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BUDGET SYSTEM AND CONCEPTS
OF THE
UNITED STATES GOVERNMENT
February 1994
For sale by the U.S. Government Printing Office
Superintendent of Documents, Mail Stop: SSOP, Washington, DC 20402-9328
ISBN 0-16-043035-6
THE FEDERAL GOVERNMENT DOLLAR
FISCAL YEAR 1995 ESTIMATES
WHERE IT COMES FROM.
WHERE IT GOES...
1.
GENERAL NOTES
This pamphlet was extracted from the Analytical Perspectives vol
ume of The Budget of the United States Government, Fiscal Year
1995.
2.
All years referred to are fiscal years, unless otherwise noted.
3.
Detail in this document may not add to the totals due to round
ing.
THE BUDGET SYSTEM AND CONCEPTS AND
GLOSSARY
OF THE
UNITED STATES GOVERNMENT
The budget system of the United States Government provides the
means by which the Government decides how much money to spend
and what to spend it on, and how to raise the money it has decided
to spend. Once these decisions are made, the budget system ensures
that they are carried out. The Government uses the budget system
to determine the allocation of resources among its major functions—
such as ensuring the national defense, promoting commerce, and
providing health care—as well as to determine the objectives and
scope of individual programs, projects, and activities. While the focus
of the budget system is on dollars, other resources, such as federal
employment, are controlled through the budget system, too. The
decisions made in the budget process affect the nation as a whole,
state and local governments, and individual Americans. Many budget
decisions have worldwide significance.
This chapter provides an overview of the budget system and ex
plains some of the more important budget concepts. A glossary of
budget terms is provided at the end of the chapter. Summary dollar
amounts illustrate major concepts. These figures and more detailed
amounts are discussed in more depth in other chapters of the budget
document.
The budget system is governed by various laws that have been
enacted to carry out requirements of the Constitution. The principal
laws pertaining to the budget system are referred to by title through
out the text, and complete citations are given later in this chapter.
THE BUDGET PROCESS
The budget process has three main phases, each of which is inter
related with the others:
(1) formulation of the President's budget;
(2) congressional action on the budget; and
(3) budget execution.
Formulation of the President's Budget
The Budget of the United States Government consists of several vol
umes that set forth the President's financial proposal with rec
ommended priorities for the Federal Government. The primary focus
of the budget is on the budget year—the next fiscal year for which
Congress needs to make appropriations. However, the budget may
propose changes to funding levels already provided for the current
year, and it covers the four years following the budget year in
order to reflect the effect of budget decisions over the longer term.
1
2
THE BUDGET SYSTEM AND CONCEPTS
The budget includes data on the most recently completed fiscal year
so that the budget estimates can be compared to actual accounting
data.
The process of formulating the budget begins not later than the
spring of each year, at least nine months before the budget is trans
mitted and at least 18 months before the fiscal year begins. (See
the Budget Calendar at the end of this section.) The President estab
lishes general budget and fiscal policy guidelines. Based on these
guidelines, the Office of Management and Budget (OMB) works with
die federal agencies to establish specific policy directions and plan
ning levels for the agencies, both for the budget year and for the
following four years, to guide the preparation of their budget re
quests.
During the formulation of the budget, there is a continual exchange
of information, proposals, evaluations, and policy decisions among
the President, the Director of OMB, other officials in the Executive
Office of the President, the Secretaries of the departments, and other
heads of Government agencies. Decisions concerning the upcoming
budget are influenced by the results of previously enacted budgets,
including the one for the fiscal year in progress, and reactions to
the last proposed budget, which is being considered by Congress.
Decisions are influenced also by projections of the economic outlook
that are prepared jointly by the Council of Economic Advisers, OMB,
and the Treasury Department.
In the fall, agencies submit budget requests to OMB, where budget
examiners and management analysts review them and identify for
OMB officials issues that need to be discussed with agencies. Many
issues are resolved between OMB and the agency. Others require
the involvement of the President and White House policy officials.
This decision-making process is usually completed by late December.
At that time, the final stage of developing detailed budget data
and the preparation of the budget documents begins.
The decision-makers must consider the effects of economic and
technical assumptions on the budget. Interest rates, the rate of infla
tion, employment levels, and the size of the beneficiary populations
are some of the assumptions that must be made. Small changes
in these assumptions can affect budget estimates by billions of dol
lars. Budget decisions must also take into account any statutory limi
tations on spending and the deficit (see Budget Enforcement below).
Thus, the budget formulation process involves the simultaneous con
sideration of the resource needs of individual programs, the allocation
of resources among the functions of the Government, the total outlays
and receipts that are appropriate in relation to current and prospec
tive economic conditions, and statutory constraints.
In most years, the President transmits the budget to Congress
early in each calendar year, eight to nine months before the beginning
of the next fiscal year on October first. The transmittal of the Presi
dent's budget to Congress is scheduled in law for the first Monday
in February. However, the budget has not always been transmitted
on the scheduled date for various reasons. In some years, Congress
has been late in passing appropriations acts for the fiscal year prior
THE BUDGET SYSTEM AND CONCEPTS
3
to the budget year, which delays preparation of the budget. Also,
this schedule does not require an outgoing President to transmit
a budget. In such a case, it is not practical for an incoming President
to complete a budget within a few days of taking office on January
20th.1
Congressional Action
Congress considers the President's budget proposals and approves,
modifies, or disapproves them. It can change funding levels, eliminate
programs, or add programs not requested by the President. It can
add or eliminate taxes and other sources of receipts, or make other
changes that affect the amount of receipts collected.
Congressional review of the budget begins shortly after the Presi
dent transmits the budget to Congress. Under the procedures estab
lished by the Congressional Budget Act of 1974, Congress considers
budget totals before completing action on individual appropriations.
The Act requires each standing committee of Congress to report
on budget estimates to the House and Senate Budget Committees
within six weeks after the President's budget is transmitted. The
Budget Committees then initiate the concurrent resolution on the
budget. The budget resolution sets targets for total receipts and for
budget authority and outlays, in total and by functional category
(see Functional Classification below). It allocates amounts of budget
authority and outlays within the functional category totals to the
committees that have jurisdiction over the programs in the functions.
The budget resolution is scheduled to be adopted by the whole
Congress by April 15 of each year, but passage is often delayed.
After passage of the budget resolution, a point of order can be
raised to block consideration of bills that would cause a committee's
allocation to be exceeded. Like the President's budget, the budget
resolution is subject to spending limitations imposed in law through
1998.
Budget resolutions are not laws and, therefore, do not require
the President's approval. However, Congress considers the Adminis
tration's views, because legislation developed to meet congressional
budget targets does require the President's approval. In some years,
the President and the joint leadership of Congress have formally
agreed on the framework of a deficit reduction plan. These agree
ments were reflected in the budget legislation passed for those years.
Congress does not enact a budget as such. It provides spending
authority for specified purposes in several appropriations acts each
year (usually thirteen). In making appropriations, Congress does not
vote on the level of outlays (spending) directly, but rather on budget
authority, which is the authority to incur legally binding obligations
of the Government that will result in immediate or future outlays.
