96-912 GOV
CRS Report for Congress
Received through the CRS Web
A Brief Introduction to
the Federal Budget Process
Updated October 20, 1997
Robert Keith
Specialist in American National Government
Government Division
Congressional Research Service ˜ The Library of Congress

A Brief Introduction to
the Federal Budget Process
Summary
Each year, the federal government raises and spends more than $1.5 trillion
through its budget process. The federal budget process is widely regarded as a
complex, time-consuming, and arcane set of activities often suffused with
controversy, frustration, and delay. These characteristics of the process are
attributable to various factors, including the vast scope and complexity of federal
activities and the numerous types of financial transactions needed to fund them, the
profusion of participants in the budget process and the wide dispersal of budgetary
power, and the far-reaching economic and political consequences of budgetary
decision-making.
The federal budget cycle begins each year with the preparation and submission
to Congress of the President’s budget. The President’s budget is only a request to
Congress; Congress is not required to adopt his recommendations. Nevertheless, the
President’s budgetary proposals often guide congressional revenue and spending
decisions, though the extent of the influence varies from year to year and depends
more on political and fiscal conditions than on the legal status of the budget.
The Congressional Budget and Impoundment Control Act of 1974, as amended,
establishes the congressional budget process as the means by which Congress
coordinates its various budget-related actions. The process is centered around an
annual concurrent resolution on the budget that sets aggregate budget policies and
functional priorities for a multiyear period. Because a concurrent resolution is not a
law — it cannot be signed or vetoed by the President — the budget resolution does
not have statutory effect; no money can be raised or spent pursuant to it. The main
purpose of the budget resolution is to establish the framework within which Congress
considers separate revenue, spending, and other budget-related legislation. Revenue
and spending amounts set in the budget resolution establish the basis for the
enforcement of congressional budget policies through points of order. The budget
resolution also initiates the reconciliation process for conforming existing revenue and
spending laws to congressional budget policies.
Budget resolution policies are implemented by Congress through the enactment
of annual appropriation and other spending measures, revenue measures, debt-limit
legislation, and reconciliation bills. Each class of budgetary legislation is considered
under its own set of rules and procedures.
The President may avail himself of special authority to impound appropriated
funds. Under the Impoundment Control Act of 1974, the President may propose the
cancellation of spending; special procedures are included in the act to provide for
House and Senate action on these proposals. Beginning in January of 1997, the
President has had special line-item veto authority to cancel not only discretionary
appropriations, but new entitlement spending and targeted tax benefits as well. The
line-item veto procedures provide that the President’s recommendations go into effect
unless disapproved by Congress within a relatively short period of time.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Key Budget Concepts and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Elementary Units of Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Deficit and Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Accounts and Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Budget Coverage and Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
On-Budget and Off-Budget Entities . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Operating and Capital Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Functional Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Discretionary and Direct (Mandatory) Spending . . . . . . . . . . . . . . . . . 4
The Fiscal Year Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Current Year, the Budget Year, and the Outyears . . . . . . . . . . . . 4
The Budget Baseline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Executive Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Formulation and Content of the President’s Budget . . . . . . . . . . . . . . . . . . 5
Executive Interaction With Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Congressional Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Formulation and Content of the Budget Resolution . . . . . . . . . . . . . . . . . . 7
Budget Resolution Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Budget Resolution Aggregates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Allocations of Spending to Committees . . . . . . . . . . . . . . . . . . . . . . 11
Scorekeeping and Cost Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Points of Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Sequestration Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Establishment of the Sequestration Process . . . . . . . . . . . . . . . . . . . . . . . 13
Changes Made by the Budget Enforcement Acts of 1990 and 1997 . . . . . 14
The Timing of Sequestration Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Spending Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The Annual Appropriations Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Revenue and Debt-Limit Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Revenue Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Debt-Limit Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Reconciliation Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reconciliation Directives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Development and Consideration of Reconciliation Measures . . . . . . . . . . 24
Impoundment and Line-Item Veto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Impoundment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Rescissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Line-Item Veto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Glossaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Congressional Research Service Products . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Tables
Table 1. Congressional Budget Process Timetable . . . . . . . . . . . . . . . . . . . . . . 8
Table 2. Sequestration Process Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

A Brief Introduction to
the Federal Budget Process
Introduction
Each year, the federal government raises and spends more than $1.5 trillion
through its budget process. The federal budget process is widely regarded as a
complex, time-consuming, and arcane set of activities often suffused with
controversy, frustration, and delay. These characteristics of the process are
attributable to various factors, including the vast scope and complexity of federal
activities and the numerous types of financial transactions needed to fund them, the
profusion of participants in the budget process and the wide dispersal of budgetary
power, and the far-reaching economic and political consequences of budgetary
decision-making.
This report provides a brief introduction to the federal budget process.1 Key
budget concepts and terminology are defined and explained. The separate procedures
that make up the federal budget process are identified and their salient features
described. While a complete understanding of federal budgeting probably can be
obtained only after much observation and study of the process in operation, broad
exposure to its rudiments is a useful first step. Various resources “for additional
reading” are identified at the end of this report, which the reader may find helpful in
exploring the subject in greater depth.
1 Substantial portions of this report are drawn from the Congressional Research
Service’s Manual on the Federal Budget Process, by Allen Schick, Robert Keith, and
Edward Davis, CRS Report 91-902 GOV, December 24, 1991, 218 pages. A revised version
of the manual will be available in 1998.

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Key Budget Concepts and Terms
A thorough understanding of the federal budget process requires familiarity with
dozens, if not hundreds, of concepts and terms. Some of the key concepts and terms
relating to the elementary units of budgeting, budget coverage and classifications, the
timing of budgetary actions, and the budget baseline are discussed below.
Elementary Units of Budgeting
Like any complex process, federal budgeting can be broken down into its
fundamental units of activity and measurement.
Spending. The spending process encompasses three distinct phases involving
budget authority, obligations, and outlays. Budget authority is enacted by Congress
and the President in law. It provides the legal basis for federal agencies to make
binding financial commitments in the form of obligations. Obligations stem from such
agency actions such as entering into contracts, employing personnel, and submitting
orders for goods and services. When obligations are liquidated, outlays ensue.
Usually, outlays take the form of checks, electronic fund transfers, or other payments
made by the Treasury Department.
Most of the new budget authority made available to agencies each year derives
automatically from laws enacted during prior Congresses. The funds become
available without the Congress taking any legislation action. For example, the funds
necessary to pay Social Security benefits are provided automatically each year under
a law enacted in the 1930s providing a permanent appropriation for the program.
Other forms of budget authority which may bypass annual legislative action include
borrowing authority and contract authority, under which agency heads may borrow
funds or enter into contractual arrangements in advance of appropriations action, and
the authority to spend offsetting collections (see discussion under Revenues, below).
The remaining new budget authority made available to agencies each year comes
from currently enacted legislation, mostly in the form of measures providing annual
appropriations
. Many agencies have access to additional budget authority enacted
in prior years that has carried over as unspent balances.
One of the most important characteristics of budget authority is the period
during which it is available for obligation. Most budget authority for the routine
operating expenses of the federal government is “one-year” funding, meaning that it
may be obligated only during the one fiscal year for which it is made available; after
that, the funds lapse and no longer are available to be obligated. Budget authority
enacted for procurement, construction, and similar long-term activities, on the other
hand, often is “multiyear” or “no-year” funding, which may be obligated during a set
number of fiscal years or an indefinite period. For all types of budget authority,
outlays usually may be made for several fiscal years after the authority to obligate the
funds has expired.
The measurement of the pace at which spending for particular programs occurs
is referred to as the spendout rate. More precisely, this measures the rate at which

