeguarded against waste, loss, or abuse; and (3) revenues and
expenditures are properly recorded.
The term internal control refers to the procedures used by agencies to ensure
that established policies with respect to financial management are followed. The
comptroller general has defined internal control as:
the plan of organization and methods and procedures adopted by management to
ensure that resource use is consistent with laws, regulations and policies; that
resources are safeguarded against waste, loss, and misuse; and that reliable data
are obtained, maintained, and fairly disclosed in reports.
OMB Circular A-123 (excerpted in Exhibit 8-I) sets forth policies and
procedures to be followed by federal agencies in establishing and reporting on their
management accountability and control systems. These guidelines require each
agency to develop a management control plan that assesses the risk of various
activities to waste or loss and to identify material weaknesses in their internal control
systems. Furthermore, agencies must periodically evaluate their management
accountability and control systems and take corrective action when necessary.
In addition to agency self-evaluations, GAO annually reviews management
accountability and control systems and reports on any material weaknesses it has
identified. The concept of material weakness is of fundamental importance in
maintaining the integrity of controls. GAO has set forth a number of criteria that
recognize that not all shortcomings entail the same degree of risk. In assessing
whether a problem constitutes a material weakness, GAO advises agencies to consider
the magnitude and sensitivity of the resources involved, conflicts of interest, violations
of statutory requirements, and adverse publicity that would diminish an agency’s
credibility. GAO issues an annual report assessing progress in improving

Exhibit 8-I.
Management Accountability and Control
OMB Circular A-123
2. Policy. Management accountability is the expectation that managers
are responsible for the quality and timeliness of program performance,
increasing productivity, controlling costs and mitigating adverse aspects of
agency operations, and assuring that programs are managed with integrity and
in compliance with applicable law.
Management controls are the organization, policies, and procedures used
to reasonably ensure that (i) programs achieve their intended results; (ii)
resources are used consistent with agency mission;
(iii) programs and resources are protected from waste, fraud, and
mismanagement; (iv) laws and regulations are followed; and (v) reliable and
timely information is obtained, maintained, reported and used for decision
3. Actions Required. Agencies and individual Federal managers must
take systematic and proactive measures to (i) develop and implement
appropriate, cost-effective management controls for results-oriented
management; (ii) assess the adequacy of management controls in Federal
programs and operations; (iii) identify needed improvements; (iv) take
corresponding corrective action; and (v) report annually on management
(1)The Federal Managers’ Financial Integrity Act (Public Law 97-255)
requires each agency head to establish controls that reasonably ensure
that: (a) obligations and costs comply with applicable law; (b) assets are
safeguarded against waste, loss, unauthorized use, or misappropriation;
and (c) revenues and expenditures are properly recorded and accounted
(2)Each agency head must annually report to the President and Congress on
whether there is reasonable assurance that management controls are
achieving their intended objectives. The report must identify material
weaknesses in the agency’s controls and include plans to correct them.
(3)Circular A-123 further provides that in assessing their management
controls, agencies should supplement their own judgment with audits and
investigations conducted by the General Accounting Office (GAO) and the
agency’s inspector general.
(4)Agency management control systems must be consistent with Standards for
Internal Control Systems in the Federal Government, issued by GAO.
Source: Office of Management and Budget, Circular A-123 (Management
Accountability and Control), June 21, 1995, page 1.

agency financial management systems and in meeting the requirements of the Federal
Managers’ Financial Integrity Act.
Consolidated Financial Statements. Improvements in accounting and
financial management culminated in 1998 with the issuance of the first audited
financial statements covering the entire federal government. Although the auditors
found numerous gaps and shortcomings in the statements, their publication marked
a big step forward in applying accounting standards to report on the financial
operations and condition of the federal government.
The requirement of published financial statements is embedded in the
Constitution, which provides in Article I, Section 9, that “A regular Statement of
Account of the Receipts and Expenditures of all public Money shall be published from
time to time.” Over the years, the Treasury Department has met this requirement by
publishing an annual report on receipts and outlays. The report did not include
information on the assets and liabilities of the government, nor was it prepared in
accord with accepted accounting principles.
Two developments during the 1990s advanced the idea of true financial
statements for the federal government. One was the work of the Financial
Accounting Standards Advisory Board (FASAB); the other was the Government
Management Reform Act of 1994. By 1997, FASAB had completed the basic of
accounting standards, giving the federal government, for the first time in its history,
the means by which to measure and report on its financial position and results. The
1994 law extended the requirement of audited financial statements to all departments
and major agencies and called for audited statements covering the entire federal
government to be published beginning with FY1997.
The new governmentwide financial statements are prepared on an accrual basis;
hence, reported costs do not match budgeted expenditures. The statements reported
that at the end of FY1997, the federal government has assets of $1.6 trillion and
liabilities of $6.6 trillion. But the assets did not include the value of public lands or
the federal government’s taxing power. In auditing the statements, GAO concluded
that because of significant weaknesses in financial systems, incomplete documentation
and weak internal control, and other deficiencies, the government was unable to
accurately report a large portion of its assets, liabilities, and costs. The quality of
these statements is expected to improve rapidly now that it has been demonstrated
that it is possible to produce governmentwide reports.
Improving Government Performance. The value of financial information
depends on the use to which it is put. If it is produced only to satisfy external
reporting requirements, there may be some benefit in improved accountability. But
if the information is used by managers to measure and assess costs, to determine how
resources should be deployed, and to restructure operations, then the payoff will
come in higher organizational efficiency.
A potentially important advance in using the budget to promote efficiency was
taken by the Government Performance and Results Act (GPRA) of 1993. The main
provisions of this act are set forth in Box 8-F. They call for a sequence of actions by
federal agencies, beginning with the development of performance measures early in

