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Budget Basics: Introducing the Federal Budget Process

This article will look at how the budget process was supposed to work.  (In other blog posts, we will look at how it actually works, and what might be done to improve the process.)

There are quite a few steps, each influenced by many actors. Even a quick overview will make a person realize that it is not hard for the process to be derailed, especially in a period of divided government or when there is a strong minority.

Although developing a budget is a yearly task, even if there is none, the government will spend a certain amount of money.  Ben Franklin wrote that the only things certain in life were death and taxes, but he did not live long enough to see government entitlement spending. Some laws do provide for “mandatory spending.” These are government expenditures that are paid out each year automatically. Most mandatory spending is for entitlement programs, such as Social Security.

Entitlements are programs where benefits are paid to any person who meets the required conditions.  You turn 65 – you are entitled to receive Medicare.  The law stipulates who is eligible and sets out a formula to determine the amount of the benefit an individual receives.  To reduce expenditures for Social Security, for instance, Congress would have to amend either the definition of who is eligible (raising, for instance, the retirement age) or change the amount paid (for instance, changing the automatic benefit increase from the wage index to the Consumer Price Index). Fully 65 percent of the federal budget goes to such entitlement programs.

The remaining 35 percent of the budget is called discretionary spending.  Congress must approve these programs each year. Discretionary spending covers everything from defense spending to disaster assistance, education to scientific research.  The budget and appropriations process governs the disbursement of funds for discretionary spending.

Both mandatory and discretionary spending can be contentious.  But since cutting entitlement programs usually means cutting benefits that are already being paid out to voters, it is considered politically risky.  Proposals to cut Social Security, for instance, have historically been compared to the electrified third rail of subway systems – touch it and you die.

As a result, the annual budget process focuses on the smaller discretionary portion of the budget.  The Budget Act of 1974 contains a blueprint for how the budget process is supposed to work.

First, the President is required by law to submit his budget proposal to Congress on or before the first Monday in February.   This multi-volume proposal consisting of thousands of pages is delivered by truck to Capitol Hill where is traditionally denounced as “dead on arrival.”  Usually, the President’s own party will not introduce the President’s budget on the floor – and often a member of the opposition will introduce the proposal just to force the member’s of the President’s party to vote against it.  Nevertheless, the budget document becomes a baseline by which congressional proposals are compared.

Once Congress receives the President’s budget, it gets to work crafting its own version. The House and Senate budget committees get an estimate by the Congressional Budget Office as to its independent estimate of the President’s budget costs, solicit feedback from the other committees, hold hearings and listen to administration officials and experts speak about the spending requested.  The budget committee then proposes a budget that outlines how much money may be authorized and appropriated for each major budget category, as well as how much revenue should be raised.  Each chamber then is supposed to vote on its own proposed budget, and then the differences between the two are ironed out between both chambers.  It is important to note, that the budget resolution is an internal congressional resolution (meaning that it binds only the House and Senate) and is not signed by the President.

The budget has two sections.  The first establishes the “big picture” of total spending, total revenues and the amount of the public debt.  The second section divides expenditures into 20 different categories, the groupings that comprise the various areas of governmental activities, such as national defense, transportation, and justice administration. These funds are then divided up into what are known as 302(a) allocations and parceled out to the various authorizing committees that determine how the money is to be spent. The Appropriations Committee in each chamber receives a separate 302(b) allocation that determines how much money can be appropriated by the various appropriations subcommittees.    This is the important distinction – authorizers determine how the money can be spent in each program and appropriators determine the amount that can be spent for each program.

Upon receiving their allotments, the House and Senate Appropriations subcommittees draft legislation providing discretionary funds to be spent. As the names of their originating committees would suggest, these are called “appropriation bills”. These two committees report their legislation to their respective chambers. In the course of debate on the appropriation bills, if the bills exceed the limit imposed by the budget resolution, a Member may raise a “point of order” (an objection that the chamber is undertaking a prohibited action) regarding the legislation, effectively halting it, unless enough colleagues vote to overrule him or her.  There are a total of 12 appropriation bills, which account for all the government’s discretionary spending. The appropriation bills are supposed to be considered in the House beginning May 15, and the last one should be reported by June 10. The Budget Act says the House must conclude the appropriations process by June 30.

Article One of the Constitution has been interpreted to mean that all revenue and spending bills must originate in the House.  Once the House passes an appropriation bill, the Senate can take up the bill and make its changes.  Since, in theory, the two chambers have agreed on a budget resolution setting spending caps for each area, the differences in the bills include disagreements over which sub-programs to fund at which levels.  Of course, that’s the theory – in practice this rarely happens.

So, according to the law, the two chambers resolve their differences on each appropriation bill and forward them to the President for his signature.  If any appropriations exceed their limits, or if tax revenues are either too high or too low, a reconciliation bill can be drafted by the Budget committee instructing each committee to make the necessary adjustments to “reconcile” their appropriations with the amount agreed to in the original budget resolution.

It doesn’t take a policy expert to know that this rarely happens.  In fact, the Congress has not passed all 12 appropriation bills on schedule since 1997.

Unfortunately, this year will be no exception to this trend.  When the process fails, Congress ends up either passing a series of continuing resolutions (temporary appropriations made to allow the departments and agencies covered by the bill to continue operations until a budget is passed) and omnibus appropriations bills that combine several or all appropriations into one massive piece of legislation.

The first portion of the 112th Congress was spent trying to clean up the fiscal mess left by the 111th Congress. Unfortunately, the budget process has become so dysfunctional that failure to meet the obligations of the law has become the norm, rather than the exception.

In future posts, we will discuss continuing resolutions, omnibus appropriations bills, and other inventions by Congress to compensate for its ongoing inability to meet the terms of the Budget Act.

Mark Strand is the President of the Congressional Institute and Timothy Lang is a research assistant. The Sausage Factory blog is a Congressional Institute project dedicated to explaining parliamentary procedure, Congressional politics, and other issues pertaining to the legislative branch.

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