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budget authority becomes outlays during fiscal year periods. Spendout rates are
determined largely by the timing of agency activity. Consequently, it is more difficult
for Congress to control outlay levels than it is to control budget authority levels.
In the case of some spending programs, the federal government lends funds
directly or guarantees them as a third party. For many years, the federal budget
monitored such credit activities by tracking the level of direct loan obligations and
loan guarantee commitments. Pursuant to the Federal Credit Reform Act of 1990
(incorporated into the Congressional Budget Act of 1974 as a new Title V by the
Budget Enforcement Act of 1990), the federal budget now focuses on the subsidy
element, rather than the cash flows, of these two types of programs. Loan subsidies
now are recorded as budget authority and outlays.
Revenues. Revenues of the federal government (also referred to as receipts)
derive from a number of sources. Individual and corporate income taxes account for
about half of the receipts of the federal government, but social insurance taxes are an
increasingly prominent source of revenues. Additional amounts accrue to the
government from various excise taxes, customs fees, gifts, and miscellaneous receipts.
Some income to the federal government, which arises from business-like or
market-oriented activities (such as the sale of electricity from federal power
administrations), is referred to as offsetting collections. These funds are offset or
deducted from federal spending instead of being counted as revenues.
Deviations from the “normal” tax code (such as exemptions, deductions, and
special rules) are known as tax expenditures. These devices provide a means of
pursuing policy objectives in a manner analogous to spending programs. For
example, the federal government promotes the goal of homeownership by providing
a tax deduction for mortgage interest costs; comparable resources could be devoted
to this goal through spending programs involving grants or loans.
Deficit and Surplus. The deficit or surplus is determined by the relationship of
outlays to revenues. An excess of outlays over revenues is a deficit, while an excess
of revenues over outlays is a surplus.
Accounts and Funds. Spending and revenues in the federal budget are
recorded on the basis of accounts. In the case of annual appropriations, for example,
each account usually corresponds to a separate heading in the legislation. Funds
allocated to accounts are further divided by the programs, projects, activities, and
objects of expenditure related to the account. In budget presentations, accounts are
usually grouped together by the organizational unit (e.g.. the department or agency)
that manages them. Some types of accounts, such as credit financing accounts, are
included in budget presentations but are used only for accounting purposes; they do
not reflect budgetary transactions.
Federal spending and revenues also may be characterized by the type of funds
involved. The two basic types of funds in the budget are trust funds, which are used
to carry out specific purposes in accordance with statutory requirements, and federal
funds
, which derive from the federal government’s sovereign powers and are spent
on the government’s general activities.

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Budget Coverage and Classifications
On-Budget and Off-Budget Entities. For the past several decades, the federal
budget has merged together trust funds and federal funds into a single presentation,
with certain exceptions. Entities included in the budget presentation are referred to
as on-budget entities; those excluded are known as off-budget entities. At present,
the Social Security trust funds and the postal service fund are the only off-budget
entities. Despite their off-budget status, the President’s budget includes information
on the budgetary impact of these funds.
Operating and Capital Funds. The federal government does not use separate
operating and capital budgets, unlike most state governments. Instead, funds for
operating expenses and capital programs are merged together. However, the
President’s annual budget submission includes an analysis of such funds in the budget.
Functional Categories. One of the most long-standing methods of classifying
federal spending is by functional category. The functional categories — such as
national defense, agriculture, transportation, and health — are used to group together
related spending accounts regardless of the agency or other unit that manages them.
The functional categories thus represent a broad statement of budget priorities.
Discretionary and Direct (Mandatory) Spending. A more recent method of
classifying federal spending, arising from the procedural requirements of the Budget
Enforcement Act of 1990, depends on whether the spending is considered to be
discretionary or direct. Discretionary spending is provided in annual appropriations
acts, which fall under the jurisdiction of the House and Senate Appropriations
committees. Direct spending, also called mandatory spending, is provided in
substantive legislation, which is within the jurisdiction of the authorizing committees
of the House and Senate. Most direct spending involves entitlement programs funded
by permanent appropriations. Some entitlement programs, however, are funded in
annual appropriations acts, but such spending is considered to be direct spending.
The Fiscal Year Cycle
The Fiscal Year. The federal budget process operates under a fiscal year cycle
that is 12 months in length. The federal fiscal year begins on the October 1 preceding
the calendar year for which the fiscal year is named (e.g., fiscal year 1999 begins on
October 1, 1998, and ends on September 30, 1999). Most state governments use a
fiscal year that runs from July 1 through June 30.
The Current Year, the Budget Year, and the Outyears. Federal budgeting
uses a multiyear framework. At the time the budget is being considered, the fiscal
year in progress is referred to as the current year; the upcoming fiscal year is called
the budget year; and fiscal years after the budget year are known as the outyears.
The Budget Baseline
An important first step in the annual budget cycle is the preparation of a budget
baseline. The baseline is the projection of revenue, spending, and deficit or surplus

CRS-5
levels into future years based upon the status quo. Projections rest upon technical
assumptions
(e.g., changes in demographic patterns and program workloads) and
economic assumptions (e.g., changes in the growth of the economy, inflation rates,
and unemployment rates). They assume that policies consistent with existing law will
be maintained. Thus, the baseline is an important tool for assessing policy changes
inherent in budget proposals.
The executive and legislative branches each develop their own budget baselines.
The baseline prepared for the President’s budget is known as the current services
estimates
. Congress uses the baseline budget projections developed by the
Congressional Budget Office.
Executive Budgeting
The President’s budget, officially referred to as the Budget of the United States
Government, is required to be submitted to Congress early in the legislative session,
no later than the first Monday in February. The budget consists of estimates of
spending, revenues, borrowing, and debt; policy and legislative recommendations;
detailed estimates of the financial operations of federal agencies and programs; data
on the actual and projected performance of the economy; and other information
supporting the President’s recommendations.
The President’s budget is only a request to Congress; Congress is not required
to adopt his recommendations. Nevertheless, the power to formulate and submit the
budget is a vital tool in the President’s direction of the executive branch and of
national policy. The President’s proposals often guide congressional revenue and
spending decisions, though the extent of the influence varies from year to year and
depends more on political and fiscal conditions than on the legal status of the budget.
The Constitution does not provide for a budget, nor does it require the President
to make recommendations concerning the revenues and spending of the federal
government. Until 1921, the federal government operated without a comprehensive
presidential budget process. The Budget and Accounting Act of 1921 (P.L. 67-13;
42 Stat. 20-27), as amended, provides for a national budget system. Its basic
requirement is that the President should prepare and submit a budget to Congress
each year. The 1921 act established the Bureau of the Budget, now named the Office
of Management and Budget (OMB), to assist the President in preparing and
implementing the executive budget. Although it has been amended many times, this
statute provides the legal basis for the presidential budget, prescribes much of its
content, and defines the roles of the President and the agencies in the process.
Formulation and Content of the President’s Budget
Preparation of the President’s budget typically begins in the spring (or earlier)
each year, at least nine months before the budget is submitted to Congress, about 17
months before the start of the fiscal year to which it pertains, and about 29 months
before the close of that fiscal year. The early stages of budget preparation occur in
federal agencies. When they begin work on the budget for a fiscal year, agencies

CRS-6
already are implementing the budget for the fiscal year in progress and awaiting final
appropriations actions and other legislative decisions for the fiscal year after that. The
long lead times and the fact that appropriations have not yet been made for the next
year mean that the budget is prepared with a great deal of uncertainty about economic
conditions, presidential policies, and congressional actions.
As agencies formulate their budgets, they maintain continuing contact with the
OMB examiners assigned to them. These contacts provide agencies with guidance
in preparing their budgets and also enable them to alert OMB to any needs or
problems that may loom ahead. Agency requests are submitted to OMB in late
summer or early fall; these are reviewed by OMB staff in consultation with the
President and his aides. The Budget and Accounting Act of 1921 bars agencies from
submitting their budget requests directly to Congress. Moreover, OMB regulations
provide for confidentiality in all budget requests and recommendations prior to the
transmittal of the President’s budget to Congress. However, it is quite common for
internal budget documents to become public while the budget is still being formulated.
The format and content of the budget are partly determined by law, but the
Budget and Accounting Act of 1921 authorizes the President to set forth the budget
“in such form and detail” as he may determine. Over the years, there has been an
increase in the types of information and explanatory material presented in the budget
documents.
In most years, the budget is submitted as a multi-volume set consisting of a main
document setting forth the President’s message to Congress and an analysis and
justification of his major proposals (the Budget) and supplementary documents
providing account and program level detail, historical information, and special
budgetary analyses (the Budget Appendix, Historical Tables, and Analytical
Perspectives
), among other things.
Much of the budget is an estimate of requirements under existing law rather than
a request for congressional action (approximately half of the budget authority in the
budget becomes available without congressional action). The President submits a
budget update (reflecting changed economic conditions, congressional actions, and
other factors), referred to as the Mid-Session Review, by July 15 each year. The
President may revise his recommendations any time during the year.
Executive Interaction With Congress
The President and his budget office have an important role once the budget is
submitted to Congress. OMB officials and other presidential advisors appear before
congressional committees to discuss overall policy and economic issues, but they
generally leave formal discussions of specific programs to the affected agencies.
Agencies thus bear the principal responsibility for defending the President’s program
recommendations at congressional hearings.
Agencies are supposed to justify the President’s recommendations, not their
own. OMB maintains an elaborate legislative clearance process to ensure that agency
budget justifications, testimony, and other submissions are consistent with presidential
policy.