In a separate process, prior to making appropriations, Congress usu
ally enacts legislation that authorizes an agency to carry out a par
ticular program and, in some cases, includes limits on the amount
1The transmittal date was changed in 1990 from the first Monday after January 3rd. Thus, President Clinton
was the first President in modem times to face this problem. The 1994 Budget was transmitted in early April
1993.
4
THE BUDGET SYSTEM AND CONCEPTS
that can be appropriated for the program. Some programs require
annual authorizing legislation, some are authorized for a specified
number of years, and others are authorized indefinitely. Congress
may enact appropriations for a program even though there is no
specific authorization for it.
Appropriations bills are initiated in the House. The Appropriations
Committee in each body has jurisdiction over annual appropriations.
Those committees are divided into subcommittees that hold hearings
and review detailed budget justification materials prepared by the
agencies within the subcommittee's jurisdiction. After a bill has been
approved by the committee and by the whole House, usually with
amendments to the original version, it is forwarded to the Senate,
where a similar review follows. In case of disagreement between
the two Houses of Congress, a conference committee (consisting of
Members of both bodies) meets to resolve the differences. The report
of the conference committee is returned to both Houses for approval.
When the measure is agreed to, first in the House and then in
the Senate, it is ready to be transmitted to the President as an
enrolled bill, for approval or veto.
If action on one or more appropriations bills is not completed
by the beginning of the fiscal year, Congress enacts a joint continuing
resolution to provide authority for the affected agencies to continue
financing operations up to a specified date or until their regular
appropriations are enacted. In some years, a portion or all of the
Government has been funded for the entire year by a continuing
resolution. Continuing resolutions must be presented to the President
for approval or veto.
Congress also provides spending authority in permanent laws; that
is, laws that do not need to be reenacted each year. In fact, while
spending authority for the majority of Federal programs is provided
each year in appropriations acts, most of the total spending authority
available in a year is provided by permanent laws. This is because
the budget authority for interest on the public debt ($293 billion
in 1993) and a few programs with large amounts of obligations
each year, such as social security ($306 billion in 1993), are funded
by permanent law. The outlays from permanent budget authority,
together with the outlays from obligations incurred with budget au
thority provided in previous years, account for the majority of the
outlay total for any year. Therefore, most outlays in a year are
not controlled through appropriations actions for that year. The types
of budget authority, their control by Congress, and the relation of
outlays to budget authority are discussed in more detail in later
sections.
Almost all taxes and most other receipts result from permanent
laws. Tax bills are initiated in the House. The House Ways and
Means Committee and the Senate Finance Committee review pro
posed tax measures.
In each of the last several years, Congress has enacted an omnibus
budget reconciliation act (OBRA), which combines many amendments
to permanent laws in order to change outlays and receipts that are
not controlled by appropriations acts. For example, benefit formulas
5
THE BUDGET SYSTEM AND CONCEPTS
or eligibility requirements for entitlement programs may be modified,
or Government agencies may be authorized to charge fees to cover
some of their costs. These acts, together with appropriations acts
for the year, often implement agreements between the President and
the Congress. Such acts may provide the means for enforcing these
agreements, as described below.
Budget Enforcement
The Balanced Budget and Emergency Deficit Control Act of 1985
(commonly known as the Gramm-Rudman-Hollings Act) constrains
legislation that would increase spending or decrease receipts through
1998. It was extended and amended extensively by the Budget En
forcement Act of 1990 and extended again by the Omnibus Budget
Reconciliation Act of 1993.
The Act divides spending into two types—discretionary spending
and direct spending (sometimes called mandatory spending). Discre
tionary spending is controlled through annual appropriations acts.
Funding for salaries and other operating expenses of Government
agencies, for example, is usually discretionary because it is usually
provided by appropriations acts. Direct spending is controlled by
permanent laws. Medicare and medicaid payments, unemployment
insurance benefits, and farm price supports are examples of direct
spending, because payments for those purposes are authorized in
permanent laws. The Act specifically defines funding for the Food
Stamp program as direct spending, even though funding for the
program is provided in appropriations acts. The Act includes receipts
under the same rules that apply to direct spending, because receipts
are generally controlled by permanent laws.
The Act constrains discretionary spending differently from direct
spending and receipts. Discretionary spending is constrained by dol
lar limits ("caps") on budget authority and outlays for each fiscal
year through 1998. The limits are adjusted when the budget is trans
mitted each year for actual inflation rates and for certain other rea
sons. The limits for this budget, adjusted to reflect budget proposals,
are shown in the following table:
DISCRETIONARY SPENDING LIMITS
(In billions of dollars)
1994
Budget authority .....................................................
Outlays......................................................................
515
544
1995
1996
1997
525
548
525
555
534
554
1998
537
554
If the amount of budget authority provided in appropriations acts
for the year exceeds the limit on budget authority, or the amount
of outlays estimated to result from this budget authority is estimated
to exceed the limit on outlays the Act specifies a procedure, called
sequestration, for reducing discretionary spending. Under a seques
ter, spending for most discretionary programs is reduced by a uni
form percentage. Special rules apply in reducing some programs,
and some programs are exempt from sequester by law. From adjourn
6
THE BUDGET SYSTEM AND CONCEPTS
ment of a session of Congress (usually in the Fall of each year)
through the following June 30thz discretionary sequesters take place
whenever an appropriation bill causes a limit to be breached. Because
a sequester in the last quarter of a fiscal year might be too disruptive,
the Act specifies that a sequester that otherwise would be required
then is to be accomplished by reducing the limit for the next fiscal
year. This ensures that regular appropriations acts, which are nor
mally enacted before Congress adjourns in the fall, and any supple
mental appropriations enacted during the fiscal year are covered.
Direct spending and receipts are constrained through "pay-as-yougo” rules. Under these rules, the cumulative effects of legislation
affecting direct spending or receipts must not increase the deficit.
Legislated increases in benefit payments, for example, have to be
offset by legislated reductions in other direct spending or increases
in receipts. Following the end of a session of Congress, OMB esti
mates the net effect on the deficit of laws enacted since the Act
was passed that affect direct spending and receipts. If there is an
estimated net increase in the deficit for the current fiscal year and
the budget year combined, the Act specifies sequester procedures
for the uniform reduction of most non-exempt direct spending pro
grams. Special rules apply in reducing some non-exempt programs.
Less than 3 percent of all direct spending is sequesterable; the rest
is exempt from sequester by law.
The Act provides that the estimates and calculations that determine
whether there is to be a sequester are to be made by OMB and
reported to the President and Congress. The Congressional Budget
Office (CBO) is required to make the same estimates and calculations,
and the Director of OMB is required to explain any differences be
tween the OMB and CBO estimates. The estimates and calculation
by OMB are the basis for sequester orders issued by the President.
The President's orders may not change any of the particulars of
the OMB report. The General Accounting Office is required to pre
pare compliance reports.
Budget Execution
Government officials are generally required to spend no more and
no less than has been appropriated, and they may use funds only
for purposes specified in law. Additionally, the funds available to
most executive branch agencies are subject to apportionment under
the Antideficiency Act. Under the Act, OMB usually apportions by
time periods (usually by quarter of the fiscal year) and sometimes
by activities. Agencies may request that an account be reapportioned
during the year to accommodate changing circumstances. This system
helps to ensure that funds are available to cover operations for the
entire year.