end of the decade. Beyond this, agencies are to develop new performance plans
annually based on the existing or revised longer-term strategic plans.
Agency strategic plans must have six critical components: (1) a comprehensive
mission statement that explains why the agency exists and what it does; (2)
agencywide long-term goals and objectives for the next five years, or longer, that
explain the results expected from each major function and when to expect those
results; (3) approaches or strategies to be employed by the agency in pursuing its
objectives, including the resources needed to reach specified goals; (4) an explanation
of the relationship between the agency's long-term goals and its annual performance
goals, expressed in measurable terms so that actual results can be compared to plans;
(5) identification of key factors beyond the agency's control that could significantly
affect achievement of its strategic goals; and (6) a description of how program
evaluations were used to define strategic goals, and a schedule of future evaluations.
GPRA requires agencies to consult with Congress during preparation of their
strategic plans. In 1997, the House majority leadership established special teams to
oversee implementation of the act. The first batch of strategic plans were submitted
by September 30, 1997; updates are required every three years. At the behest of
various congressional committees, GAO has assessed the strategic plans and
concluded that they do not yet define a strategic direction for agencies to take in
setting goals and measuring performance. In GAO’s view, the early strategic plans
should be regarded as only the starting points for the broad transformation that is
needed to implement performance-based management.
The next step in the GPRA process the submission of annual performance plans
to OMB by federal agencies. On the basis of these agency plans, OMB, beginning
with the FY1999 budget cycle, must include a federal performance plan in the
President’s budget. Agency plans must specify goals that define the performance to
be achieved, express the goals in an objective, quantifiable, and measurable form,
describe the operational processes and resources required to achieve the goals, specify
performance indicators to be used in measuring or assessing outputs, and provide a
basis for comparing actual results with program goals.
The culmination of the GPRA process may be the introduction of performance-
based budgets in which a level of resources is explicitly linked to a level of outputs.
This form of budgeting was tried in the 1950s and 1960s with little success. It is too
early to know whether the outcome will be more favorable this time, but if it is, it will
be because developments in financial management and a new culture of performance
management has created the conditions under which the allocation of resources can
be based on actual or planned results rather than on agency demands.

Appendix A. How to Obtain Publications Exhibited
in the Manual
Members of Congress and congressional staff may obtain the different types of
publications exhibited or otherwise cited in the manual from various sources.
Public laws, legislation, committee reports, and other documents of the current
(and immediate past) Congress may be obtained from the House and Senate document
rooms. Hearings and prints usually are issued directly by committees. Historical
collections of public laws and some congressional publications are available through
the House Legislative Resource Center, the Senate Library, and the Congressional
Research Service.
The standing rules of the House and Senate may be found in documents of the
respective houses that are issued each Congress. The precedents of the House and
Senate also are published periodically as documents of the respective Houses.
Certain budgetary publications of executive and legislative agencies are routinely
distributed to congressional offices. Copies also may be obtained from the legislative
affairs office or the publications office of the particular agency.
Finally, almost all of the publications referred to in this manual can be obtained
over the Internet at the website of the appropriate entity. Congressional publications
generally are available through the Legislative Information System
( Websites for congressional support agencies and selected
executive agencies are listed below.
!Congressional Budget Office,;
!Congressional Research Service,;
!General Accounting Office:;
!Government Printing Office:;
!Office of Management and Budget:;
!Treasury Department:

Appendix B. Milestones in the Federal Budget
1789Constitution, Article I, Section 7
Requires that revenue bills originate in the House. (By custom, appropriations
measures also originate in the House.)
1789Constitution, Article I, Section 9
Requires the enactment of appropriations before expenditure, and a public
statement of receipts and expenditures.
1802-1867House and Senate Rules
House Ways and Means Committee established as a standing committee in 1802;
House Appropriations Committee established in 1865. Senate Finance
Committee established in 1816; Senate Appropriations Committee established
in 1867.
1837House Rule XXI
Bar against unauthorized appropriations and bar against appropriations in
1850Senate Rule XVI
Bar against unauthorized appropriations.
1870, 1905-1906Antideficiency Act
Requires apportionment of funds to prevent over-expenditure. Amended in

1950 to permit budgetary reserves and in 1974 to restrict such reserves.

1921Budget and Accounting Act of 1921
Provides for an executive budget system; established the Bureau of the Budget
and the General Accounting Office.

1939Reorganization Plan No. 1 (Executive Order 8248)

Transferred the Bureau of the Budget from the Treasury Department to the
Executive Office of the President and expanded the Bureau’s role.
1946Employment Act of 1946
Requires the President to submit an annual economic report to Congress;
established the Council of Economic Advisers.
1946Legislative Reorganization Act of 1946
Provided for a legislative budget, which was abandoned after several years.
1950Budget and Accounting Procedures Act of 1950
Established requirements for budgeting, accounting, financial reporting, and
1967President’s Commission on Budget Concepts
Adoption of the unified budget (first implemented for FY1969).
1970Legislative Reorganization Act of 1970
Provided for five-year budget projections and expanded the role of GAO in
program evaluation.