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Increasingly in recent years, the President and his chief budgetary aides have
engaged in extensive negotiations with Congress over major budgetary legislation.
These negotiations sometimes have occurred as formal budget “summits” and at other
times as less visible, behind-the-scenes activities.
Congressional Budgeting
The Congressional Budget and Impoundment Control Act of 1974 (P.L. 93-344;
88 Stat. 297-339), as amended, establishes the congressional budget process as the
means by which Congress coordinates the various budget-related actions (such as the
consideration of appropriations and revenue measures) taken by it during the course
of the year. The process is centered around an annual concurrent resolution on the
budget that sets aggregate budget policies and functional priorities for at least the next
five fiscal years.
Because a concurrent resolution is not a law — it cannot be signed or vetoed by
the President — the budget resolution does not have statutory effect; no money can
be raised or spent pursuant to it. The main purpose of the budget resolution is to
establish the framework within which Congress considers separate revenue, spending,
and other budget-related legislation. Revenue and spending amounts set in the budget
resolution establish the basis for the enforcement of congressional budget policies
through points of order. The budget resolution also initiates the reconciliation
process for conforming existing revenue and spending laws to congressional budget
policies.
The Congressional Budget Act of 1974, which includes many provisions that
operate as rules of the House and Senate, has been amended many times. Major
changes to the act occurred in the 1980s and 1990s in conjunction with legislation
establishing and extending the Balanced Budget and Emergency Deficit Control Act
of 1985 (also known as the Gramm-Rudman-Hollings Act) and the Budget
Enforcement Act of 1990. Changes in the 1974 act were made most recently by the
Budget Enforcement Act of 1997 (Title X of P.L. 105-33, the Balanced Budget Act
of 1997). Additionally, some rules of the congressional budget process
2
have been
incorporated into or augmented by the standing rules of the House and Senate.
Formulation and Content of the Budget Resolution
The congressional budget process begins upon the presentation of the President’s
budget in January or February (see Table 1). The timetable set forth in the
Congressional Budget Act of 1974 calls for the final adoption of the budget resolution
by April 15, well before the beginning of the new fiscal year on October 1. Although
the House and Senate often pass the budget resolution separately before April 15,
they often do not reach final agreement on it until after the deadline — sometimes
months later. The Congressional Budget Act of 1974 bars consideration of revenue,
spending, and debt-limit measures for the upcoming fiscal year until the budget
2 For a discussion of these changes, see Budget Enforcement Act of 1997: Summary
and Legislative History, by Robert Keith, CRS Report 97-931, October 8, 1997, 23 pages.

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resolution for that year has been adopted, but certain exceptions are provided (such
as the exception that allows the House to consider the regular appropriations bills
after May 15, even if the budget resolution has not been adopted by then).
Table 1. Congressional Budget Process Timetable
Deadline
Action to be completed
First Monday in February
President submits budget to Congress.
February 15
CBO submits report on economic and budget
outlook to Budget committees.
Six weeks after President’s
Committees submit reports on views and
budget is submitted
estimates to respective Budget Committee.
April 1
Senate Budget Committee reports budget
resolution.
April 15
Congress completes action on budget
resolution.
June 10
House Appropriations Committee reports last
regular appropriations bill.
June 30
House completes action on regular
appropriations bills and any required
reconciliation legislation.
July 15
President submits mid-session review of his
budget to Congress.
October 1
Fiscal year begins.
The Congressional Budget Act of 1974 requires the budget resolution, for each
fiscal year covered, to set forth budget aggregates and spending levels for each
functional category of the budget. The aggregates included in the budget resolution
are as follows:
! total revenues (and the amount by which the total is to be changed by
legislative action);
! total new budget authority and outlays;
! the deficit or surplus; and
! the debt limit.
With regard to each of the functional categories, the budget resolution must
indicate for each fiscal year the amounts of new budget authority and outlays, and
they must add up to the corresponding spending or aggregates.

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Aggregate amounts in the budget resolution do not reflect the revenues or
spending of the Social Security trust funds, although these amounts are set forth
separately in the budget resolution for purposes of Senate enforcement procedures.
The budget resolution does not allocate funds among specific programs or
accounts, but the major program assumptions underlying the functional amounts are
often discussed in the reports accompanying each resolution. Some recent reports
have contained detailed information on the program levels assumed in the resolution.
These assumptions are not binding on the affected committees. Finally, the
Congressional Budget Act of 1974 allows certain additional matters to be included
in the budget resolution. Perhaps the most important optional feature of a budget
resolution is reconciliation directives (discussed below).
The House and Senate Budget committees are responsible for marking up and
reporting the budget resolution. In the course of developing the budget resolution,
the Budget committees hold hearings, receive “views and estimates” reports from
other committees, and obtain information from the Congressional Budget Office
(CBO). In their initial hearings each year, the Budget committees receive testimony
from the director of OMB, the secretary of the Treasury, and the chairman of the
President’s Council of Economic Advisers. The CBO director also testifies. The
“views and estimates” reports of House and Senate committees provide the Budget
committees with information on the preferences and legislative plans of congressional
committees regarding budgetary matters within their jurisdiction.
CBO assists the Budget committees in developing the budget resolution by
issuing, early each year, reports on the economic and budget outlook, the President’s
budgetary proposals, and, in most years, spending and revenue options for reducing
the deficit.
The extent to which the Budget committees (and the House and Senate) consider
particular programs when they act on the budget resolution varies from year to year.
Specific program decisions are supposed to be left to the Appropriations committees
and other committees of jurisdiction, but there is a strong likelihood that major issues
will be discussed in markup, in the Budget committees’ reports, and during floor
consideration of the budget resolution. Although any programmatic assumptions
generated in this process are not binding on the committees of jurisdiction, they often
influence the final outcome.
Floor consideration of the budget resolution is guided by House and Senate rules
and practices. In the House, the Rules Committee usually reports a “special rule” (a
simple House resolution), which, once approved, establishes the terms and conditions
under which the budget resolution is considered. This special rule typically specifies
which amendments may be considered and the sequence in which they are to be
offered and voted on. It has been the practice in recent years to allow consideration
of a few amendments (as substitutes for the entire resolution) that present broad
policy choices. In the Senate, the amendment process is less structured, relying on
agreements reached by the leadership through a broad consultative process. The
amendments offered in the Senate may entail major policy choices or may be focused
on a single issue.

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Achievement of the policies set forth in the annual budget resolution depends on
the legislative actions taken by Congress (and their approval or disapproval by the
President), the performance of the economy, and technical considerations. Many of
the factors that determine whether budgetary goals will be met are beyond the direct
control of Congress. If economic conditions — growth, employment levels, inflation,
and so forth — vary significantly from projected levels, so too will actual levels of
revenue and spending. Similarly, actual levels may differ substantially if the technical
factors upon which estimates are based, such as the rate at which agencies spend their
discretionary funds or participants become eligible for entitlement programs, prove
faulty.
Budget Resolution Enforcement
Congress’ regular tools for enforcing the budget resolution each year are overall
spending ceilings and revenue floors and committee allocations and subdivisions of
spending. In addition, in recent years the Senate has enforced discretionary spending
limits in the budget resolution, which parallel the adjustable limits established in
statute and enforced by the sequestration process. In order for the enforcement
procedures to work, Congress must have access to complete and up-to-date
budgetary information so that it can relate individual measures to overall budget
policies and determine whether adoption of a particular measure would be consistent
with those policies. Substantive and procedural points of order are designed to obtain
congressional compliance with budget rules. A point of order may bar House or
Senate consideration of legislation that violates the spending ceilings and revenue
floors in the budget resolution, committee subdivisions of spending, or congressional
budget procedures.
Budget Resolution Aggregates. In the early years of the Congressional Budget
Act of 1974, the principal enforcement mechanism was the ceiling on total budget
authority and outlays and the floor under total revenues set forth in the budget
resolution. The limitations inherent in this mechanism soon became apparent. For
example, the issue of controlling breaches of the spending ceilings usually did not
arise until Congress acted on supplemental appropriations acts, when the fiscal year
was well underway. The emergency nature of the legislation often made it difficult
to uphold the ceilings.
As part of the budget process changes made by the BEA of 1997, the aggregate
levels set in the budget resolution, and the associated discretionary spending limits and
committee spending allocations, may be adjusted periodically for various factors. The
adjustments, as authorized under a new Section 314 of the Congressional Budget Act
of 1974, are made pursuant to the consideration of legislation in several different
categories and are meant to parallel similar adjustments made automatically in the
statutory discretionary spending limits. Adjustments may be triggered by legislation
in the following five categories:
(1) measures containing designated emergency amounts of discretionary
spending, direct spending, or revenues;
(2) measures funding continuing disability reviews;
(3) measures providing an allowance for the International Monetary Fund;