If changes in laws or other factors make it necessary, Congress
may enact supplemental appropriations. For example, a 1993 supple
mental appropriation act provided disaster assistance for the Midwest
floods.
On the other hand, the Executive Branch may withhold amounts
appropriated from obligation, under certain limited circumstances,
THE BUDGET SYSTEM AND CONCEPTS
7
in order to provide for contingencies/ to achieve savings made pos
sible through changes in requirements or greater efficiency of oper
ations/ or as specifically provided in law. The Impoundment Control
Act of 1974 specifies the procedures that must be followed if funds
are withheld. Deferrals, which are temporary withholdings, take ef
fect immediately unless overturned by an act of Congress. In 1993,
a total of $4.5 billion in deferrals were reported to Congress and
none were overturned. Rescissions, which permanently cancel budget
authority, do not take effect unless Congress passes a law approving
them. If such a law is not passed within 45 days of continuous
session, the withheld funds must be made available for spending.
In total, Congress has approved less than one-third of the amount
of funds that Presidents have proposed for rescission. In 1993, the
President proposed rescissions totalling $356 million, and Congress
enacted a total of $206 million.
Budget Calendar
The following timetable highlights the dates of significant budget
events during the year.
Between the 1st Monday in
January and the 1st Mon
day in February...............
President transmits the budget, including a sequester
preview report
Six weeks later.....................
Congressional committees report budget estimates to
Budget Committees.
April 15 .................................
Action to be completed on congressional budget resolu
tion.
May 15...................................
House consideration of annual appropriations bills may
begin.
June 15...................................
Action to be completed on reconciliation.
June 30...................................
Action on appropriations to be completed by House.
July 15 ...................................
President transmits Mid-Session Review of the budget.
August 20 .............................
OMB updates the sequester preview.
October 1 ..............................
Fiscal year begins.
15 days after the end of a
session of Congress.........
OMB issues final sequester report, and the President is
sues a sequester order, if necessary.
COVERAGE OF THE BUDGET
Federal Government and Budget Totals
The budget documents provide information on all Federal agencies
and programs. The total receipts and outlays of the Federal Govern
ment are composed of both on-budget receipts and outlays and offbudget receipts and outlays. By law, the receipts and outlays of
social security (the Federal Old-Age and Survivors Insurance and
the Federal Disability Insurance trust funds) and the Postal Service
Fund are excluded from the budget totals and from the calculation
of the deficit for Gramm-Rudman-Hollings Act purposes. The offbudget transactions are separately identified in the budget. The on
8
THE BUDGET SYSTEM AND CONCEPTS
budget and off-budget amounts are added together to derive totals
for the Federal Government.
TOTALS FOR THE BUDGET AND THE FEDERAL GOVERNMENT
(In billions of dollars)
1993
actual
On-budget:
Budget authority ....................................... ................................
Outlays........................................................ ................................
Receipts........................................................................................
1994
esti
mated
1995
esti
mated
1,204
1,142
842
1,220
1,203
913
1,238
1,224
999
Deficit.......................................................................................
Off-budget:
Budget authority ....................................... ................................
Outlays.........................................................................................
Receipts........................................................................................
-300
-290
-225
269
267
312
285
281
336
299
295
355
Surplus.....................................................................................
Federal Government:
Budget authority ....................................... ................................
Outlays.........................................................................................
Receipts........................................................................................
45
55
60
1,474
1,408
1,154
1,505
1,484
1,249
1,537
1,519
1,354
Deficit...................................................... ................................
-255
-235
-165
Neither the on-budget nor the off-budget totals include transactions
of Government-sponsored enterprises, such as the Federal National
Mortgage Association (Fannie Mae) and the Student Loan Marketing
Association (Sallie Mae). The enterprises were established by federal
law for public policy purposes but are privately owned and operated
corporations. Because of their close relationship to the Government,
these enterprises are discussed in several parts of the budget and
financial data are reported in the Appendix to the Budget of the United
States Government and some detailed tables.
A presentation for the Board of Governors of the Federal Reserve
System is included in the budget for information only. The amounts
are not included in either the on-budget or off-budget totals because
of the independent status of the System.
Functional Classification
The functional classification arrays budget authority, outlays, and
other budget data according to the major purpose served—such as
agriculture, income security, and national defense. There are nineteen
major functions, most of which are divided into subfunctions. For
example, the Agriculture function is divided into Farm Income Sta
bilization and Agricultural and Research Services. The functional
classification is an integral part of the congressional budget process,
and the functional array meets the Congressional Budget Act require
ment for a presentation in the budget by national needs and agency
missions and programs.
THE BUDGET SYSTEM AND CONCEPTS
9
The following criteria are used in the establishment of functional
categories and the assignment of activities to them:
• A function comprises activities with similar purposes addressing
an important national need. The emphasis is on what the Fed
eral Government seeks to accomplish rather than the means
of accomplishment, the objects purchased, or the clientele or
geographic area served.
• A function must be of continuing national importance, and
the amounts attributable to it must be significant.
• Each basic unit being classified (generally the appropriation
or fund account) usually is classified according to its predomi
nant purpose and assigned to only one subfunction. However,
some large accounts that serve more than one major purpose
are subdivided into two or more subfunctions.
• Activities and programs are normally classified according to
their primary purpose (or function) regardless of which agencies
conduct the activities.
Chapter 7, "Federal Spending by Function, Subfunction, and Major
Program" in the Analytical Perspectives volume of the 1995 budget
provides information on budget authority and outlays by function
and subfunction.
Agencies, Accounts, Programs, Projects, and Activities
Various summary tables in the Analytical Perspectives volume of
the 1995 budget provide information on budget authority, outlays,
and receipts arrayed by Federal agency. Chapter 25 of that volume,
"Federal Programs by Agency and Account," consists of a table
that lists budget authority and outlays by budget account within
each agency and the totals for each agency of budget authority,
outlays, and receipts that offset the agency spending totals. The Ap
pendix to the Budget of the United States Government provides budg
etary, financial, and descriptive information about programs, projects,
and activities by account within each agency. That volume of the
budget also presents the most recently enacted appropriation lan
guage for an account and any changes that are proposed to be
made for the budget year.
Types of Funds
Agency activities are financed through Federal funds and trust
funds.
Federal funds comprise several types of funds. The general fund,
which is the greater part of the budget, is credited with receipts
not earmarked by law for a specific purpose, such as almost all
income tax receipts, and is also credited with the proceeds of general
borrowing. General fund appropriation accounts record general fund
expenditures. General fund appropriations are drawn from general
fund receipts collectively and, therefore, are not specifically linked
to receipt accounts. Special funds consist of receipt accounts for Fed
eral fund receipts that are earmarked by law for specific purposes
and associated appropriation accounts for the expenditure of the
earmarked receipts. Public enterprise (revolving) funds are used for
10
THE BUDGET SYSTEM AND CONCEPTS
programs authorized by law to conduct a cycle of business-type
operations, primarily with the public, in which outlays generate col
lections. The collections and the outlays of the fund are recorded
in the same account. Intragovemmental funds are revolving funds
that conduct business-type operations primarily within and between
Government agencies.