1970Reorganization Plan No. 2 (Executive Order 11541)

The Bureau of the Budget was renamed the Office of Management and Budget.
1974Congressional Budget and Impoundment Control Act of
Established the congressional budget process, House and Senate Budget
Committees, and the Congressional Budget Office. Also, established
procedures for legislative review of proposed rescissions and deferrals.
1980Reconciliation Process
Reconciliation process used for the first time as part of the first budget

1982Federal Managers’ Financial Integrity Act
Requires ongoing evaluations and reports on each agency’s system of internal
control so as to provide reasonable assurance that obligations and costs are in
compliance with law, revenue and expenditures are properly recorded, and assets
are safeguarded against waste, loss, or unauthorized use.
1985Balanced Budget and Emergency Deficit Control Act of 1985
Established deficit-reduction goals and sequestration procedures aimed at
balancing the budget by FY1991. Also, made extensive amendments in the
Congressional Budget Act of 1974.
1987Balanced Budget and Emergency Deficit Control
Reaffirmation Act of 1987
Revised the sequestration process, extending the goal of a balanced budget until
FY1993 and requiring that the OMB director determine if a sequester is
1990Budget Enforcement Act of 1990
Revised the sequestration process, abandoning fixed deficit targets in favor of
adjustable targets and established discretionary spending limits, which cap annual
appropriations, and a pay-as-you-go requirement, which mandates that action on
direct spending and revenue legislation not increase the deficit. Also, established
new budgeting and accounting rules for direct loans and loan guarantees under
the Federal Credit Reform Act of 1990.
1990Chief Financial Officers Act
Requires appointment of chief financial officer in 23 major federal agencies to
oversee financial management activities, develop and maintain an integrated
agency accounting and financial reporting system, and monitor the execution of
the budget.
1993Government Performance and Results Act of 1993
Directs federal agencies to develop long-term goals and strategic plans, to
prepare annual performance targets tied to budget requests, and to report
annually on actual performance compared to the targets.

1994Government Management Reform Act of 1994
Incorporates various recommendations to improve federal management and
budgeting from the National Performance Review.
1995Unfunded Mandates Reform Act of 1995
Establishes procedures (incorporated into the Congressional Budget Act of
1974) to strengthen controls over the imposition by Congress of costs on state
and local governments and the private sector.
1996Line Item Veto Act
Authorized the President to cancel discretionary spending, direct spending, and
limited tax benefits within five days after signing a spending or revenue measure
into law and set up congressional procedures to disapprove such cancellations.
(The act was struck down by the Supreme Court in 1998.)
1997Budget Enforcement Act of 1997
Extends the discretionary spending limits and pay-as-you-go requirement
through FY2002 and makes various (mainly technical or minor) changes in the
sequestration and congressional budget processes.

Appendix C. Citations to Major Budgetary Laws
Antideficiency Act
Title 31, United States Code, Sections 1341-1342 and 1512-1519.
Balanced Budget and Emergency Deficit Control Act of 1985
Title II of Public Law 99-177 (Increasing the Statutory Limit on the Public
Debt); 99 Stat. 1038-1101; December 12, 1985.
Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987
Title I of Public Law 100-119 (Increasing the Statutory Limit on the Public
Debt); 101 Stat. 754-784; September 29, 1987.
Budget and Accounting Act of 1921
Public Law 67-13; 42 Stat. 20-27; June 10, 1921.
Budget and Accounting Procedures Act of 1950
Public Law 81-784; 64 Stat. 832-845; September 12, 1950.
Budget Enforcement Act of 1990
Title XIII of Public Law 101-508 (Omnibus Budget Reconciliation Act of 1990);

104 Stat. 1388-573 through 630; November 5, 1990.

Budget Enforcement Act of 1997
Title X of Public Law 105-33 (Balanced Budget Act of 1997); 111 Stat. 677-

712; August 5, 1997.

Chief Financial Officers Act of 1990
Public Law 101-576; 104 Stat. 2838-2855; November 15, 1990.
Congressional Budget and Impoundment Control Act of 1974
Public Law 93-344; 88 Stat. 297-339; July 12, 1974. Titles I-IX are referred to
as the Congressional Budget Act and Title X is referred to as the Impoundment
Control Act.

Employment Act of 1946
Public Law 79-304; 60 Stat. 23-26; February 20, 1946.
Federal Credit Reform Act of 1990
(See the Budget Enforcement Act of 1990, Section 31201. The Federal Credit
Reform Act of 1990 was incorporated into the Congressional Budget Act of

1974 as a new Title V.)

Federal Managers’ Financial Integrity Act
Public Law 97-255; 96 Stat. 814-815; September 8, 1982.
Government Management Reform Act of 1994
Public Law 103-356; 108 Stat. 3410-3417; October 13, 1994.
Government Performance and Results Act of 1993
Public Law 103-62; 107 Stat. 285-296; August 3, 1993.
Gramm-Rudman-Hollings Act
(See the Balanced Budget and Emergency Deficit Control Act of 1985; the
Balanced Budget and Emergency Deficit Control Reaffirmation Act of 1987; the
Budget Enforcement Act of 1990; and the Budget Enforcement Act of 1997.)
Impoundment Control Act of 1974
(See the Congressional Budget and Impoundment Control Act of 1974.)
Legislative Reorganization Act of 1946
Public Law 79-601; 60 Stat. 812-852; August 2, 1946.
Legislative Reorganization Act of 1970
Public Law 91-510;84 Stat. 1140-1204; October 26,1970.
Line Item Veto Act
Public Law 104-130; 110 Stat. 1200-1212; April 9, 1996.
Unfunded Mandates Reform Act of 1995
Public Law 104-4; 109 Stat. 48-71; March 22, 1995.