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(4) measures funding arrearages for various international organizations,
international peacekeeping, and multilateral development banks (but only for the
period covering FY1998-2000 and subject to a limit of $1.884 billion in budget
authority); and
(5) measures providing funds for an earned income tax credit compliance
initiative, subject to annual limits ranging from $138 million for FY1998 to $146
million for FY2002.
Allocations of Spending to Committees. In view of the inadequacies in the
early years of congressional budgeting of relying on enforcement of the budget totals,
Congress changed the focus of enforcement in the 1980s to the committee allocations
and subdivisions of spending made pursuant to Section 302 of the act. The key to
enforcing budget policy is to relate the budgetary impact of individual pieces of
legislation to the overall budget policy. Because Congress operates through its
committee system, an essential step in linking particular measures to the budget is to
allocate the spending amounts set forth in the budget resolution among House and
Senate committees.
Section 302(a) provides for allocations to committees to be made in the
statement of managers accompanying the conference report on the budget resolution.
A Section 302(a) allocation is made to each committee which has jurisdiction over
spending, both for the budget year and the full period covered by the budget
resolution (at least five fiscal years). Allocations made to the House and Senate
Appropriations Committees cover only the budget year and use the discretionary
spending categories established for the sequestration process. The committee
allocations do not take into account jurisdiction over discretionary authorizations
funded in annual appropriations acts. The amounts of new budget authority and
outlays allocated to committees in the House or Senate may not exceed the aggregate
amounts of budget authority and outlays set forth in the budget resolution. Although
these allocations are made by the Budget Committees, they are not the unilateral
preferences of these committees. They are based on assumptions and understandings
developed in the course of formulating the budget resolution.
After the allocations are made under Section 302(a), the House and Senate
Appropriations Committees subdivide the amounts they receive among their 13
subcommittees, as required by Section 302(b). The subcommittees’ Section 302(b)
subdivisions may not exceed the total amount allocated to the committee. Each
Appropriations Committee reports its subdivisions to its respective chamber; the
appropriations bills may not be considered until such a report has been filed.
Scorekeeping and Cost Estimates. Scorekeeping is the process of measuring
the budgetary effects of pending and enacted legislation and assessing its impact on
a budget plan — in this case, the budget resolution. In the congressional budget
process, scorekeeping serves several broad purposes. First, scorekeeping informs
Members of Congress and the public about the budgetary consequences of their
actions. When a budgetary measure is under consideration, scorekeeping information
lets Members know whether adopting the amendment or passing the bill at hand
would breach the budget. Further, scorekeeping information enables Members to
judge what must be done in upcoming legislative action to achieve the year’s
budgetary goals. Finally, scorekeeping is designed to assist Congress in enforcing its

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budget plans. In this regard, scorekeeping is used largely to determine whether points
of order under the Congressional Budget Act of 1974 may be sustained against
legislation violating budget resolution levels.
The principal scorekeepers for Congress are the House and Senate Budget
committees, which provide the presiding officers of their respective chambers with the
estimates needed to determine if legislation violates the aggregate levels in the budget
resolution or the committee subdivisions of spending. The Budget committees make
summary scorekeeping reports available to Members on a frequent basis, usually
geared to the pace of legislative activity. CBO assists Congress in these activities by
preparing cost estimates of legislation, which are included in committee reports, and
scorekeeping reports for the Budget committees. The Joint Committee on Taxation
supports Congress by preparing estimates of the budgetary impact of revenue
legislation.
Points of Order. The Congressional Budget Act of 1974 provides for both
substantive and procedural points of order to block violations of budget resolution
policies and congressional budget procedures. One element of substantive
enforcement is based on Section 311 of the act, which bars Congress from considering
legislation that would cause total revenues to fall below the level set in the budget
resolution or total new budget authority or total outlays to exceed the budgeted level.
In the House (but not the Senate), Section 311 does not apply to spending legislation
if the committee reporting the measure has stayed within its allocation of new
discretionary budget authority. Accordingly, the House may take up any spending
measure that is within the appropriate committee allocations, even if it would cause
total spending to be exceeded. Neither chamber bars spending legislation that would
cause functional allocations in the budget resolution to be exceeded.
Section 302(f) of the Congressional Budget Act of 1974 bars the House and
Senate from considering any spending measure that would cause the relevant
committee’s spending allocations to be exceeded; in the House, the point of order
applies only to violations of allocations of new discretionary budget authority.
Further, the point of order also applies to suballocations of spending made by the
Appropriations Committees.
The Senate, but not the House, enforces revenue and spending levels for Social
Security contained in the budget resolution. Section 311 bars the consideration of any
legislation that would cause an increase in Social Security deficits, or a decrease in
Social Security surpluses, relative to the levels set forth in the budget resolution, for
the budget year or the full period covered by the budget resolution.
In addition to points of order to enforce compliance with the budget resolution
and the allocations and subdivisions made pursuant to it, the Congressional Budget
Act of 1974 contains points of order to ensure compliance with its procedures.
Perhaps the most important of these is Section 303, which bars consideration of any
revenue, spending, entitlement, or debt-limit measure prior to adoption of the budget
resolution. However, the rules of the House permit it to consider regular
appropriations bills after May 15, even if the budget resolution has not yet been
adopted.

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When the House or Senate considers a revenue or a spending measure, the
chairman of the respective Budget Committee usually makes a statement advising the
chamber as to whether the measure violates any of these points of order. If no point
of order is made, or if the point of order is waived, the House or Senate may consider
a measure despite any violations of the Congressional Budget Act of 1974. The
House often waives points of order by adopting a special rule. The Senate may waive
points of order by unanimous consent or by motion under Section 904 of the act. The
Senate requires a three-fifths vote of the membership to waive certain provisions of
the act.
The Sequestration Process
Establishment of the Sequestration Process
After a decade of experience with the Congressional Budget Act of 1974,
Congress faced persistent high deficits and increasing budgetary deadlock. In 1985,
it enacted legislation aimed at bringing the federal budget into balance by the early
1990s. That legislation — the Balanced Budget and Emergency Deficit Control Act
of 1985 (Title II of P.L. 99-177; 99 Stat. 1038-1101) — sometimes is referred to as
the Gramm-Rudman-Hollings Act.
The 1985 Balanced Budget Act established a series of declining annual deficit
targets and created an automatic spending-reduction process (known as sequestration)
intended to ensure that the deficit targets are adhered to even if Congress and the
President fail to reduce the deficit sufficiently through legislative action. Congress
made significant changes in the 1985 act in 1987, 1990, and 1997. The Budget
Enforcement Act (BEA) of 1990 (Title XIII of P.L. 101-508; 104 Stat. 1388-573
through 630) made major changes in conjunction with the enactment of a five-year
deficit-reduction accord covering FY1991-1995. In 1993, the BEA procedures were
extended through FY1998 as part of another comprehensive budget agreement
between the President and Congress. Most recently, the procedures were extended
through FY2002, with modifications, by the Budget Enforcement Act (BEA) of 1997
(Title X of P.L. 105-33; 111 Stat. 677-712), as part of a plan to balance the budget
by that fiscal year.3
Sequestration involves the issuance of a presidential order that permanently
cancels budgetary resources (except for revolving funds, special funds, trust funds,
and certain offsetting collections) for the purpose of achieving a required amount of
outlay savings to reduce the deficit. Once sequestration is triggered by an executive
determination, spending reductions are made automatically; this process, therefore,
is regarded by many as providing a strong incentive for Congress and the President
to reach agreement on legislation that would avoid a sequester.
From its inception in 1985 until its revision by the BEA in 1990, the process was
tied solely to the enforcement of fixed deficit targets. If a sequester occurred, a
3 For a discussion of these changes, see Budget Enforcement Act of 1997: Summary
and Legislative History, by Robert Keith, CRS Report 97-931, October 8, 1997, 23 pages.