Trust funds are established to account for the receipt and expendi
ture of monies by the Government for carrying out specific purposes
and programs in accordance with the terms of a statute that des
ignates the fund as a trust fund (such as the Highway Trust Fund)
or for carrying out the stipulations of a trust agreement (such as
any of several trust funds for gifts and donations for specific pur
poses). Trust revolving funds are credited with collections earmarked
by law to carry out a cycle of business-type operations. There is
no substantive difference between a trust fund and a special fund
or between a trust revolving fund and a public enterprise revolving
fund.
Current Expenses and Capital Investment
The budget includes spending for all types of spending, including
both current operating expenses and capital investment. Capital in
vestment includes purchase of land, structures, and equipment. It
also includes subsidies for capital investment provided by direct
loans and loan guarantees; the purchase of other financial assets;
and the conduct of research, development, education, and training.
COLLECTIONS
In General
Money collected by the Government is classified into two major
categories:
• Governmental receipts, which are compared in total to outlays
(net of offsetting collections) in calculating the surplus or deficit.
• Offsetting collections, which are deducted from gross outlays
to produce net outlay figures.
Governmental Receipts
These are collections from the public that result primarily from
the exercise of the Government's sovereign or governmental powers.
Governmental receipts consist mostly of individual and corporate
income taxes and social insurance taxes, but also include compulsory
user charges, receipts from customs duties, court fines, certain license
fees, and deposits of earnings by the Federal Reserve System. Gifts
and donations are also counted as governmental receipts. Total re
ceipts for the Federal Government include both on-budget and offbudget receipts (see the table, "Totals for the Budget and Federal
Government," which appears earlier in this section.)
Offsetting Collections
These are amounts received from the public as a result of business
like or market-oriented activities (for example, proceeds from the
Seile of postage stamps or electricity, fees for admittance to recreation
THE BUDGET SYSTEM AND CONCEPTS
11
areas, or the proceeds from the sale Government-owned land) and
amounts collected from other Government accounts. Offsetting collec
tions from the public are deducted from gross budget authority and
outlays, rather than combined with governmental receipts. The pur
pose of this treatment is to produce budget totals for receipts, budget
authority, and outlays that represent governmental rather than mar
ket activity. Intragovernmental offsetting collections are deducted
from gross budget authority and outlays in order to avoid the double
counting that would occur if budget authority and outlays for both
the payment between Government accounts and the payment from
a Government account to the public were included in the totals.
Offsetting collections are classified into two major categories: offset
ting collections credited to appropriation or fund accounts, and off
setting receipts (that is, offsetting collections deposited in receipt
accounts). The offset is applied differently for each type.
Offsetting Collections Credited to Expenditure Accounts
For all revolving funds and many appropriation accounts, laws
authorize collections to be credited directly to expenditure accounts
and, usually, to be spent for the purpose of the account without
further action by Congress. For example, a permanent law authorizes
the Postal Service to use collections from the sale of stamps to finance
its operations without a requirement for annual appropriations. The
offsetting collections that are authorized to be spent are recorded
as budget authority. Sometimes, however, appropriations acts contain
limitations on the obligations that can be financed by such budget
authority. In those cases, the recorded budget authority is adjusted
to reflect the amount available to incur obligations. The budget au
thority and outlays of the appropriation or fund account are shown
both gross (that is, before deducting offsetting collections) and net
(that is, after deducting offsetting collections). Totals for the agency,
subfunction, and budget are net of offsetting collections.
Offsetting Receipts
Offsetting collections that are not authorized to be credited to
expenditure accounts are credited to general fund, special fund, or
trust fund receipt accounts and are called offsetting receipts. Offset
ting receipts are deducted from budget authority and outlays in
arriving at total budget authority and outlays. In most cases, such
deductions are made at the subfunction and agency levels. Unlike
offsetting collections credited to expenditure accounts, offsetting re
ceipts do not offset budget authority and outlays at the account
level. Offsetting receipts are subdivided into three categories, as fol
lows:
• Proprietary receipts from the public.—These are collections from
the public, deposited in receipt accounts, that arise out of the
business-type or market-oriented activities of the Government.
Most proprietary receipts are deducted from the budget author
ity and outlay totals of the agency that conducts the activity
generating the receipt and of the subfunction to which the
activity is assigned. For example, fees for using National Parks
12
THE BUDGET SYSTEM AND CONCEPTS
are deducted from the totals for the Department of Interior,
which has responsibility for the parks, and the Recreational
Resources subfunction. A limited number of proprietary re
ceipts, however, are not offset against any specific agency or
function and are classified as undistributed offsetting receipts.
They are deducted from the Government-wide totals for budget
authority and outlays. For example, the collections of rent and
royalties from Outer Continental Shelf lands are undistributed
because the amounts are large and for the most part are not
related to the spending of the agency and subfunction that
administers the transactions.
• Intragovernmental transactions.—These are collections from ap
propriation or fund accounts that are deposited into receipt
accounts. Most intragovernmental transactions are deducted
from the budget authority and outlays of the agency that con
ducts the activity generating the receipts and of the subfunction
to which the activity is assigned. In two cases, however, intragovemmental transactions appear as special deductions in com
puting total budget authority and outlays for the Government
rather than as offsets at the agency level—agencies' payments
as employers into employee retirement trust funds and interest
received by trust funds. The special treatment for these receipts
is necessary because the amounts are large and would distort
the agency totals if attributed to the agencies.
• Offsetting governmental receipts.— These are collections that are
governmental in nature but are required by law to be treated
as offsetting.
There are several categories of intragovernmental transactions.
Intrabudgetary transactions include all payments from on-budget
expenditure accounts to on-budget receipt accounts. These are sub
divided into three categories: (1) interfund transactions, where the
payment is from one fund group (either Federal funds or trust funds)
to a receipt account in the other fund group; (2) Federal intrafund
transactions, where the payment and receipt both occur within the
Federal fund group; and (3) trust intrafund transactions, where the
payment and receipt both occur within the trust fund group. In
addition, there are intragovernmental transactions that are not
intrabudgetary—payments from on-budget expenditure accounts to
off-budget receipt accounts, and from off-budget expenditure ac
counts to on-budget receipt accounts.
BUDGET AUTHORITY AND OTHER BUDGETARY
RESOURCES, OBLIGATIONS, AND OUTLAYS
Budget Authority and Other Budgetary Resources
Government agencies are permitted to enter into obligations requir
ing either immediate or future outlays only when they have been
granted authority to do so by law. This authority is recorded as
budget authority in the year that it first becomes available. Unobli
gated balances of budget authority may remain available from pre
vious years, but they are not recorded as budget authority again
in subsequent years. They do, however, constitute a budgetary re
THE BUDGET SYSTEM AND CONCEPTS
13
source that is available for obligation. The use of budgetary resources
may be constrained by the imposition of legally binding limitations
on obligations (for example, obligations for administrative expenses
of benefit programs). Such limitations substitute for budget authority,
for some purposes, and are treated as a budgetary resource.