Appendix D. Glossary of Budgetary Terms
Account. A control and reporting unitforth in a budget resolution to House or
for budgeting and accounting. EachSenate committees with jurisdiction over
account in the budget is assigned asuch resources. The allocation is made
unique identification number.pursuant to Section 302(a) of the
Congressional Budget Act, and is
Accrual Basis. The basis of accountingfollowed by a subdivision of the
which records revenues when they areallocation amounts among each
earned and expenditures when costs arecommittee’s programs or
incurred, regardless of the period insubcommittees.
which money is received or payments
made.Allotment. An authorization by the
head (or other authorized official) of an
Accrued Expenditures. Charges thatagency to subordinates to incur
reflect liabilities incurred for: (1)obligations within a specified amount.
services performed by employees,The amount allotted by an agency
contractors, and others; (2) goods andcannot exceed the amount apportioned
other property received; and (3)by the Office of Management and
amounts becoming owed underBudget.
programs for which no current service
or performance is required, such asAllowance Letter. A letter sent to each
annuities and other by OMB after the President’s
Expenditures accrue regardless of whenbudget has been submitted to Congress.
cash payments are made.The letter advises agencies of budget
decisions and multi-year planning
Advance Appropriation. Budgetestimates, employment ceilings, goals
authority provided in an appropriationsfor management improvement, and other
act to become available in a fiscal yearsignificant policy and administrative
beyond the fiscal year for which thematters.
appropriations act is enacted. The
amount is included in the budget totalsAllowances. Amounts included in the
for the fiscal year in which the amountbudget to cover possible additional
will become available for obligation.expenditures for statutory pay increases,
contingencies, and other requirements.
Allocation. In executive budgeting,
allocations are budget authority or otherAnnual Authorization. An
budgetary resources transferred toauthorization of appropriations for a
another account to carry out thesingle fiscal year, usually for a definite
purposes of the parent account. Inamount of money. Programs with
congressional budgeting, an allocation isannual authorizations are supposed to be
a distribution of the budget authority,reauthorized each year. If ongoing
outlays, and certain other resources setprograms are not reauthorized,

Congress often enables them to continuethe Treasury for specified purposes.
by providing appropriations.The law may be a regular, supplemental,
or continuing appropriations act.
Apportionment. A distribution made
by the Office of Management andAuthorization. A provision in law that
Budget of amounts available forauthorizes appropriations for a program
obligation. Apportionments divide theseor an agency. An authorization may be
amounts by specific time periodseffective for one year, a fixed number of
(usually quarters) or activities. Theyears, or for an indefinite period, and
amounts apportioned limit the amountmay be for a definite amount of money
that may be obligated. In apportioningor for “such sums as may be necessary.”
an account, some funds may be reserved
to provide for contingencies or to effectAuthorizing Legislation. A law that
savings, pursuant to the Antideficiencyestablishes or continues one or more
Act, or may be proposed for rescissionfederal agencies or programs, establishes
pursuant to the Impoundment Controlthe terms and conditions under which
Act.they operate, sets other policy
requirements or restrictions, authorizes
Appropriated Entitlement. Anthe enactment of appropriations, and
entitlement whose budget authority isspecifies how appropriated funds are to
provided in annual appropriations actsbe used.
rather than in substantive law. These
entitlements are classified as directBackdoor Spending. (See Direct
spending by the Budget EnforcementSpending and Spending Authority.)
Balanced Budget. A budget in which
Appropriation. A provision of lawreceipts equal or exceed outlays.
providing budget authority that permits
federal agencies to incur obligations andBalances of Budget Authority.
to make payments out of the TreasuryAmounts of budget authority provided
for specified purposes. Annualin previous years that have not been
appropriations are provided inspent. Obligated balances are amounts
appropriations acts; most permanentthat have been obligated but have not
appropriations are provided inyet been liquidated; unobligated
substantive law.balances are amounts that have not been
obligated and remain available for
Appropriation Limitation. Aobligation.
provision in an appropriations act that
establishes the maximum amount thatBaseline. A projection of future
may be obligated or spent for specifiedrevenues, budget authority, outlays, and
purposes. The limitation may beother budget amounts under assumed
applied to the amount of direct loaneconomic conditions and participation
obligations, guaranteed loanrates, and assuming no change in current
commitments, administrative expensespolicy. The baseline is projected for
financed out of trust funds, or othereach of the next five (or more) fiscal
purposes.years by the Congressional Budget
Office. It is used in preparing the
Appropriations Act. A law thatcongressional budget resolution, in
authorizes federal agencies to incurscoring the budgetary impact of
obligations and to make payments out oflegislation under the PAYGO rules, and

in estimating the budgetary impact ofBudget Enforcement Act. A 1990 law
provisions in reconciliation bills.(amended in 1993 and 1997) that
establishes limits on discretionary
Biennial Budget. A budget for aspending and PAYGO rules for revenue
period of two years. The federaland direct spending; it also established
government has an annual budget, butmaximum deficit targets, which no
proposals have been made that it use alonger are in effect.
biennial budget.
Budget Receipts. Collections from the
Borrowing Authority. Spendingpublic and from payments by
authority that permits a federal agencyparticipants in certain social insurance
to incur obligations and to makeprograms. These collections consist
payments for specified purposes out ofprimarily of tax receipts and social
funds borrowed from the Treasury orinsurance premiums. Budget receipts do
the public. Except for trust funds andnot include various offsetting receipts
certain other exceptions, new borrowingwhich are accounted for as negative
authority is effective only to the extentoutlays, not as revenues.
provided in appropriations acts.
Budget Resolution. A concurrent
Breach. The amount by which newresolution passed by both Houses of
budget authority or outlays within aCongress, but not requiring the
discretionary appropriations category issignature of the President, setting forth
above the limit for that fiscal year. Thethe congressional budget for at least the
Budget Enforcement Act provides fornext five fiscal years. The budget
eliminating a breach by sequesteringresolution sets forth various budget
resources in the discretionary categorytotals and functional allocations, and
in which the breach occurred.may include reconciliation instructions
to designated House or Senate
Budget Amendment. A revision to acommittees.
pending budget request, submitted to
Congress by the President beforeBudget Surplus or Deficit. The
Congress completes appropriationsarithmetic difference between budget
action.receipts and outlays (i.e., the deficit is
an excess of outlays over budget
Budget Authority. Authority providedreceipts).
by law to enter into obligations that
normally result in outlays. The mainBudgetary Resources. The amounts
forms of budget authority areavailable, regardless of source, for
appropriations, borrowing authority, andobligation in a fund or account. These
contract authority. Budget authorityresources include new budget authority,
also includes the subsidy cost of directpermanent appropriations that become
and guaranteed loans, but not theavailable in a fiscal year, transfers from
unsubsidized portion. Budget authorityother accounts, fees and other
may be classified by the period ofcollections deposited in the account, and
availability (one-year, multiyear,unobligated balances.
no-year), by the timing of congressional
action (current or permanent), or by theBusiness-type Statements. Financial
amount available (definite or indefinite).statements prepared for government
corporations, revolving funds that have
business-type operations, and