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formula set forth in the 1985 Balanced Budget Act required that half the required
outlay reductions be made in defense programs and half in nondefense programs. For
the most part, sequestration reductions were made uniformly across the range of
accounts covered by the process and were applied uniformly to programs, projects,
and activities within accounts. Many accounts, involving roughly two-thirds of
federal outlays, were exempt from sequestration. For certain entitlement programs,
the reductions were made under special rules (for example, Medicare could not be cut
more than two percent).
Changes Made by the Budget Enforcement Acts of 1990 and 1997
The BEA of 1990 changed the sequestration process substantially. First, it
effectively eliminated the deficit targets as a factor in budget enforcement. Second,
the BEA of 1990 established adjustable limits on discretionary spending funded in the
annual appropriations process. Third, the BEA of 1990 created pay-as-you-go
procedures to require that increases in direct spending (i.e., spending controlled
outside of the annual appropriations process) or decreases in revenues due to
legislative action are offset so that there is no net increase in the deficit.
The BEA of 1990 established new sequestration procedures to enforce the
discretionary spending limits and the pay-as-you-go requirements. To the extent that
any sequesters must be made, they will occur on the same day (which must be within
15 calendar days after Congress adjourns to end a session); sequestration of this type
is referred to as “end-of-session sequestration.” Further, one or more additional
sequesters may occur subsequently in the fiscal year to eliminate any breach in the
discretionary spending limits; this type of sequestration is referred to as
“within-session sequestration.”
Previously, the surpluses of the Social Security trust funds were included in the
deficit estimates made under the 1985 Balanced Budget Act but Social Security
spending (except for administrative expenses) was exempt from sequestration. Under
the BEA of 1990, Social Security spending still is exempt from sequestration, but the
trust fund surpluses are excluded from the deficit estimates.
The BEA of 1990 established adjustable limits on discretionary spending. For
fiscal years 1991-1993, separate limits were set for new budget authority and outlays
for three different categories — defense, international, and domestic. For fiscal years
1994-1998, limits on new budget authority and outlays were established for a single
category — total discretionary spending. In 1994, the Violent Crime Control and
Law Enforcement Act of 1994 (P.L. 103-322) established separate but parallel
sequestration procedures for violent crime reduction programs through FY2000.
The BEA of 1997 revised the limits for FY1998 and provided new limits through
FY2002. The limits are established for the following categories of discretionary
spending: defense and nondefense, for FY1998-1999; discretionary (a single
category), for FY2000-2002; and violent crime reduction, for FY1998-2000.
Under modifications made by the BEA of 1997, the discretionary spending limits
must be adjusted periodically by the President for various factors, including (among
others), changes in concepts and definitions, a special outlay allowance (to

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accommodate estimating differences between OMB and CBO), and the enactment of
legislation providing emergency funding and funding for the International Monetary
Fund, international arrearages, an earned income tax credit compliance initiative, and
other specially-designated purposes.
Enforcement of the spending limits is accomplished through a special
sequestration process that is triggered automatically if the applicable spending limit
is breached through the enactment of legislation. If the enactment of legislation
causing a breach in the spending limits occurs during the last quarter of the fiscal year
(i.e., between July 1 and September 30), the appropriate discretionary spending limits
for the next fiscal year are reduced by the amount of the breach.
Under the pay-as-you-go (PAYGO) process created by the BEA of 1990,
legislation increasing direct spending or decreasing revenues must be offset so that the
deficit is not increased. The PAYGO process does not require any offsetting action
when the spending increase or revenue decrease is due to the operation of existing
law, such as an increase in the number of persons participating in the Medicare
program. Direct spending consists largely of spending for entitlement programs.
Most direct spending and revenue programs are established under permanent law, so
there is not necessarily any need for recurring legislative action on them (and the
PAYGO process does not require such action).
Enforcement of the PAYGO process also is accomplished through a special
sequestration procedure. The PAYGO process does not preclude Congress from
enacting legislation to increase direct spending; it only requires that the increase be
offset by reductions in other direct spending programs (which could include increases
in offsetting receipts), by increases in revenues, or by a combination of the two in
order to avoid a sequester. If a sequester under this process is required, it would have
to offset the amount of any net deficit increase for the fiscal year caused by the
enactment of legislation in the current and prior sessions of Congress, and would be
applied to non-exempt direct spending programs.
Spending for Social Security benefits and current federal deposit insurance
commitments, as well as emergency direct spending and revenue legislation (so
designated by the President and by Congress in statute) that would cause a deficit
increase, is exempted completely from the PAYGO sequestration process. All
remaining direct spending programs are covered by the PAYGO process to the extent
that legislation affecting their spending levels is counted in determining whether a net
increase or decrease in the deficit has occurred for a fiscal year. If a PAYGO
sequester occurs, however, many direct spending programs would be exempt from
reduction.
The BEA of 1997 extended the coverage of the PAYGO requirement to
legislation enacted through FY2002; however, the PAYGO process remains in effect
through FY2006 to deal with the outyear effects of such measures. Consequently, a
PAYGO sequester could occur in FY2003-2006 based on legislation enacted before
the end of FY2002.
As originally framed, the 1985 Balanced Budget Act provided for the automatic
issuance of a sequestration order by the President upon the submission of a report by

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the comptroller general identifying a deficit excess. This feature of the act was
invalidated by a Supreme Court ruling (Bowsher v. Synar, 54 USLW 5064, U.S. July
7, 1986) in 1986 on the ground that the constitutional separation-of-powers doctrine
was violated because the comptroller general is a legislative branch official. Congress
subsequently revised the process in the Balanced Budget and Emergency Deficit
Control Reaffirmation Act of 1987 by placing the triggering function in the hands of
the OMB director, an executive branch official.
The Timing of Sequestration Actions
The multiple sequestration procedures established by the BEA of 1990 remain
automatic and are triggered by a report from the OMB director. For sequestration
purposes generally, there is only one triggering report issued each year (just after the
end of the session). Additionally, OMB reports triggering a sequester for
discretionary spending may be issued during the following session if legislative
developments so warrant (i.e., the enactment of supplemental appropriations). The
CBO director must provide advisory sequestration reports, five days before the OMB
director’s reports are due.
The timetable for the sequestration process is set forth in Table 2.
Early in the session, OMB and CBO issue sequestration preview reports. The
reports provide estimates of the discretionary spending limits, with the adjustments
prescribed by law. Also, the reports provide estimates of any net deficit increase or
decrease caused by the enactment of direct spending or revenue legislation subject to
the PAYGO process. In August, OMB and CBO issue sequestration update reports
to reflect the impact of legislation enacted during the interim. Finally, OMB and CBO
issue sequestration reports shortly after Congress adjourns to end the session. The
end-of-session reports must reflect any pertinent legislation enacted since the update
reports were issued and must indicate the baseline amount of budgetary resources and
the amount and percentage of the reduction for each account subject to sequestration.
In preparing its update and final sequestration reports, OMB must use the
economic and technical assumptions that were used in the earlier preview report.
During the course of the session, OMB must provide Congress with cost estimates
of budgetary legislation within five days of its enactment, so that compliance with the
discretionary spending limits and PAYGO requirements can be monitored. The cost
estimates must be based on the economic and technical assumptions used in the
President’s most recent budget.
Several other reports are associated with the sequestration process. For
example, within-session sequestration reports may be issued by CBO and OMB (no
later than July 10 and July 15, respectively) if supplemental appropriations or other
discretionary spending is enacted that causes a breach in a discretionary spending
limit. Also, the comptroller general must issue a compliance report, if requested by
either the House or Senate Budget Committee, evaluating whether the OMB and
CBO reports and the presidential order comply with the requirements of the act.
Any sequestration order issued by the President must follow the OMB
sequestration report strictly.

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Table 2. Sequestration Process Timetable
Deadline
Action to be completed
5 days before the President’s
CBO issues sequestration preview report.
budget submission
Date of the President’s budget
OMB issues sequestration preview report
submission
(as part of the President’s budget).
August 10
President notifies Congress if he intends to
exempt military personnel accounts.
August 15
CBO issues sequestration update report.
August 20
OMB issues sequestration update report.
10 days after end of session
CBO issues final sequestration report.
15 days after end of session
OMB issues final sequestration report;
President issues any required sequestration
order.
Sequestration procedures may be suspended in the event a declaration of war is
enacted or if Congress enacts a special joint resolution triggered by the issuance of a
CBO report indicating “low growth” in the economy. Also, there are several special
procedures under the act by which the final sequestration order for a fiscal year may
be modified or the implementation of the order affected.
Spending Legislation
The spending policies of the budget resolution generally are implemented
through two different types of spending legislation. Policies involving discretionary
spending are implemented in the context of annual appropriations acts, whereas
policies affecting direct or mandatory spending (which, for the most part, involves
entitlement programs) are carried out in substantive legislation.
All discretionary spending is under the jurisdiction of the House and Senate
Appropriations Committees. Direct spending is under the jurisdiction of the various
legislative committees of the House and Senate; the House Ways and Means
Committee and the Senate Finance Committee have the largest shares of direct
spending jurisdiction. (Some entitlement programs, such as Medicaid, are funded in
annual appropriations acts, but such spending is not considered to be discretionary.)
The enforcement procedures under the congressional budget process, mentioned
above, apply equally to discretionary and direct spending.
In recent years, many of the most significant changes in direct spending
programs, from a budgetary standpoint, have been made in the reconciliation process
(see discussion below). The greatest number of spending decisions in any year occurs
in the annual appropriations process.