In deciding the amount of budget authority to request for a pro
gram, project, or activity, Government officials estimate the total
amount of obligations that will need to be incurred to achieve desired
goals and subtract the amounts of unobligated balances available
for these purposes. The amount of budget authority requested is
influenced by the nature of the programs, projects, or activities being
financed. For current operating expenses, die amount requested usu
ally is the amount estimated to be needed for the year. For major
procurement programs and construction projects, a full funding pol
icy generally applies. Under this policy, an amount that is estimated
to be adequate to complete the procurement or project must be
requested to be appropriated in the first year, even though it may
be obligated over several years. This policy is intended to avoid
piecemeal funding of programs and projects that cannot be used
until they have been completed.
Budget authority takes several forms:
• appropriations, which permit obligations to be incurred and
payments to be made;
• borrowing authority, which permits obligations to be incurred
but requires that funds be borrowed, generally from the general
fund of the Treasury, to make payment; and
• contract authority, which permits obligations in advance of
a separate appropriation of tike cash for payment or in anticipa
tion of the collection of receipts that can be used for payment.
The form of budget authority is usually determined in the authoriz
ing statute for a program. Most programs are funded by appropria
tions. An appropriation may make available funds from the general
fund, special funds, trust funds, or a combination of those sources.
The authority to spend offsetting collections credited to expenditure
accounts is another form of appropriation. Borrowing authority is
usually authorized for business-like activities where the activity being
financed is expected to produce income over time with which to
repay the borrowing with interest. Contract authority is a traditional
form of budget authority for certain programs, particularly transpor
tation programs.
Budget authority that is provided in an annual appropriations act
is available for obligation only during the fiscal year to which the
appropriations act applies, unless the appropriation language provid
ing the budget authority specifies that it is to remain available for
a longer period. Typically, budget authority for current operations
is made available for obligation in only one year. Some budget au
thority is made available for a specified number of years. Other
budget authority, including most provided for construction, some
for research, and many appropriations of trust fund receipts, is made
available for obligation until the amount appropriated has been ex
pended or until the program objectives have been attained.
14
THE BUDGET SYSTEM AND CONCEPTS
Congress usually makes budget authority available on the first
day of the fiscal year for which the appropriations act is passed.
Occasionally, the appropriations language specifies a different timing.
The language may provide an advance appropriation—budget au
thority that does not become available until one year or more beyond
the fiscal year for which the appropriations act is passed. Forward
funding refers to budget authority that is made available for obliga
tion beginning in the last quarter of the fiscal year (beginning on
July 1st) for the financing of ongoing grant programs dtuing the
next fiscal year. This kind of funding is used mostly for education
programs, so that obligations for grants can be made prior to the
beginning of the next school year. For certain benefit programs fund
ed by annual appropriations, the appropriation provides for advance
funding—budget authority that is to be charged to the appropriation
in the succeeding year but which authorizes obligations to be in
curred in the last quarter of the fiscal year if necessary to meet
benefit payments in excess of the specific amount appropriated for
the year.
When budget authority is made available by law for a specific
period of time, any part that is not obligated during that period
expires and cannot be used later. Provisions of law that extend the
availability of unobligated amounts that have expired or would other
wise expire are called reappropriations. Reappropriations are counted
as new budget authority in the fiscal year in which the balances
become newly available. For example, if a 1994 appropriations act
extends the availability of unobligated budget authority that other
wise would expire at the end of 1993, new budget authority would
be recorded for 1994.
Budget authority is classified in the budget as current or permanent.
Generally, budget authority is current if it is provided by annual
appropriations acts and permanent if it becomes available pursuant
to standing authorizing legislation. Advance appropriations of budget
authority are classified as permanent, even though they are provided
in annual appropriations acts, because they become available a year
or more following the year to which the act pertains. The authority
to spend offsetting collections credited to appropriation and revolving
fund accounts usually is provided by authorizing legislation and,
therefore, is usually a form of permanent budget authority.
Obligations and outlays resulting from permanent budget author
ity, including the authority to spend offsetting collections credited
to expenditure accounts, account for more than half of the budget
totals. Put another way, less than half of the obligations and outlays
in the budget result from annual appropriations acts. Most permanent
budget authority, other than the authority to spend offsetting collec
tions, arises from the authority to spend trust fund receipts and
the authority to pay interest on the public debt. Most authority
to spend offsetting collections applies to public enterprise revolving
funds.
Budget authority also is classified in the budget as definite or
indefinite. Budget authority is definite if the legislation that provides
it specifies a definite dollar amount (including an amount not to
THE BUDGET SYSTEM AND CONCEPTS
15
be exceeded). Budget authority is indefinite if, instead of specifying
an amount, the legislation providing it permits the amount to be
determined by subsequent circumstances. For example, indefinite
budget authority is provided for interest on the public debt, payment
of claims and judgments awarded by the courts against the U.S.,
and many entitlement programs. Many of the laws that authorize
collections to be credited to revolving, special, and trust funds make
all of the collections available for expenditure for the authorized
purposes of the fund. Such authority is considered to be indefinite
budget authority. In some such cases, only some of these amounts
are counted as budget authority, because they are precluded from
obligation in a fiscal year by a provision of law, such as a limitation
on obligations or a benefit formula (for example, the formula for
unemployment insurance benefits).
Obligations Incurred
Following the enactment of budget authority and the completion
of required apportionment action, Government agencies incur obliga
tions. Such obligations include: the current liabilities for salaries,
wages, and interest; contracts for the purchase of supplies and equip
ment, construction, and the acquisition of office space, buildings,
and land; and other arrangements requiring the payment of money.
For Federal credit programs, obligations are recorded in an amount
equal to the estimated subsidy cost of direct loans and loan guaran
tees (see FEDERAL CREDIT below).
Outlays
Outlays are recorded when obligations are paid. The amount of
the outlay is the amount paid. Obligations are usually paid in the
form of cash (currency, checks, or electronic fund transfers). However,
obligations also may be paid and outlays recorded even though no
cash is disbursed. For example, outlays are recorded for the full
amount of Federal employees' salaries, even though the cash dis
bursed to the employee is net of Federal and state taxes, retirement
contributions, life and health insurance premiums, and other deduc
tions. (Receipts are also recorded for the deductions that represent
payments to the Government.) Outlays are recorded when debt in
struments (bonds, debentures, notes, or monetary credits) are used
to pay obligations. (An increase in debt is also recorded when such
instruments are used.) For example, the acquisition of physical assets
through certain types of lease-purchase arrangements is treated as
though an outlay were made for an outright purchase. Because no
cash is paid at that time to the nominal owner of the asset, a debt
is recorded. Lease payments in such cases are recorded as repayments
of principal and interest.
The treatment of interest varies. Outlays for the interest on the
public issues of Treasury debt securities are recorded as the interest
accrues, not when the cash is paid. Interest on special issues of
the debt securities held by trust funds and other Government
accounts is normally stated on a cash basis. When a Government
account invests in Federal debt securities, the purchase price is usu
16
THE BUDGET SYSTEM AND CONCEPTS
ally close or identical to the par (face) value of the security. The
budget records the investment at par value and adjusts the interest
paid by Treasury and collected by the account by the difference
between purchase price and par, if any. However, in the case of
two trust funds in the Department of Defense, the Military Retire
ment Trust Fund and the Education Benefits Trust Fund, the dif
ferences between purchase price and par are routinely relatively
large. For these funds, the budget records the holdings of debt at
par but records the differences between purchase price and par as
adjustments to the assets of the funds that are amortized over the
life of the security. Interest is recorded as the amortization occurs.
