Civics 101 – The Federal Budget Process – Courtesy of the National Priorities Project

Contributed by Deb Kline.

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.  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.

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 with 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?

1. The President submits a budget request to Congress – The president sends a budget request to Congress each February for the coming fiscal year, which begins on Oct. 1.
2. The House and Senate pass budget resolutions – After the president submits his or her budget request, the House Committee on the Budget and the Senate Committee on the Budget each write and vote on their own budget resolutions.
3. House and Senate Appropriations subcommittees “markup” appropriations bills – The Appropriations Committees in both the House and the Senate are responsible for determining the precise levels of budget authority, or allowed spending, for all discretionary programs.
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.
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. 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, such as the longest one in history which was conducted under the Trump administration.

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.

Supplemental Appropriations

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.

About the National Priorities Project: National Priorities Project is the only nonprofit, non-partisan federal budget research organization in the nation with the mission to make the federal budget accessible to the American public. The organization works to inspire individuals and movements to take action so federal resources prioritize peace, shared prosperity, and economic security for all. In 2014, NPP was nominated for the Nobel Peace Prize in recognition of our pioneering work to track federal spending on the military and promote a U.S. federal budget that represents Americans’ priorities, including funding for people’s issues such as inequality, unemployment, education, health and the need to build a green economy.