Budget Process in a Nutshell (Link to the PDF or read the text below)
The Fiscal Cliff - How Budget Sequestration Operates:
The Budget Process:
Budget Terminology: Glossary of Terms Used in the Federal Budget Process (GAO)
The Appropriations Process:
Budget Process in a Nutshell
© By Charles S. Konigsberg, August 2012
The President’s Budget
The President's Budget is ordinarily transmitted to Congress each year on the first Monday of February. Preparation of the President's Budget typically begins nine months prior to transmittal. For example, formulation of the President's FY 2013 Budget (transmitted to Congress in February 2012) began in the spring of 2011 when the President's Office of Management and Budget (OMB) issued guidance to the various departments and agencies to develop budget proposals based on the President's priorities and goals.
After several months of examining program needs and priorities, each department and agency submits to OMB its initial budget request in early fall. OMB then conducts a review of agency budget requests and combines them—with OMB modifications—into a complete set of budget proposals.
Following an opportunity for agencies to review the OMB draft budget (called “passback”) and to appeal issues of concern to the OMB Director and the President, OMB makes final adjustments to the budget and transmits the massive documents to Congress on the first Monday of February, as required by law. Elements of the upcoming President's Budget are often incorporated into the State of the Union address just prior to budget transmittal.
Congressional Budget Resolution
Following the State of the Union and transmittal of the President's Budget requests, Congress begins its own budget process for making fiscal policy decisions on total spending and revenue levels, spending levels for individual programs, and changes – if any – to entitlement programs and the tax code.
The Senate and House Budget Committees hold public hearings in February at which they receive testimony on the President's Budget proposals from Administration officials, outside experts, trade associations and other interest groups, Members of Congress, and the general public.
At the same time, the other committees of Congress review the President's Budget proposals and transmit to the Budget Committees their own "views and estimates" on appropriate spending or revenue levels for programs within their respective jurisdictions.
The Senate and House Budget Committees – using the President's Budget request, information from their own hearings, views and estimates from other committees of Congress, and Congressional Budget Office reports – each draft a “Congressional Budget Resolution” typically during March in a series of working meetings known as committee "mark-ups."
The Budget Resolution does not become a law and is not presented to the President for signature. Rather, it is a congressional blueprint to guide subsequent action on specific spending and revenue measures. The Budget Resolution: sets total federal spending and revenue levels; sets total “discretionary” (i.e. non-entitlement) spending levels for action by the Appropriations Committees; and establishes procedures to enforce the budget blueprint.
The Budget Resolution may – and often does – include optional special provisions called "reconciliation instructions" directing the authorizing committees of the Senate and House to report legislation by a specified deadline making changes in entitlement programs and tax laws. “Entitlements” are formula-based benefit programs, for example Social Security and Medicare, where spending is driven by the number of people meeting various eligibility requirements and is not subject to annual appropriations decisions.
Legislation reported in response to budget reconciliation instructions is considered by Congress under special procedural protections and, most importantly, cannot be filibustered in the Senate, which means there is no need to secure 60 votes to end a filibuster. Consequently, 51 votes are sufficient to pass a reconciliation bill.
When the House and Senate Budget Committees complete committee action on their respective budget resolutions, they report them to the full House and full Senate. Members of the House and Senate then have an opportunity to alter the work of their respective Budget Committees by offering amendments to the Budget Resolutions as they are debated on the House and Senate Floors.
When the Senate and House have both passed their respective versions of the Budget Resolution, they appoint several of their Members to a House-Senate conference committee to resolve differences between the House- and Senate-passed resolutions. When differences have been resolved, each chamber must then vote on the compromise version of the Budget Resolution called a "Conference Report." (However, Congress did not complete action on a Budget Resolution for 7 fiscal years since the Budget Act was adopted in 1974 including fiscal years 2011, 2012 and 2013.)
Following adoption of a Budget Resolution Conference Report, the Budget Committees allocate total spending among the various committees of the House and Senate based on jurisdiction, with all discretionary (i.e. non-entitlement) spending allocated in one lump sum to the House and Senate Appropriations Committees, respectively.
