Introduction to the Budget Process

Trust in our system of democracy depends in no small part upon how well it delivers for us. The services we get from the government are part of that.  Few of us are happy about shut-downs, inadequate services, inequities, corruption, waste, and unsustainable debt.  That prompts a question: how is the U.S. budget process supposed to work?

The Constitution does not specify how the federal budget process should work, nor how the Office of the President and the various departments of government should fit into any budget process – even though the Constitution does designate to Congress (the House and the Senate) the authority to tax, borrow, and spend. Here is how the process looks today.

1. The President submits a budget request to Congress every year. This is a non-binding list of spending proposals from each department (Defense, Education, et cetera) that are meant to fund policy goals. Congress often substantially modifies the budget request.
2. The House and Senate each pass their own budget resolutions which are meant to support some mix of their own policy goals and presidential/departmental goals. They then reconcile the House and Senate versions in a joint conference. Budget resolutions are non-binding guides to overall annual spending limits for federal agencies. Note: there is no requirement for a resolution every year; if none is established, the previous year’s resolution remains in force.
3. House and Senate Appropriations subcommittees decide how much each expenditure program in each department of government may spend, within the guidelines set by the joint budget resolution. This is the so-called “markup” process. These decisions are assembled into appropriations bills, from each of 12 House sub-committees and each of the 12 Senate sub-committees. Note: a lot of spending (like social security) is mandatory and is not part of this process.
4. The House and Senate vote on each of their own appropriations bills and then reconcile any differences in a joint conference before forwarding them for presidential signature.  These appropriation bills are rarely completed together, instead they are often spread out over time.
5. If the President signs an appropriations bill, then that portion of the budget becomes law. If Congress does not complete action on an appropriations bill before the start of the fiscal year on October 1, then it must pass, and the President must sign, a continuing resolution to provide temporary funding for affected agencies and discretionary programs. If Congress doesn’t pass, or the President will not sign, a continuing resolution before October 1, then agencies that have not received funding through the ordinary appropriations process must shut down operations.
6. While appropriations bills say how money will be distributed to each government agency and program, they do not authorize actual spending. Thus, a concurrent step is for Congress to pass authorization bills. These often cover multiple years. When a multi-year authorization expires, Congress often passes a reauthorization to continue the programs in question.
7. Federal deficits are financed by borrowing which adds to the stock of government debt. The government maintains a legal limit on how much debt it can owe.  The debt limit is periodically revised when lawmakers fear the deficit cannot be adequately controlled.
8. From 1990 onward, Congress has tried to impose legal limits on deviations from deficit targets.  Under these Pay-As-You Go (PAYGO) Acts, any legislative changes to taxes or mandatory spending that increase multi-year deficits must be “offset” or paid for by other changes to taxes or mandatory spending that reduce deficits by an equivalent amount. Violations trigger across-the-board cuts (“sequestration”) in selected mandatory programs to restore the balance between budget costs and savings. The intent of the act has been diluted over the years through procedural modifications and waivers.
9. The Government Accountability Office provides an annual financial report for the government.  It periodically finds opportunities to improve accounting procedures or spend less wastefully.  In some countries, this audit function may often expend beyond financial concerns to also investigate how well budget objectives for public service delivery and the impact of public service delivery were met.

Want to learn more?

• The National Constitution Center offers some general historical background.
• PEFA.org has a very useful framework for evaluating the quality of budget processes around the world.
• Wikipedia provides a summary of the U.S. budget process.
• Wikipedia also has a good summary of mandatory spending.
• USA.gov offers a nice graphical summary of the budget process.
• The Congressional Research Service provides a detailed description of the budget process.
• Here is a Congressional Research Service note on PAYGO.