Federal Budget 101
Who Decides the Federal Budget?
The vision of democracy is that the federal budget – and all activities of the federal government – reflects the values of a majority of Americans. Yet many people feel that the federal budget does not reflect their values and that the budgeting process is too difficult to understand, or that they can’t make a difference.
And it is a complicated process. Many forces shape the federal budget. Some of them are forces written into law – like the president’s role in drafting the budget – while other forces stem from the realities of our political system.
And while the federal budget may not currently reflect the values of a majority of Americans, the ultimate power over the U.S. government lies with the people. We have a right and responsibility to choose our elected officials by voting, and to hold them accountable for representing our priorities. The first step is to understand what’s going on.
An Evolving Process
The U.S. Constitution designates the “power of the purse” as a function of Congress.1 That includes the authority to create and collect taxes and to borrow money when needed. The Constitution does not, however, specify how Congress should exercise these powers or how the federal budget process should work. It doesn’t specify a role for the president in managing the nation’s finances, either.
As a result, the budget process has evolved over time. Over the course of the twentieth century, Congress passed key laws that shaped the budgeting process into what it is today, and formed the federal agencies – including the Office of Management and Budget, the Government Accountability Office, and the Congressional Budget Office – that provide oversight and research crucial to creating the budget.2 The process as it’s supposed to work is described here.
Before the Budget
Congress creates a new budget for our country every year. This annual congressional budget process is also called the appropriations process.
Appropriations bills specify how much money will go to different government agencies and programs. In addition to these funding bills, Congress must pass legislation that provides the federal government the legal authority to actually spend the money.3 These laws are called authorization bills, or authorizations. Authorizations often cover multiple years, so authorizing legislation does not need to pass Congress every year the way appropriations bills do. When a multi-year authorization expires, Congress often passes a reauthorization to continue the programs in question.
Authorizations also serve another purpose. There are some types of spending that are not subject to the appropriations process. Such spending is called direct or mandatory spending, and authorizations provide the legal authority for this mandatory spending.4 Federal spending for Social Security and Medicare benefits is part of mandatory spending, because according to the authorization, the government must by law pay out benefits to all eligible recipients.
How Does the Federal Government Create a Budget?
There are five key steps in the federal budget process:
- The President submits a budget request to Congress
- The House and Senate pass budget resolutions
- House and Senate Appropriations subcommittees “markup” appropriations bills
- The House and Senate vote on appropriations bills and reconcile differences
- The President signs each appropriations bill and the budget becomes law
Step 1: The President Submits a Budget Request
The president sends a budget request to Congress each February for the coming fiscal year, which begins on Oct. 1.5
Step 2: The House and Senate Pass Budget Resolutions
Step 3: House and Senate Subcommittees “Markup” Appropriation Bills
Step 4: The House and Senate Vote on Appropriations Bills and Reconcile Differences
The full House and Senate then debate and vote on appropriations bills from each of the 12 subcommittees.
Step 5: The President Signs Each Appropriations Bill and the Budget Becomes Law
The president must sign each appropriations bill after it has passed Congress for the bill to become law. When the president has signed all 12 appropriations bills, the budget process is complete. Rarely, however, is work finished on all 12 bills by Oct. 1, the start of the new fiscal year.
This chart shows how all of these pieces fit together to make the annual federal budget process.
Continuing Resolutions and Omnibus Bills
When the budget process is not complete by Oct. 1, Congress may pass a continuing resolution so that agencies continue to receive funding until the full budget is in place.11 A continuing resolution provides temporary funding for federal agencies until new appropriations bills become law. When Congress does not pass a continuing resolution by October 1, it can result in a government shutdown, as in 2013.
When Congress can’t agree on 12 separate appropriations bills, it will often resort to an omnibus bill – a single funding bill that encompasses all 12 funding areas. The fiscal year 2015 budget was the result of a combined omnibus and continuing resolution enacted by Congress in December of 2014.
From time to time the government has to respond to unanticipated situations for which there is no funding, such as natural disasters. In these cases the government has to allocate additional resources and do so in a timely manner. This type of funding is allocated through legislation known as supplemental appropriations.
It’s Even Messier than It Sounds
So that’s how the budgeting process is supposed to go. And while that sounds pretty complicated, in practice, it’s even more so. Other factors that include the state of the economy, party politics, differing economic philosophies, and the impact of lobbying and campaign contributions also have a considerable impact on the federal budget process.