government-sponsored enterprises.and outlays to House and Senate
These statements differ from budgetcommittees. The allocation usually is
schedules in that they focus principallymade in the joint explanatory statement
on assets and liabilities rather than onthat accompanies the conference report
budgetary resources.on a budget resolution.
Capital Budget. A budget thatConcurrent Resolution on the
segregates capital or investmentBudget/Congressional Budget. (See
expenditures from current or operatingBudget Resolution.)
expenditures. Investment in capital
assets is excluded from calculations ofConstant Dollars. The dollar value of
the surplus or deficit, but the operatinggoods and services, adjusted for changes
budget is charged for depreciationin prices. Constant dollar series are
and/or debt service. The federalused to report the inflation-adjusted
government does not have a capitalamounts of receipts, outlays, and other
budget, but investment-typebudget categories.
expenditures are displayed in special
budget schedules.Consumer Price Index (CPI). A
measure of the price change of a
Cash Basis. The accounting methodrepresentative “market basket” of goods
records revenues when received andand services purchased by consumers.
expenditures when paid, without regardThe CPI shows the relative cost of
to the accounting period in which thepurchasing the specified market basket
revenues were earned or the costscompared to the cost in a designated
incurred.base year; the rate of change in the CPI
measures how much prices are rising or
Chief Financial Officer. The officialfalling.
appointed pursuant to the Chief
Financial Officers Act of 1990 to: (1)Contingent Liability. A conditional
oversee all financial managementobligation that may become an actual
activities relating to the programs andliability if certain events occur or fail to
operations of the agency; (2) developoccur. Contingent liabilities include loan
and maintain an integrated accountingguarantees, deposit insurance, and price
and financial management system; andguarantees.
(3) monitor the financial execution of
the budget.Continuing Resolution. An act (in the
form of a joint resolution) that provides
Closed Account. An account whosebudget authority to agencies or
balance has been canceled and is noprograms whose regular appropriation
longer available for obligation or outlay.has not been enacted after the new fiscal
An account that is available for ayear has started. A continuing
definite period of time (such as oneresolution usually is a temporary
fiscal year) is closed five years aftermeasure that expires on a specified date
obligations may no longer be drawnor is superseded by enactment of the
against it.regular appropriations act. Some
continuing resolutions, however, are in
Committee Allocation. Theeffect for the remainder of the fiscal year
distribution, pursuant to Section 302 ofand are the means of enacting regular
the Congressional Budget Act, of newappropriations.

budget authority, entitlement authority,

Contract Authority. Spendingcurrent at the time the good or service is
authority that permits obligations to besold. This is in contrast to the value of
incurred in advance of appropriations.the good or service in constant dollars.
With certain exceptions, contract
authority is effective only to the extentCurrent Level. As used by the House
provided in appropriations acts.Budget Committee in making allocations
Contract authority is funded bypursuant to Section 302 of the
appropriations to liquidate (pay off)Congressional Budget Act, refers to
obligations incurred pursuant to budget authority and outlays
resulting from existing law, in contrast
Cost-based Budget. A budget whoseto new budget authority and outlays
expenditures are based on the goods andresulting from new legislation.
services consumed rather than on the
amounts obligated or outlayed.Current Services Estimates. Estimates
included in the President’s budget of the
Cost Estimate. An estimate preparedlevels of budget authority and outlays
by the Congressional Budget Office ofthat would be required in future fiscal
the outlays that would ensue underyears to continue existing programs.
reported legislation over a five-yearThese estimates reflect the projected
period. The cost estimate usually iscosts of continuing federal programs
published in the report accompanyingwithout policy changes.
the measure.
Deferral. An action or inaction that
Credit Authority. Authority to incurtemporarily withholds, delays, or
direct loan obligations or to make loaneffectively precludes the obligation or
guarantee commitments. Section 402 ofexpenditure of budget authority.
the Congressional Budget Act barsDeferrals may be made only for the
Congress from considering creditpurposes authorized by the
authority legislation unless suchAntideficiency Act, not for policy
authority is effective only to the extentreasons.
provided in appropriations acts.
Deficiency Apportionment. An
Credit Subsidy Cost. The estimatedapportionment by the Office of
cost, over the duration of a direct loanManagement and Budget of available
or a loan guarantee, calculated on thebudgetary resources in an amount that
basis of the net present value of the cashmay compel the enactment of
flows of the loan or guarantee,supplemental appropriations. Such
excluding administrative expenses. Forapportionments may be made only for
direct loans, the subsidy cost is the netthe purposes allowed by the
present value of loan disbursements, lessAntideficiency Act.
repayments of principal and interest, and
fees. For loan guarantees, the subsidyDeficit. An excess of outlays over
cost is the net present value ofrevenues.
government payments for defaults,
interest subsidies, and other payments,Direct Loan. A disbursement of funds
less payments to the government for(not in exchange for goods or services)
fees, other charges, and recoveries.that is contracted to be repaid. The
dollar value of direct loan obligations is
Current Dollars. The dollar value of aincluded in the congressional budget
good or service in terms of pricesresolution. The subsidy cost of direct