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The Annual Appropriations Process
An appropriations act is a law passed by Congress that provides federal agencies
legal authority to incur obligations and the Treasury Department authority to make
payments for designated purposes. The power of appropriation derives from the
Constitution, which provides that “No money shall be drawn from the Treasury but
in consequence of appropriations made by law.” The power to appropriate is
exclusively a legislative power; it functions as a limitation on the executive branch.
An agency may not spend more than the amount appropriated to it, and it may use
available funds only for the purposes and according to the conditions provided by
Congress.
The Constitution does not require annual appropriations, but since the First
Congress the practice has been to make appropriations for a single fiscal year.
Appropriations must be used (obligated) in the fiscal year for which they are provided,
unless the law provides that they shall be available for a longer period of time. All
provisions in an appropriations act, such as limitations on the use of funds, expire at
the end of the fiscal year, unless the language of the act extends their period of
effectiveness.
In the federal government, an appropriation makes funds available for obligation;
it does not usually require that outlays be made in any particular fiscal year. Outlays
often ensue years after the appropriations are obligated.
The President requests annual appropriations in his budget submitted in January
or February of each year. In support of the President’s appropriations requests,
agencies submit justification materials to the House and Senate Appropriations
committees. These materials provide considerably more detail than is contained in the
President’s budget and are used in support of agency testimony during Appropriations
subcommittee hearings on the President’s budget.
Congress passes three main types of appropriations measures. Regular
appropriations provide budget authority to agencies for the next fiscal year.
Supplemental appropriations provide additional budget authority during the current
fiscal year when the regular appropriation is insufficient or to finance activities not
provided for in the regular appropriation. Continuing appropriations provide
stop-gap (or full-year) funding for agencies that have not received a regular
appropriation by the start of the fiscal year.
In a typical session, Congress acts on more than 16 appropriations measures,
including 13 regular appropriations bills and at least two supplemental appropriations
measures. Because of recurring delays in the appropriations process, Congress
typically passes one or more continuing appropriations each year. The scope and
duration of these measures depend on the status of the regular appropriations bills and
the degree of budgetary conflict between the President and Congress. In some years,
a continuing appropriations measure has been turned into an omnibus measure for
enactment of regular appropriations bills.
By precedent, appropriations originate in the House of Representatives. In the
House, appropriations measures are originated by the Appropriations Committee

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(when it marks up or reports the measure) rather than being introduced by a Member
beforehand. Before the full Committee acts on the bill, it is considered in the relevant
appropriations subcommittee (the House and Senate Appropriations committees have
13 parallel subcommittees). The House subcommittees typically hold extensive
hearings on appropriations requests shortly after the President’s budget is submitted.
In marking up their appropriations bills, the various subcommittees are guided by the
discretionary spending limits and the allocations made to them under Section 302 of
the Congressional Budget Act of 1974.
The Senate usually considers appropriations measures after they have been
passed by the House. Hearings in the Senate Appropriations subcommittees generally
are not as extensive as those held by counterpart subcommittees in the House. When
the Senate (either in committee or on the floor) changes a House-passed
appropriations measure, it does so by inserting consecutively-numbered amendments.
The conference to resolve differences in the measures passed by the two chambers
considers each of the numbered amendments. Congressional action on a measure is
not complete until both the House and Senate have successfully disposed of all
numbered amendments.
The basic unit of an appropriation is an account. A single unnumbered
paragraph in an appropriations act comprises one account and all provisions of that
paragraph pertain to that account and to no other, unless the text expressly gives them
broader scope. Any provision limiting the use of funds enacted in that paragraph is
a restriction on that account alone.
Over the years, appropriations have been consolidated into a relatively small
number of accounts. It is typical for a federal agency to have a single account for all
its expenses of operation and additional accounts for other purposes such as
construction. Accordingly, most appropriation accounts encompass a number of
activities or projects. The appropriation sometimes earmarks specific amounts to
particular activities within the account, but the more common practice is to provide
detailed information on the amounts intended for each activity in other sources
(principally, the committee reports accompanying the measures).
In addition to the substantive limitations (and other provisions) associated with
each account, each appropriations act has “general provisions” that apply to all of the
accounts in a title or in the whole act. These general provisions appear as numbered
sections, usually at the end of the title or the act.
The standard appropriation is for a single fiscal year — the funds have to be
obligated during the fiscal year for which they are provided; they lapse if not obligated
by the end of that year. An appropriation that does not mention the period during
which the funds are to be available is a one-year appropriation. Congress also makes
no-year appropriations by specifying that the funds shall remain available until
expended. No-year funds are carried over to future years, even if they have not been
obligated. Congress sometimes makes multiyear appropriations, which provide for
funds to be available for two or more fiscal years.
Appropriations measures also contain other types of provisions that serve
specialized purposes. These include provisions that liquidate (pay off) obligations

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made pursuant to certain contract authority; reappropriate funds provided in previous
years; transfer funds from one account to another; rescind funds (or release deferred
funds); or set ceilings on the amount of obligations that can be made under permanent
appropriations, on the amount of direct or guaranteed loans that can be made, or on
the amount of administrative expenses that can be incurred during the fiscal year. In
addition to providing funds, appropriations acts often contain substantive limitations
on government agencies.
Although appropriations accounts often span many activities, each agency
supplements account-level data with detailed budget justifications. While agencies
have discretion to vary their actual expenditures from the detailed supporting
schedules, the Appropriations committees expect them to adhere to their justifications
to the extent practicable. When an agency shifts funds from one program to another
in the same account, it must go through reprogramming procedures. Less significant
changes are handled informally, or by the agency unilaterally, but there has been a
pronounced trend for Congress to hold agencies more closely to the spending patterns
set forth in their budget justifications.
Detailed information on how funds are to be spent, along with other directives
or guidance, is provided in the reports accompanying the various appropriations
measures. Agencies ordinarily abide by report language in spending the funds
appropriated by Congress. The appropriations reports do not comment on every item
of expenditure. Report language is most likely when the Appropriations Committee
prefers to spend more or less on a particular item than the President has requested or
when the committee wants to earmark funds for a particular project or activity. When
a particular item is mentioned by the committee, there is a strong expectation that the
agency will adhere to the instructions. In recent years, these instructions have tended
to become more numerous and specific.
Revenue and Debt-Limit Legislation
Revenue Legislation
Article I, Section 8 of the U.S. Constitution gives Congress the power to levy
“taxes, duties, imposts, and excises.” Section 7 of this Article requires that all
revenue measures originate in the House of Representatives.
In the House, revenue legislation is under the jurisdiction of the Ways and Means
Committee; in the Senate, jurisdiction is held by the Finance Committee. While House
rules bar other committees from reporting revenue legislation, sometimes another
committee will report legislation levying user fees on a class that benefits from a
particular service or program or that is being regulated by a federal agency. In many
of these cases, the user fee legislation is referred subsequently to the Ways and Means
Committee.
Most revenues derive from existing provisions of the tax code or Social Security
law, which continue in effect from year to year unless changed by Congress. This tax
structure can be expected to produce increasing amounts of revenue in future years