The special issues of zero-coupon bonds held by the Pension Benefit
Guaranty Corporation are recorded at market value and the interest
is accrued.
For Federal credit programs, outlays for the subsidy cost of direct
loans and loan guarantees are recorded as the underlying loans are
disbursed.
Refunds of receipts (such as income taxes in excess of tax liabilities)
are recorded as reductions of receipts, rather than as outlays.
Outlays during a fiscal year may be for the payment of obligations
incurred in the same year or in prior years. Obligations, in turn,
may be incurred under budget authority provided in the same or
in prior years. Outlays, therefore, flow in part from unexpended
balances of prior year budget authority and in part from budget
authority provided for the year in which the money is spent. The
ratio of the outlays resulting from budget authority enacted in any
year to the amount of that budget authority is referred to as the
spendout rate for that year.
Outlays for an account are stated both gross and net of offsetting
collections, but function, agency, and Government-wide outlay totals
are only stated net. Total outlays for the Federal Government include
both on-budget and off-budget outlays. (See the table, "Totals for
the Budget and Federal Government," which appears earlier in this
section.)
Balances of Budget Authority
Not all budget authority enacted for a fiscal year results in obliga
tions and outlays in the same year. In the case of budget authority
that is available for more than one year, the unobligated balance
of budget authority that is still available at the end of a year may
be carried forward for obligation in the following year. The obligated
balance is that portion of the budget authority that has been obligated
but not yet paid. For example, in the case of salaries and wages,
1 to 3 weeks elapse between the time of obligation and the time
of payment. In the case of major procurement and construction, pay
ment may occur over several years. Obligated balances of budget
authority are carried forward until the obligations are paid.2
A change in the amount of obligations incurred from one year
to the next is not necessarily accompanied by an equal change in
2Additional information is provided in a separate report, "Balances of Budget Authority," which is available
from the National Technical Information Service, Department of Commerce, shortly after the budget is transmitted.
THE BUDGET SYSTEM AND CONCEPTS
17
either the budget authority or the outlays of that same year. Con
versely, a change in budget authority in any one year may cause
changes in the level of obligations and outlays for several years.
FEDERAL CREDIT
Government programs may be carried out through federally sup
ported credit in the form of direct loans or loan guarantees. A
direct loan is a disbursement of funds by the Government to a
non-Federal borrower under a contract that requires the repayment
of such funds with or without interest. A loan guarantee is any
guarantee, insurance, or other pledge with respect to the payment
of all or a part of the principal or interest on any debt obligation
of a non-Federal borrower to a non-Federal lender. The Federal Credit
Reform Act prescribes the budget treatment for Federal credit pro
grams. This treatment is designed to measure the cost of subsidizing
direct loans and guaranteed loans in the budget, rather than the
cash flows, so they can be compared to each other and to other
methods of delivering benefits, such as grants, on an equivalent
basis.
Under credit reform, the estimated long-term cost to the Govern
ment arising from the direct loans and loan guarantees of a credit
program must be estimated and recorded in the budget in a credit
program account. The cost is calculated on the basis of die net present
value of estimated disbursements over the term of the loan less
estimated collections.3 For most programs, direct loan obligations
and loan guarantee commitments cannot be made unless Congress
has appropriated funds for the costs in advance in annual appropria
tions acts. In addition, the appropriation language for most credit
programs includes annual limitations on the amount of obligations
for direct loans and commitments for loan guarantees.
When a direct or guaranteed loan is disbursed, the program ac
count makes a payment equal to the cost, which is recorded as
an outlay, to a non-budgetary credit financing account. For a few
programs, the computed cost is negative for a portion or all of
the direct loans and loan guarantees. In such cases, the financing
account makes a payment to a special fund receipt account estab
lished for the program, where it is recorded as an offsetting receipt.
The cost of the outstanding direct and guaranteed loans is
reestimated each year. If the cost is estimated to have increased,
an additional outlay is made from the program account to the financ
ing account, and, if the cost is estimated to have decreased, a pay
ment is made from the financing account to the program's special
fund receipt account, where it is recorded as an offsetting receipt.
A permanent appropriation is available to pay the increased costs
resulting from reestimates.
If the terms of an outstanding direct loan or loan guarantee are
modified in a way that increases the cost, an outlay in the amount
3 Present value is a standard financial concept that allows for the time value of money, that is, for the fact
that a given sum of money is worth more at present than in the future because interest can be earned on
it The cost of direct loans and loan guarantees is a net present value because collections are offset against
disbursements.
18
THE BUDGET SYSTEM AND CONCEPTS
of the increased cost is made from the program account to the financ
ing account. The additional cost is recorded as an obligation against
the budget authority provided for the costs of the program for that
year. The requirement to record the costs of modification applies
to pre-credit reform, as well as post-credit reform, direct loans and
loan guarantees.
Credit financing accounts record all cash flows to and from the
Government arising from direct loan obligations and loan guarantee
commitments. These cash flows consist mainly of direct loan dis
bursements and repayments and loan guarantee default payments.
The cash flows of direct loans and of loan guarantees are recorded
in separate financing accounts for programs that do both. The trans
actions of the financing accounts are displayed in the budget docu
ments for information and analytical purposes, together with the
related program accounts, but are excluded from the budget totals
because they are not a cost to the Government. Financing account
transactions are a means of financing a budget surplus or deficit
(see Credit Financing Accounts below).
The transactions associated with direct loan obligations and loan
guarantee commitments made prior to 1992 continue to be accounted
for on a cash flow basis and are recorded in liquidating accounts.
In most cases, the liquidating account is the account that was used
for the program prior to the enactment of credit reform in 1990.
BUDGET DEFICIT OR SURPLUS AND MEANS OF
FINANCING
A budget deficit is the amount by which outlays exceed receipts.
Deficits are financed by borrowing and, to a limited extent, the other
items discussed under this heading. The debt (debt held by the
public) is the cumulative amount of borrowing to finance deficits,
less repayments. When receipts exceed outlays, the difference is a
budget surplus. Surpluses are used to reduce debt and, to a limited
extent, may be absorbed by the other items.
Borrowing and Repayment
Borrowing is not defined as receipts, and debt repayment is not
defined as outlays. If they were, the budget would virtually be bal
anced by definition. This rule applies both to borrowing in the form
of Treasury securities and to specialized borrowing in the form of
agency securities (including the issuance of debt securities to liquidate
an obligation and the sale of certificates representing participation
in a pool of loans). In addition to issuing debt to five public, the
Government issues debt to Government accounts, primarily trust
funds that are required by law to invest in Treasury securities. This
debt is not a means of financing deficits, because it does not raise
any additional cash. In 1993, the Government borrowed $247 billion
from the public to finance the deficit in that year. At the end of
1993, the debt held by the public was $3,247 billion. (See Chapter
13, "Federal Borrowing and Debt," in this Analytical Perspective vol
ume of the 1995 budget for a fuller discussion of this topic.)