loans is reported in the President’sincreased by an amount equal to the
budget in accord with proceduresadditional spending.
established by the Federal Credit Reform
Act of 1990.Entitlement Authority. A law that
obligates the federal government to
Direct Spending. Budget authority,make payments to eligible persons,
and the resulting outlays, provided inbusinesses, or governments. Entitlement
laws other than annual appropriationsauthority may be funded by either a
acts. Appropriated entitlements arepermanent or annual appropriations.
classified as direct spending. Direct
spending is distinguished by the BudgetExpired Account. An appropriation or
Enforcement Act from discretionaryfund account in which the balances are
spending and is subject to the PAYGOno longer available for incurring new
rules.obligations because the time available
for such obligations has expired.
Discretionary Spending. BudgetOutlays may be made in an expired
authority, and the resulting outlays,account to liquidate obligations incurred
provided in annual appropriations acts,when the account was open.
but not including appropriated
entitlements. Discretionary spending isFederal Debt. The total amount of
distinguished by the BudgetTreasury debt and agency debt,
Enforcement Act from direct spending.consisting of debt held by the public and
debt held by trust and special funds.
Discretionary Spending Limits.
Ceilings on budget authority and outlaysFederal Funds. All monies collected
for discretionary programs set by theand spent by the federal government
Budget Enforcement Act. Theseother than those designated as trust
spending limits are enforced byfunds. Federal funds include general,
congressional rules and sequestrationspecial, public enterprise, and
procedures.intragovernmental funds.
Earmarking. Earmarked revenues areFinancial Statements. Statements
dedicated by law to a specified account,showing the financial condition of an
fund, or program. These includeagency, including statements of financial
revenues deposited in trust and generalcondition, results of operations, cash
funds and offsetting collections creditedflows, and a reconciliation to budget
to appropriations accounts. Earmarkedschedules. The Government
expenditures are dedicated by anManagement Reform Act of 1994
appropriations act or the accompanyingrequires all agencies to have audited
committee report to a particular projectfinancial statements and for the Treasury
or activity within an issue a consolidated financial
statement for the federal government.
Emergency Spending. Spending
designated by the President andFinancing Account. An account
Congress as an emergency requirement.(established pursuant to the Federal
If it is direct spending, the amount is notCredit Reform Act) which receives
scored in enforcing the PAYGO rules; ifpayments from a credit program account
it is discretionary spending, theand includes other cash flows to and
discretionary spending limits arefrom the government resulting from
direct loan obligations or loan guarantee

commitments. The transactions ofFunctional Classification. A
financing accounts are not included inclassification of budgetary resources in
the budget totals.terms of the principal purposes they
serve. A function may be divided into
Fiscal Policy. Federal governmenttwo or more subfunctions. The last
policies with respect to taxes, spending,three digits of an account’s identification
and debt intended to promote thecode represent the subfunction into
nation’s macroeconomic goals,which the account has been classified.
particularly with respect to employment,
gross domestic product, price levelGovernment-sponsored Enterprises.
stability, and equilibrium in balance ofEnterprises established by the federal
payments.government, but privately owned.
Because they are private corporations,
Fiscal Year. The fiscal year for thethese enterprises are excluded from the
federal government begins on October 1budget totals. Information concerning
and ends on September 30. The fiscaltheir finances is included in the
year is designated by the calendar yearPresident’s budget. The
in which it ends; for example, fiscal yeargovernment-sponsored enterprises
1999 begins on October 1, 1998 andinclude the Farm Credit Banks and the
ends on September 30, 1999.Federal Home Loan Mortgage
Corporation, among others.
Fixed Account. An appropriation or
funds account with balances that areGross Domestic Product (GDP). The
available for a definite period of time, intotal market value of goods and services
contrast to accounts that have no-yearproduced domestically during a given
funds. Balances in fixed accountsperiod. In contrast to the Gross
expire if they have not been obligated byNational Product, GDP excludes capital
the end of the period for which they areincome earned from investments abroad
available.but includes the capital income that
nonresidents earn from domestic
Forward Funding. Budget authorityinvestment.
that becomes available for obligation
during one fiscal year and continues toIdentification Code. The 11-digit code
be available through the next fiscal year.assigned to each appropriation or fund
The budget authority is counted in theaccount that identifies: (1) the agency,
fiscal year for which the appropriation is(2) the account, (3) the timing of the
made (not the succeeding fiscal year).transmittal to Congress, (4) the type of
fund, and (5) the account’s functional
Full Funding. The provision of budgetclassification.
resources to finance the full estimated
cost of a project or activity, such as aImpoundment. An action or inaction
construction or procurement program,by an executive official or employee that
in contrast to incremental funding wheredelays or precludes the obligation or
only a portion of the estimated total costexpenditure of budget authority. Every
is provided for in a single fiscal year.impoundment is classified either as a
Also, the term “full funding” sometimesdeferral or as a rescission.
is applied to the appropriation of the full
amount authorized in authorizingJustification Materials. The
legislation.documentation submitted by an agency
to the Appropriations Committees in