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as the economy expands and incomes rise. Nevertheless, Congress usually makes
some changes in the tax laws each year, either to raise or lower revenues or to
redistribute the tax burden.
Congress typically acts on revenue legislation pursuant to proposals in the
President’s budget. An early step in congressional work on revenue legislation is
publication by CBO of its own estimates (developed in consultation with the Joint
Committee on Taxation) of the revenue impact of the President’s budget proposals.
The congressional estimates often differ significantly from those presented in the
President’s budget.
The revenue totals in the budget resolution establish the framework for
subsequent action on revenue measures. Congress generally may not consider
legislation increasing or decreasing revenues for the next fiscal year until it has
adopted the budget resolution for that year. Congress sometimes waives this
requirement — in the House, usually by means of a special rule reported by the Rules
Committee; in the Senate, usually by unanimous consent or by a waiver motion
authorized by the Congressional Budget Act of 1974.
The budget resolution contains only revenue totals and total recommended
changes; it does not allocate these totals among revenue sources (although it does set
out Medicare receipts separately), nor does it specify which provisions of the tax code
are to be changed. These specific decisions are made in the revenue legislation
reported by the House and Senate committees with jurisdiction over such matters.
The House and Senate periodically consider major revenue measures, such as the
Tax Reform Act of 1986, under their regular legislative procedures. However, as has
been the case with direct spending programs, many of the most significant changes in
revenue policy in recent years have been made in the context of the reconciliation
process. Although revenue changes usually are incorporated into omnibus budget
reconciliation measures, along with spending changes (and sometimes debt-limit
increases), such revenue legislation may be considered on a separate legislative track
(e.g., the Tax Equity and Fiscal Responsibility Act of 1982).
Occasionally, congressional leaders may decide that the Senate should take the
initiative on particular revenue matters. Congress can accommodate this strategy,
without violating the constitutional requirement that revenue matters originate in the
House, by attaching the Senate’s revenue initiatives to a minor House-passed revenue
bill. As a general matter, however, the House carefully guards its constitutional
prerogative.
In enacting revenue legislation, Congress often establishes or alters tax
expenditures. The term “tax expenditures” is defined in the Congressional Budget
Act of 1974 to include revenue losses due to deductions, exemptions, credits, and
other exceptions to the basic tax structure. Tax expenditures, as discussed previously,
are a means by which the federal government pursues public objectives and can be
regarded as alternatives to other policy instruments such as grants or loans. Tax
expenditures are classified by budget function to facilitate the comparison of spending
programs and tax expenditures. The Joint Committee on Taxation estimates the

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revenue effects of legislation changing tax expenditures, and it also publishes five-year
projections of these provisions as an annual committee print.
Debt-Limit Legislation
When the revenues collected by the federal government are not sufficient to
cover its expenditures, it must finance the shortfall through borrowing. Federal
borrowing is subject to a public debt limit established by statute. As long as the
federal government continues to operate with a budget deficit, the public debt limit
must be increased periodically. Failure to increase the debt limit in a timely manner
could lead to inefficient, stop-gap financing practices by the Treasury Department and
eventually to default. The frequency of congressional action to raise the debt limit has
ranged in the past from several times in one year to once in several years.
Legislation to raise the public debt limit falls under the jurisdiction of the House
Ways and Means Committee and the Senate Finance Committee. Although
consideration of such measures in the House usually is constrained through the use
of special rules, Senate action sometimes is far-ranging with regard to the issues
covered. In the past, the Senate has added many non-germane provisions to debt-
limit measures, such as the Balanced Budget and Emergency Deficit Control Act of
1985.
In 1979, the House amended its rules to provide for the automatic engrossment
of a measure increasing the debt limit upon final adoption of the conference report on
the budget resolution. The rule, House Rule XLIX (commonly referred to as the
Gephardt rule, after its sponsor, Representative Richard Gephardt), was intended to
facilitate quick action on debt increases. However, the Senate has no comparable rule
and often considers such legislation thoroughly, if not at length. The House and
Senate may enact debt-limit legislation originating under the Gephardt rule or arising
under conventional legislative procedures. In some instances, Congress has enacted
debt-limit increases as part of omnibus budget reconciliation legislation.
Reconciliation Legislation
Beginning in 1980, Congress has used reconciliation legislation to implement
many of its most significant budget policies. Section 310 of the Congressional Budget
Act of 1974 sets forth a special procedure for the development and consideration of
reconciliation legislation. Reconciliation legislation is used by Congress to bring
existing revenue and spending law into conformity with the policies in the budget
resolution. Reconciliation is an optional process, but Congress has used it more years
than not; during the 18 calendar years covering 1980 through 1997, 14 omnibus
reconciliation measures were enacted into law.
The reconciliation process has two stages: (1) the adoption of reconciliation
instructions in the budget resolution; and (2) the enactment of reconciliation
legislation that implements changes in revenue or spending laws. Although
reconciliation has been used since 1980, specific procedures tend to vary from year
to year.

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Reconciliation is used to change the amount of revenues, budget authority, or
outlays generated by existing law. In a few instances, reconciliation has been used to
adjust the public debt limit. On the spending side, the process focuses on entitlement
laws; it may not be used, however, to impel changes in Social Security law.
Reconciliation sometimes has been applied to discretionary authorizations (which are
funded in annual appropriations acts), but this is not the usual practice.
Reconciliation Directives
Reconciliation begins with a directive in a budget resolution instructing
designated committees to report legislation changing existing law (or pending
legislation). These instructions have three components: (1) they name the committee
(or committees) that are directed to report legislation; (2) they specify the amounts
by which existing laws are to be changed (but do not identify how these changes are
to be made, which laws are to be altered, or the programs to be affected); and (3) they
usually set a deadline by which the designated committees are to recommend the
changes in law. The instructions typically cover the same fiscal years covered by the
budget resolution, with separate dollar amounts specified for each of the years.
The dollar amounts are computed with reference to the CBO baseline. Thus, a
change represents the amount by which revenues or spending would increase or
decrease from baseline levels as a result of changes made in existing law. This
computation is itself based on assumptions about the future level of revenues or
spending under current law (or policy) and about the dollar changes that would ensue
from new legislation. Hence, the savings associated with the reconciliation process
are assumed savings. The actual changes in revenues or spending may differ from
those estimated when the reconciliation instructions are formulated.
Although the instructions do not mention the programs to be changed, they are
based on assumptions as to the savings or deficit reduction that would result from
particular changes in revenue provisions or spending programs. These program
assumptions are sometimes printed in the reports on the budget resolution. Even
when the assumptions are not published, committees and Members usually have a
good idea of the specific program changes contemplated by the reconciliation
instructions.
A committee has discretion to decide on the legislative changes to be
recommended. It is not bound by the program changes recommended or assumed by
the Budget committees in the reports accompanying the budget resolution. Further,
a committee has to recommend legislation estimated to produce dollar changes for
each category delineated in the instructions to it. Thus, it has to satisfy separately the
instruction for budget authority and outlays for each fiscal year covered by the
instructions.
When a budget resolution containing a reconciliation instruction has been
approved by Congress, the instruction has the status of an order by the House and
Senate to designated committees to recommend legislation, usually by a date certain.
It is expected that committees will carry out the instructions of their parent chamber,
but the Congressional Budget Act of 1974 does not provide any sanctions against
committees that fail to do so.

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Development and Consideration of Reconciliation Measures
When more than one committee in the House and Senate is subject to
reconciliation directives, the proposed legislative changes usually are consolidated by
the Budget committees into an omnibus bill. The Congressional Budget Act of 1974
does not permit the Budget committees to revise substantively the legislation
recommended by the committees of jurisdiction. This restriction pertains even when
the Budget committees estimate that the proposed legislation will fall short of the
dollar changes called for in the instructions. Sometimes, the Budget committees,
working with the leadership, develop alternatives to the committee recommendations,
to be offered as floor amendments, so as to achieve greater compliance with the
reconciliation directives.
The Congressional Budget Act of 1974 requires that amendments offered to
reconciliation legislation in either the House or the Senate be deficit neutral. To meet
this requirement, an amendment reducing revenues or increasing spending must offset
these deficit increases by equivalent revenue increases or spending cuts. Additionally,
non-germane amendments may not be offered in either chamber.
During the first several years’ experience with reconciliation, the legislation
contained many provisions that were extraneous to the purpose of reducing the
deficit. The reconciliation submissions of committees included such things as
provisions that had no budgetary effect, that increased spending or reduced revenues,
or that violated another committee’s jurisdiction.
In 1985, the Senate adopted the Byrd rule (named after its principal sponsor,
Senator Robert C. Byrd) on a temporary basis as a means of curbing these practices.
The Byrd rule has been extended and modified several times over the years. In 1990,
the Byrd rule was incorporated into the Congressional Budget Act of 1974 as Section
313 and made permanent (2 U.S.C. 644).
A Senator opposed to the inclusion of extraneous matter in reconciliation
legislation has two principal options for dealing with the problem. First, the Senator
may offer an amendment (or a motion to recommit the measure with instructions) that
strikes such provisions from the legislation. Second, under the Byrd rule, the Senator
may raise a point of order against extraneous matter. In general, a point of order
authorized under the Byrd rule may be raised to strike extraneous matter already in
the bill as reported or discharged (or in the conference report), or to prevent the
incorporation of extraneous matter through the adoption of amendments or motions.
A motion to waive the Byrd rule, or to sustain an appeal of the ruling of the chair on
a point of order raised under the Byrd rule, requires the affirmative vote of three-fifths
of the membership (60 Senators, if no seats are vacant).
Although the House has no rule comparable to the Senate’s Byrd rule, it may use
other devices to control the inclusion of extraneous matter in reconciliation
legislation. In particular, the House has used special rules to make in order
amendments that strike such matter.

