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.
- 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.
- 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 not authorizations to spend. They 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.
- 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.
- Constraints: A lot of spending (like social security and Medicare) is mandatory and cannot be touched as part of the appropriations process. Congress can only reduce the funding for a mandatory program by changing the authorization law for the program itself. This normally requires a 60-vote majority in the Senate to pass. Discretionary spending on the other hand will not occur unless Congress acts each year to provide the funding through an appropriations bill. The discretionary share of the federal budget is quite low. It was only 27% of the total in 2022, according to federal figures. That makes it very hard for those members of Congress who want to make budget cuts when revenues are low or there is too much debt.
- Squeezing: When the majority party in the House has only a few more seats than the minority, and when the majority party leader will not contemplate seeking votes from the minority party, then it becomes easier for just few majority representatives to squeeze the leadership for almost anything they may want.
- The House and Senate vote on each of their own appropriations bills and then reconcile any differences in a joint conference using simple majority votes, with some exceptions, before forwarding them for presidential signature. These final appropriation bills are rarely completed together, instead they are often spread out over time.
- 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 can try to pass a continuing resolution for the president to sign to provide temporary funding for affected agencies and discretionary programs. Here again, squeezing is possible when the majority party has only a small advantage in seats over the minority party.
- Shutdowns: There were no government shutdowns during the first 194 years of the American Republic, from 1787 to 1981. That changed after a 1981 memo from the then Attorney-General, citing an 1870 law that said “during periods of ‘lapsed appropriations,’ no funds may be expended except as necessary to bring about the orderly termination of an agency’s function.” Under this ruling, no appropriations means a shutdown, with a few exceptions for emergencies. Thus, 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.
- 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 spending authorization bills. These often cover multiple years. When a multi-year authorization expires, Congress often passes a reauthorization to continue the programs in question.
- 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 enough lawmakers agree it is necessary.
- 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.
- 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 expand 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.
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