THE BUDGET SYSTEM AND CONCEPTS
19
Exercise of Monetary Power
Seigniorage is the profit from coining money. It is the difference
between the value of coins as money and their cost of production.
Seigniorage on coins arises from the exercise of the Government's
monetary powers but differs from receipts coming from the public,
since there is no corresponding payment by another party. Therefore,
seigniorage is excluded from receipts and treated as a means of
financing the deficit other than borrowing from the public. The incre
ment (profit) resulting from the sale of gold as a monetary asset
also is treated as a means of financing, since the value of gold
is determined by its value as a monetary asset rather than as a
commodity.
Credit Financing Accounts
The net cash flows of credit programs are recorded in credit financ
ing accounts, which are excluded from the budget totals and are
called net financing disbursements. (See FEDERAL CREDIT above.)
Net financing disbursements are defined in the same way as the
outlays of a budgetary account and may be either positive or nega
tive. If positive, they must be paid in cash and increase the require
ment for Treasury borrowing in the same way as an increase in
budget outlays and the budget deficit; if negative, they provide cash
to the Treasury that can be used to finance the payment of the
Government's obligations. The net financing disbursements are there
fore a means of financing the deficit other than borrowing from
the public.
Deposit Fund Account Balances
Certain accounts outside the budget, known as deposit funds, are
established to record amounts held temporarily until ownership is
determined (for example, earnest money paid by bidders for mineral
leases) or held by the Government as agent for others (for example,
State and local income taxes withheld from Federal employees' sala
ries and payroll deductions for the purchase of savings bonds by
employees of the Government). Deposit fund balances may be held
in the form of either invested or uninvested balances. Changes in
deposit fund balances, if they are not invested in Federal securities,
affect Treasury's cash balances, even though the transactions are not
a part of the budget. To the extent that deposit fund balances are
not invested, changes in the balances are reflected as a means of
financing the deficit other than borrowing from the public. To the
extent that the balances are invested in Federal debt, changes in
the balances are reflected as borrowing from the public or as a
means of financing the deficit other than borrowing from the public,
depending on whether the deposit funds are classified as part of
the public or the Government.
Exchange of Cash
The Government's deposits with the International Monetary Fund
(IMF) are considered to be monetary assets. Therefore, the movement
of money between the IMF and the Treasury is not considered in
20
THE BUDGET SYSTEM AND CONCEPTS
itself a receipt or an outlay, borrowing, or lending. However, interest
paid by the IMF on U.S. deposits is an offsetting collection. In a
similar manner, the holdings of foreign currency by the Exchange
Stabilization Fund are considered to be cash assets. Changes in these
holdings are outlays only to the extent there is a realized loss of
dollars on the exchange and are offsetting collections only to the
extent there is a realized dollar profit.
BASIS FOR BUDGET FIGURES
Data for the Past Year
The past year column (1993) generally presents the actual trans
actions and balances as recorded in agency accounts and as summa
rized in the central financial reports prepared by the Treasury Depart
ment for the most recently completed fiscal year. Occasionally the
budget reports corrections to data reported erroneously to Treasury
but not discovered in time to be reflected in Treasury's published
data. The budget usually notes the sources of such differences.
Data for the Current Year
The current year column (1994) includes estimates of transactions
and balances based on the amounts of budgetary resources that were
available when the budget was transmitted, including amounts ap
propriated for the year. This column also reflects any supplemental
appropriations or rescissions that are proposed in the budget.
Data for the Budget Year
The budget year column (1995) includes estimates of transactions
and balances based on the amounts of budgetary resources that are
estimated to be available, including amounts proposed to be appro
priated. The budget generally includes the appropriations language
for the amounts proposed to be appropriated. Where the estimates
represent amounts that will be requested under proposed legislation,
the appropriation language usually is not included; it is transmitted
later, usually after the legislation is enacted. In a few cases, proposed
language for appropriations to be requested under existing legislation
is transmitted later because the exact requirements are not known
when the budget is transmitted. In certain tables of the budget,
the items for later transmittal and the related outlays are identified
separately. Estimates of the total requirements for the budget year
include both the amounts requested with the transmittal of the budg
et and the amounts planned for later transmittal.
Data for the Outyears
The budget presents estimates for each of the four years beyond
the budget year (1996 through 1999) in order to reflect the effect
of budget decisions on longer term objectives and plans.
Allowances
Lump-sum allowances are included in the budget to cover certain
forms of budgetary transactions that are expected to increase or de
crease budget authority or outlays but are not reflected in the pro
gram details. Budget authority and outlays included in the allowance
THE BUDGET SYSTEM AND CONCEPTS
21
section cure never appropriated as allowances, but rather indicate
the estimated budget authority and outlays that may be requested
for specific programs.
PRINCIPAL BUDGET LAWS
The following are the basic laws pertaining to the Federal budget
process:
• Article 1, section 9, clause 7 of the Constitution, which requires
appropriations in law before money may be spent from the
Treasury.
• Chapter 11 of Title 31, United States Code, which prescribes
procedures for submission of the President's budget and infor
mation to be contained in it.
• Congressional Budget and Impoundment Control Act of 1974
(Public Law 93-344), as amended. This Act comprises the:
—Congressional Budget Act of 1974, as amended, which
prescribes the congressional budget process; and
—Impoundment Control Act of 1974, which controls cer
tain aspects of budget execution.
• Balanced Budget and Emergency Deficit Control Act of 1985
(Public Law 99-177), as amended, which prescribes rules and
procedures (including "sequestration") designed to eliminate ex
cess deficits. This Act is commonly known as the Gramm-Rud
man-Hollings Act.
• Budget Enforcement Act of 1990 (Title XIII, Public Law 101508), which significantly amended the laws pertaining to the
budget process, including the Congressional Budget Act and
the Balanced Budget and Emergency Deficit Control Act.
• Federal Credit Reform Act of 1990, a part of the Budget Enforce
ment Act of 1990, which amended the Congressional Budget
Act to prescribe the budget treatment for Federal credit pro
grams.
• Antideficiency Act (codified in Chapters 13 and 15 of Title
31, United States Code), which prescribes rules and procedures
for budget execution.
22
THE BUDGET SYSTEM AND CONCEPTS
GLOSSARY OF BUDGET TERMS
Balances of budget authority—These are amounts of budget au
thority provided in previous years that have not been outlayed. Obli
gated balances are amounts that have been obligated but not yet
outlayed. Unobligated balances are amounts that have not been obli
gated and that remain available for obligation under law.
Breach—A breach is the amount by which new budget authority
or outlays within a category of discretionary appropriations for a
fiscal year is above the cap on new budget authority or outlays
for that category for that year.
Budget—The Budget of the United States Government sets forth the
President's comprehensive financial plan for allocating resources and
indicates the Presidenfs priorities for the Federal Government.
Budget authority (BA)—Budget authority is the authority provided
by Federal law to incur financial obligations that will result in out
lays. Specific forms of budget authority include:
• provisions of law that make funds available for obligation and
expenditure (other than borrowing authority), including the au
thority to obligate and expend offsetting receipts and collections;
• borrowing authority, which is authority granted to a Federal
entity to borrow (e.g., through the issuance of promissory notes
or monetary credits) and to obligate and expend the borrowed
funds;
• contract authority, which is the making of funds available for
obligation but not for expenditure; and
• offsetting receipts and collections as negative budget authority.