support of its budget request. Thelender in the event of default by the
documentation typically justifies changesborrower. The Federal Credit Reform
between the current and the next fiscalAct provides for the cost of a
year for each line item in the agencyguaranteed loan (defined as the net
budget. The term is also applied bypresent value of all cash flows) to be
OMB to refer to the materials submittedincluded in the computation of budget
to it by an agency in support of itsauthority and budget outlays.
budget requests.
Management Control. The methods
Line Item. In executive budgeting, theand practices within an agency to
term usually refers to a particular itemsafeguard its assets, check the accuracy
of expenditure such as travel costs orand reliability of its accounting data, and
equipment. In congressional budgeting,foster compliance with prescribed
it usually refers to assumptions aboutfinancial management policies,
particular programs or accountssometimes referred to as internal
made—but not included—in the budgetcontrol.
resolution; in appropriations measures,
it usually refers to individual accounts orManagement Funds. Accounts
parts of accounts.authorized by law to receive collections
from two or more appropriations to
Line-Item Veto. The power of thecarry out a common purpose or activity
President to veto part of a bill passed bynot involving a continuing cycle of
Congress. The Line Item Veto Act ofoperations.
1996 authorized the President to cancel
parts of legislation containingMeans of Financing. Financial flows
discretionary budget authority, newthat are not included in budget receipts
direct spending, or limited tax benefits.or outlays. These include funds
The act was ruled unconstitutional byborrowed from the public, seigniorage,
the Supreme Court in 1998. At present,and the financing accounts established
therefore, the President must sign orpursuant to the Federal Credit Reform
veto the entire measure.Act.
Liquidating Account. An accountMid-Session Review. An updated
(established pursuant to the Federalsummary of the President’s budget,
Credit Reform Act) to handle all cashscheduled to be issued by July 15 each
flows to and from the governmentyear, containing revised estimates of
resulting from direct loan obligationsrevenue, budget authority, and outlays,
and loan guarantee commitments madeas well as other information.
prior to the start of FY1992.
Monthly Treasury Statement (MTS).
Liquidating Appropriation. AnA summary statement issued each month
appropriation to pay obligationsby the Treasury. The MTS presents
incurred pursuant to substantivedata on the receipts, outlays, and surplus
legislation, usually contract authority. or deficit for the month and fiscal year
A liquidating appropriation is notto date compared to the same period in
recorded as budget authority.the previous year.
Loan Guarantee. A commitment byMulti-year Appropriation. Budget
the federal government to pay part or allauthority provided in an appropriations
of the loan principal and interest to theact for a specified period of time in

excess of one fiscal year. Multi-yearpresent, off-budget entities include the
appropriations may cover periods thatSocial Security trust funds and the
do not coincide with the start or end offederal payment to the Postal Service
a fiscal year.Fund.
Multi-year Authorization. AnOffsetting Collections. Receipts from
authorization of appropriations for athe public that result from business-type
specified period of time in excess of oneactivities as well as collections from
fiscal year. Programs with multi-yearother government accounts. These
authorizations must be reauthorizedcollections are deducted from budget
periodically.authority and outlays; they are not
counted as receipts.
National Income and Product
Accounts (NIPA). Quarterly andOne-year Appropriation. Budget
annual accounts on aggregate economicauthority provided in an appropriations
activity, including the level andact that is available for obligation only
composition of the Gross Domesticduring a single fiscal year, usually the
Product. Federal revenues and outlaysfiscal year specified in the enacting
in the NIPA differ somewhat from thoseclause of the appropriations act.
reported in the budget.
Outlay Rate. (See Spendout Rate.)
No-year Appropriation. Budget
authority provided in an appropriationsOutlays. Payments made (generally
act that remains available for obligationthrough the issuance of checks or
for an indefinite period of time. No-yeardisbursement of cash) to liquidate
funds do not lapse if they are notobligations. Outlays during a fiscal year
obligated by the end of the fiscal year.may be for payment of obligations
incurred in prior years or in the same
Object Classification. A classificationyear.
of expenditures according to the goods
and services purchased (such asOutyear. A year beyond the budget
personnel, supplies, and equipment). Anyear, for which projections are made.
object classification schedule is included
for each appropriation account in thePAYGO (Pay-as-You-Go) Process.
budget.The procedure established by the
Budget Enforcement Act to ensure that
Obligated Balance. The amount ofrevenue and direct spending legislation
obligations incurred for which paymentdoes not add to the deficit or reduce the
has not yet been made. This balancesurplus. PAYGO requires that any
usually is carried forward until theincrease in the deficit or reduction in the
obligations are paid.surplus due to legislation be offset by
other legislation or sequestration.
Obligation. A binding agreement (suchPAYGO is enforced by estimating the
as through a contract or purchase order)five-year budgetary effects of all new
that will require payment.revenue and direct spending laws.
Off-budget Entities. The budget
authority, outlays, and receipts ofPermanent Authorization. An
certain federal entities that have beenauthorization of appropriations without
excluded by law from budget totals. Atlimit of time and, usually, without limit