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Impoundment and Line-Item Veto
Impoundment
Although an appropriation limits the amounts that can be spent, it also
establishes the expectation that the available funds will be used to carry out authorized
activities. Hence, when an agency fails to use all or part of an appropriation, it
deviates from the intentions of Congress. The Impoundment Control Act of 1974
(Title X of the Congressional Budget and Impoundment Control Act of 1974, as
amended) prescribes rules and procedures for instances in which available funds are
impounded.
An impoundment is an action or inaction by the President or a federal agency
that delays or withholds the obligation or expenditure of budget authority provided
in law. The Impoundment Control Act of 1974 divides impoundments into two
categories and establishes distinct procedures for each. A deferral delays the use of
funds; a rescission is a presidential request that Congress rescind (cancel) an
appropriation or other form of budget authority. Deferral and rescission are exclusive
and comprehensive categories; an impoundment is either a rescission or a deferral —
it cannot be both or something else.
Although impoundments are defined broadly by the Impoundment Control Act
of 1974, in practice they are limited to major actions that affect the level or rate of
expenditure. If every “action or inaction” — the phrase used in the Impoundment
Control Act of 1974 — that slowed the rate of expenditure were deemed to be an
impoundment, there probably would be many thousands of impoundments each year.
In fact, at most only a few hundred are reported. As a general practice, only
deliberate curtailments of expenditure are reported as impoundments; actions having
other purposes that incidently affect the rate of spending are not recorded as
impoundments. For example, if an agency were to delay the award of a contract
because of a dispute with a vendor, the delay would not be an impoundment; if the
delay were for the purpose of reducing an expenditure, it would be an impoundment.
The line between routine administrative actions and impoundments is not clear and
controversy occasionally arises as to whether a particular action constitutes an
impoundment.
A particularly difficult-to-identify impoundment occurs when the rate or level of
spending is deliberately slowed through indirect administrative means. For example,
if an agency cuts the size of the staff processing grant applications it might spend less
on grants than the amount provided by Congress, even if it does not expressly
impound the funds. These actions have come to be known as “de facto”
impoundments.
Rescissions. To propose a rescission, the President must submit a message to
Congress specifying the amount to be rescinded, the accounts and programs involved,
the estimated fiscal and program effects, and the reasons for the rescission. Multiple
rescissions can be grouped in a single message. After the message has been submitted
to it, Congress has 45 days of “continuous session” (usually a larger number of

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calendar days) during which it can pass a rescission bill. Congress may rescind all,
part, or none of the amount proposed by the President.
If Congress does not approve a rescission in legislation by the expiration of this
period, the President must make the funds available for obligation and expenditure.
If the President fails to release funds at the expiration of the 45-day period for
proposed rescissions, the comptroller general may bring suit to compel their release.
This has been a rare occurrence, however.
Deferrals. To defer funds, the President submits a message to Congress setting
forth the amount, the affected account and program, the reasons for the deferral, the
estimated fiscal and program effects, and the period of time during which the funds
are to be deferred. The President may not propose a deferral for a period of time
beyond the end of the fiscal year, nor may he propose a deferral that would cause the
funds to lapse or otherwise prevent an agency from spending appropriated funds
prudently. In accounts where unobligated funds remain available beyond the fiscal
year, the President may defer the funds again in the next fiscal year.
At present, the President may defer only for the reasons set forth in the
Antideficiency Act, including to provide for contingencies, to achieve savings made
possible by or through changes in requirements or greater efficiency of operations,
and as specifically provided by law. He may not defer funds for policy reasons (for
example, to curtail overall federal spending or because he is opposed to a particular
program).
The comptroller general reviews all proposed rescissions and deferrals and
advises Congress of their legality and possible budgetary and program effects. The
comptroller general also notifies Congress of any rescission or deferral not reported
by the President and may reclassify an improperly classified impoundment. In all
cases, a notification to Congress by the comptroller general has the same legal effect
as an impoundment message of the President.
The Impoundment Control Act of 1974 provides for special types of legislation
— rescission bills and deferral resolutions — for Congress to use in exercising its
impoundment control powers. However, pursuant to court decisions that held the
legislative veto to be unconstitutional, Congress may not use deferral resolutions to
disapprove a deferral. Further, Congress has been reluctant to use rescission bills
regularly. Congress, instead, usually acts on impoundment matters within the
framework of the annual appropriations measures.
Line-Item Veto
During the 104th Congress, the Line Item Veto Act (P.L. 104-130; 110 Stat.
1200-1212) was enacted as an amendment to the Impoundment Control Act of 1974.
Initially, proponents of the legislation had sought to empower the President to veto
individual items of appropriation, largely as an antidote to what was perceived as
unnecessary, wasteful, and unjustified spending added to appropriations bills by the
House and Senate. This authority was widely described as comparable to that
possessed by the governors of most states.

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The authority granted to the President under the Line Item Veto Act differs
markedly from the veto authority available to most chief executives at the state level.
First, the President may not veto individual parts of legislation. Under normal
constitutional procedures, the President must approve or veto any measure in its
entirety. His authority to use the line-item veto comes into play only after a measure
has been signed into law. Second, this authority applies not only to annual
appropriations, but extends to new entitlement spending and targeted tax benefits as
well. The line-item veto authority is in effect for 8 years, from the beginning of 1997
through the end of of 2004.
The Line Item Veto Act reverses the presumption underlying the process for the
consideration of rescissions under the Impoundment Control Act of 1974. Under the
Line Item Veto Act, presidential proposals take effect unless overturned by legislative
action. The act authorizes the President to identify at enactment individual items in
legislation that he may propose not go into effect. The identification is based not just
upon the statutory language, but on the entire legislative history and documentation.
The President must notify Congress promptly of his proposals and provide supporting
information. Congress must respond within a limited period of time by enacting a law
if it wants to disapprove the President’s proposals; otherwise, they take effect
permanently.
President Clinton exercised line-item veto authority for the first time on August
11, 1997, in cancelling an item of direct spending in the Balanced Budget Act of 1997
and two limited tax benefits in the Taxpayer Relief Act of 1997. Later that session,
he used the line-item veto to cancel dozens of discretionary spending projects in
several of the regular appropriations acts for FY1998.4
4 These actions are discussed in Congressional Budget Actions in 1997, by Robert
Keith, CRS Issue Brief 97008, updated regularly.

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For Additional Reading
Glossaries
The General Accounting Office is required by statute to develop, maintain, and
publish periodically a budget glossary for the federal government. (This requirement,
found in 31 U.S.C. 1112, was added to the Legislative Reorganization Act of 1970
by Section 801(a) of the Congressional Budget Act of 1974 (88 Stat. 327-328).) The
most recent glossary, A Glossary of Terms Used in the Federal Budget Process
(GAO/AFMD-2.1.1), was issued in January 1993.
In addition to the GAO glossary, the Office of Management and Budget includes
a glossary in its Analytical Perspectives volume of the annual budget submission, the
Congressional Budget Office appends a glossary to its annual report on The Economic
and Budget Outlook
, and the Congressional Research Service’s manual on the federal
budget process (cited below) provides a glossary in Appendix D.
Finally, many private publications contain budget glossaries. For example, terms
associated with the legislative process, including many budgetary terms, are defined
in Congressional Quarterly’s American Congressional Dictionary (second edition),
prepared originally by Walter Kravitz in 1993 and revised in 1997.
Congressional Research Service Products
The most extensive explanation of the federal budget process prepared by the
Congressional Research Service is provided in the following reports:
! Manual on the Federal Budget Process, by Allen Schick, Robert Keith, and
Edward Davis. CRS Report 91-902 GOV, December 24, 1991, 218 pages;
and
! Budget Process Changes Made in the 102nd-103rd Congresses (1991-1994),
by Robert Keith and Edward Davis. CRS Report 95-457 GOV, March 31,
1995, 14 pages.
! Budget Process Changes Made in the 104 Congress (1995-1996)
th
, by Robert
Keith. CRS Report 97-44, December 27, 1996, 19 pages.
As mentioned above, the 1991 CRS manual includes a budget glossary. The
other two CRS reports update the explanation of the budget process through the 104th
Congress. A fully revised and updated version of the manual will be issued in 1998.
Many other CRS products and services, including reports and issues briefs,
videotapes, and seminars, are available on different facets of the federal budget
process.