Budgetary resources—Budgetary resources comprise new budget
authority, unobligated balances of budget authority, direct spending
authority, and obligation limitations.
Budget totals—The budget includes totals for budget authority,
outlays, and receipts. Some presentations in the budget distinguish
on-budget totals from off-budget totals. On-budget totals reflect the
transactions of all Federal Government entities except those excluded
from the budget totals by law. Off-budget totals reflect the trans
actions of Government entities that are excluded from the on-budget
totals by law. Currently excluded are the social security trust funds
(Federal Old-Age and Survivors Insurance and Federal Disability In
surance Trust Funds) and the Postal Service Fund. The on- and
off-budget totals are combined to derive a total for Federal activity.
Cap—This is the term commonly used to refer to legal limits
on the budget authority and outlays for each fiscal year for each
of the discretionary appropriations categories. A sequester is required
if an appropriation for a category causes a breach in the cap.
THE BUDGET SYSTEM AND CONCEPTS
23
Credit program account—A credit program account receives an
appropriation for the cost of a direct loan or loan guarantee program,
from which such cost is disbursed to a financing account for the
program.
Deficit—A deficit is the amount by which outlays exceed Govern
mental receipts.
Direct loan—A direct loan is a disbursement of funds by the
Government to a non-Federal borrower under a contract that requires
the repayment of such funds with or without interest. The term
includes the purchase of, or participation in, a loan made by another
lender. The term does not include the acquisition of a federally
guaranteed loan in satisfaction of default claims or the price support
loans of the Commodity Credit Corporation. (Cf. loan guarantee.)
Direct spending—Direct spending, which sometimes is called man
datory spending, is a category of outlays from budget authority pro
vided in law other than appropriations acts, entitlement authority,
and the budget authority for the food stamp program. (Cf. discre
tionary appropriations.)
Discretionary appropriations—Discretionary appropriations is a
category of budget authority that comprises budgetary resources (ex
cept those provided to fund direct-spending programs) provided in
appropriations acts. (Cf. direct spending.)
Emergency spending—Emergency spending is spending that the
President and the Congress have designated as an emergency require
ment. Such spending is not subject to the limits on discretionary
spending, if it is discretionary spending, or the pay-as-you-go rules,
if it is direct spending.
Federal funds—Federal funds are the moneys collected and spent
by the Government other than those designated as trust funds. Fed
eral funds include general, special, public enterprise, and intragovem
mental funds. (Cf. trust funds.)
Financing account—A financing account receives the cost payments
from a credit program account and includes other cash flows to
and from the Government resulting from direct loan obligations or
loan guarantee commitments made on or after October 1, 1991. At
least one financing account is associated with each credit program
account. For programs with direct and guaranteed loans, there are
separate financing accounts for direct loans and guaranteed loans.
The transactions of the financing accounts are not included in the
budget totals. (Cf. liquidating account.)
Fiscal year—The fiscal year is the Government's accounting period.
It begins on October 1st and ends on September 30th, and is des
ignated by the calendar year in which it ends. Before 1976, the
fiscal year began on July 1 and ended on June 30.
24
THE BUDGET SYSTEM AND CONCEPTS
General fund—The general fund consists of accounts for receipts
not earmarked by law for a specific purpose, the proceeds of general
borrowing, and die expenditure of these moneys.
Governmental receipts—These are collections that result primarily
from the Government's exercise of its sovereign power to tax or
otherwise compel payment. They are compared to outlays in calculat
ing a surplus or deficit. (Cf. offsetting collections.)
Liquidating account—A liquidating account includes all cash flows
to and from the Government resulting from direct loan obligations
and loan guarantee commitments prior to October 1,1991. (Cf. financ
ing account.)
Loan guarantee—A loan guarantee is any guarantee, insurance,
or other pledge with respect to the payment of all or a part of
the principal or interest on any debt obligation of a non-Federal
borrower to a non-Federal lender. The term does not include the
insurance of deposits, shares, or other withdrawable accounts in fi
nancial institutions. (Cf. direct loan.)
Mandatory spending—See direct spending.
Maximum deficit amounts—These are amounts specified in and
subject to certain adjustments under law. If the deficit for the year
in question is estimated to exceed the adjusted maximum deficit
amount for that year by more than a specified margin, a sequester
of the excess deficit is required.
Intragovemmental funds—Intragovemmental funds are accounts
for business-type or market-oriented activities conducted primarily
within and between Government agencies and financed by offsetting
collections that are credited directly to the fund.
Obligations—Obligations are binding agreements that will result
in outlays, immediately or in the future. Budgetary resources must
be available before obligations can be incurred legally.
Off-budget—See budget totals.
Offsetting collections—Offsetting collections are collections from
the public that result from business-type or market-oriented activities
and collections from other Government accounts. These collections
are deducted from gross disbursements in calculating outlays, rather
than counted in Governmental receipt totals. Some offsetting collec
tions are credited directly to appropriation or fund accounts; others,
called offsetting receipts, are credited to receipt accounts. The author
ity to spend offsetting collections is a form of budget authority.
(Cf. governmental receipts.)
Offsetting receipts—See offsetting collections.
On-budget—See budget totals.
THE BUDGET SYSTEM AND CONCEPTS
25
Outlays—Outlays are the measure of Government spending. They
are payments to liquidate obligations (other than the repayment of
debt), net of refunds and offsetting collections. Outlays generally
are recorded on a cash basis, but also include many cash-equivalent
transactions, the subsidy cost of direct loans and loan guarantees,
and interest accrued on public issues of the public debt.
Pay-as-you-go (PAYGO)—This term refers to requirements in law
that result in a sequester if the estimated combined result of legisla
tion affecting direct spending or receipts is an increase in the deficit
for a fiscal year.
Public enterprise funds—Public enterprise funds are accounts for
business or market-oriented activities conducted primarily with the
public and financed by offsetting collections that are credited directly
to the fund.
Receipts—See governmental receipts and offsetting collections.
Sequester—A sequester is the cancellation of budgetary resources
provided by discretionary appropriations or direct spending legisla
tion, following various procedures prescribed in law. A sequester
may occur in response to a discretionary appropriation that causes
a breach, in response to increases in the deficit resulting from the
combined result of legislation affecting direct spending or receipts
(referred to as a "pay-as-you-go" sequester), or in response to a
deficit estimated to be in excess of the maximum deficit amounts.
Special funds—Special funds are Federal fund accounts for receipts
earmarked for specific purposes and the associated expenditure of
those receipts. (Cf. trust funds.)
Subsidy—This term means the same as cost when it is used in
connection with Federal credit programs.
Surplus—A surplus is the amount by which receipts exceed out
lays.
Supplemental appropriation—A supplemental appropriation is one
enacted subsequent to a regular annual appropriations act when the
need for funds is too urgent to be postponed until the next regular
annual appropriations act.
Trust funds—Trust funds are accounts, designated by law as trust
funds, for receipts earmarked for specific purposes and the associated
expenditure of those receipts. (Cf. special funds.)
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The Budget of the United States Government, FY1995,
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