of money. A permanent authorizationPublic Enterprise Fund. A revolving
continues in effect unless changed oraccount for business-type activities that
terminated by financed by offsetting collections
credited to the account.
Permanent Appropriation. Budget
authority that becomes available withoutReappropriation. Congressional
current action by Congress. Budgetaction to continue the availability of
authority is considered to be “current” ifbudget authority that has expired or
provided in the current session ofwould otherwise expire.
Congress and “permanent” if providedReappropriations are counted as budget
in prior sessions.authority in the year for which the
availability is extended.
Program Account. An account
(established pursuant to the FederalReconciliation Bill. A bill containing
Credit Reform Act) to which anchanges in law recommended pursuant
appropriation is made for the subsidyto reconciliation instructions in a budget
cost of a direct loan or loan guaranteeresolution.
program, from which such appropriation
is disbursed to a financing account.Reconciliation Instruction. A
provision in a budget resolution
Program and Financing Schedule. Adirecting one or more committees to
schedule, published in the President’srecommend legislation changing existing
budget, presenting budget data for eachlaw to bring spending or revenues into
account. The schedule consists ofconformity with the budget resolution.
several sections that provide data onThe instructions specify the committees,
obligations (by program activity), totalindicate the dollar changes to be
budgetary resources, new budgetachieved, and usually provide a deadline
authority, outlays, and which the legislation is to be
Program, Project, or Activity (PPA).
An element within a budget account.Reconciliation Process. A process
The PPAs are defined, for annuallyestablished in the Congressional Budget
appropriated accounts, by theAct by which Congress changes existing
appropriations acts and accompanyinglaws to conform tax and spending levels
reports and documentation; for accountsto the levels set in a budget resolution.
not funded by annual appropriations,Changes recommended by committees
PPAs are defined by the program listingspursuant to a reconciliation instruction
provided in the obligations section of theare incorporated into a reconciliation
Program and Financing schedule in thebill.
Reprogramming. The shift of funds
Public Debt. Amounts borrowed byfrom one purpose to another within the
the Treasury Department from thesame appropriation account.
public or from another fund or account.Reprogramming is often preceded by
The public debt does not include agencyconsultation between the federal agency
debt (amounts borrowed by otherand the appropriate congressional
agencies of the federal government).committees. It often involves formal
The total public debt is subject to anotification and, in some instances,
statutory limit.requires approval by congressional

Rescission. The cancellation of budgetprovided in advance by appropriations
authority previously provided byacts. These sometimes are referred to as
Congress. The Impoundment Control“backdoor spending.”
Act specifies that the President may
propose to Congress that funds beSpendout Rate. The rate at which the
rescinded. If both Houses have notbudget authority provided by Congress
approved a rescission proposal (byis spent by federal agencies; hence, the
passing legislation) within 45 days ofrate at which outlays occur (and
continuous session, any funds beingsometimes referred to as the “outlay
withheld must be made available forrate”).
Statutory Limit on the Public Debt.
Revolving Fund. An account or fundThe maximum amount, established in
in which all income derived from itslaw, of public debt that can be
operations is available to finance theoutstanding. The limit covers virtually
fund’s continuing operations withoutall debt incurred by the federal
fiscal year limitation.government, including borrowing from
trust funds, but excludes some debt
Scorekeeping. Procedures for trackingincurred by agencies.
and reporting on the status of
congressional budgetary actionsSubdivision. A distribution made by a
affecting budget authority, receipts,House or Senate committee pursuant to
outlays, the surplus or deficit, and theSection 302(b) of the Congressional
public debt limit.Budget Act of the budget authority and
outlays allocated to it. In the case of the
Scoring. Measuring the budget effectsAppropriations Committees, amounts
of legislation for purposes of the Budgetmust be subdivided among
Enforcement Act. OMB is responsiblesubcommittees.
for scoring enacted legislation to
determine whether a sequester isSupplemental Appropriation. Budget
necessary.authority provided in an appropriations
act in addition to regular or continuing
Sequester. The cancellation ofappropriations already provided.
budgetary resources pursuant to theSupplemental appropriations acts
Budget Enforcement Act in response tosometimes include items not included in
a breach in the discretionary spendingregular appropriations acts for lack of
limits or a violation of the PAYGOtimely authorization.
Tax Expenditures. Revenue losses
Special Funds. Funds earmarked byattributable to provisions of federal tax
law for specific purposes. Therelaw that allow a special exclusion or
sometimes is little practical differencededuction from income, or that provide
between a special fund and a trust fund.a special credit, preferential tax rate, or
deferral of tax liability. Tax
Spending Authority. The termexpenditures involve no payment of
designated in the Congressional Budgetfunds from the federal government.
Act for borrowing authority, contractRather, the Treasury forgoes some of
authority, entitlement authority, andthe receipts that it otherwise would have
authority to forgo offsetting collections,collected, and affected taxpayers pay

for which the budget authority is not

lower taxes than they otherwise wouldViews and Estimates Report. A
have had to issued each year (under the
Congressional Budget Act), within six
Transfer of Funds. The shift ofweeks of the President’s budget
budgetary resources from onesubmission, by each House and Senate
appropriation account or fund tocommittee with jurisdiction over federal
another. Funds may be transferred onlyprograms. Each views and estimates
when authorized by contains a committee’s comments
or recommendations on budgetary
Transfer Payments. Payments madematters within its jurisdiction.
by the federal government to individuals
or organizations for which no current orWarrants. Documents issued by the
future goods or services are provided inSecretary of the Treasury that establish
return. Transfer payments includethe amount of money (by account)
Social Security benefits, unemploymentauthorized to be withdrawn from the
insurance, and veterans’ benefits.Treasury.
Trust Funds. Accounts designated byWorking Fund Accounts. Funds
law as trust funds for receipts andestablished to receive advance payments
expenditures earmarked for specificfrom other agencies or accounts.
purposes.Consolidated working funds are not
used to finance the work directly, but
Undistributed Offsetting Receipts.only to reimburse the appropriation or
Collections that are offset against totalfund account that will finance the work
spending rather than against particularto be performed.

accounts or functions. These include
income from the sale of major assets and
offshore oil leases.
Unified Budget. A comprehensive
budget that includes all receipts and
outlays from federal funds and trust
Unobligated Balance. The portion of
budget authority that has not been
obligated. Unobligated balances are
carried forward until the period for
which they are available expires.
User Fees. Fees charged to users of
goods or services provided by the
federal government. In levying or
authorizing these fees, Congress
determines whether the revenue should
go into the Treasury or should be
available to the agency providing the
goods or services.