The Appropriations Committees then subdivide their allocations among their 12 subcommittees, respectively. These allocations of discretionary spending (more than $1 trillion) by the full Appropriations Committees among their 12 subcommittees are called “302(b) allocations” and are a key decision point in the budget process; 302(b) allocations determine how much spending is allocated to defense vs. health research vs. food safety vs. law enforcement, etc.
Following 302(b) allocations, the 12 appropriations subcommittees “mark-up” appropriations bills for the upcoming fiscal year. The bills then go to the full Appropriations Committees for consideration. Following full committee action, appropriations bills travel to the House and Senate Floor, respectively, for consideration by the full chamber.
After Floor action, the bills then go to a House-Senate Conference Committee, generally composed of senior members of the relevant appropriations subcommittees. The task of the conferees is to resolve all differences between the House and Senate versions of the bill, producing a conference report. The major constraint under which the conferees operate is to produce a conference report consistent with the 302(b) spending allocations (explained in the previous paragraph).
If the Budget Resolution included “reconciliation instructions” to change revenue levels or entitlement spending levels, the authorizing committees receiving the instructions (usually including the Senate Finance, House Ways & Means and other committees) work on reconciliation legislation at the same time the Appropriations Committees are assembling their appropriations bills.
Reconciliation instructions typically direct committees to reduce spending or change revenue levels by a specified dollar amount over a certain number of years, but leave the programmatic details entirely to the committees’ discretion.
After the authorizing committees report their respective reconciliation legislation, it is packaged by the Budget Committees into a single Reconciliation bill for House and Senate Floor consideration, followed by a House-Senate conference and a final vote on a Conference Report.
While on the Floor, reconciliation legislation is considered under special expedited procedures that preclude filibusters in the Senate and strictly limit amendments, making "Budget Reconciliation" a very powerful mechanism for making changes in tax laws and entitlement programs.
Because budget reconciliation is a major departure from the Senate’s traditions of unlimited debate and amendments, the “Byrd Rule” restricts reconciliation bills to legislative provisions that are “budgetary” in character. In addition, reconciliation bills cannot increase deficits beyond the budget window covered by the budget resolution – typically, 10 years.
Congress' annual objective is to complete action on all twelve appropriations bills as well as Budget Reconciliation legislation by October 1, when the new fiscal year begins. However, if action on particular appropriations bills is not completed by the start of the new fiscal year, Congress passes a
"continuing resolution" (CR) to keep agencies operating at a particular level of funding (for example, the previous year's funding level) while they endeavor to complete appropriations action. Sometimes, multiple CRs are adopted until final agreement is reached.
Enforcement: Points of Order and PAYGO
During the course of the new fiscal year, Senators and Representatives can raise objections on the Senate or House Floor to consideration of legislation that would cause a breach of the total spending or revenue levels, or committee allocations, established by that year's Budget Resolution. Points of order are used most often to ensure that annual appropriations bills remain within their 302(b) allocations (explained above). In addition, the House has a rule to prohibit consideration of legislation that increases long-term mandatory spending and the Senate has a similar rule prohibiting legislation that increases long-term deficits.
In addition, the Statutory Pay-As-You-Go Act of 2010 (usually known as “PAYGO”) requires that the cost of new tax cuts or mandatory (i.e. entitlement) spending increases must be fully offset by other mandatory spending cuts or revenue increases. The objective is to prevent new tax cuts or mandatory spending legislation from increasing deficits. (“Emergency spending” is exempt from PAYGO.)
Violation of Statutory PAYGO triggers automatic cuts (called “sequestration) in mandatory spending programs. However, sequestration cuts in Medicare are limited to 4% and many other spending programs are fully exempt from sequestration including: Social Security, veterans’ programs and low-income programs including Medicaid, food stamps (SNAP), children’s health insurance (CHIP), temporary assistance for needy families (TANF), and supplemental security income (SSI).
Statutory PAYGO also provided special exemptions for legislation extending “middle-class” tax cuts, providing relief from automatic Medicare physician payment cuts (SGR), estate and gift tax relief, and alternative minimum tax relief (AMT). However, these exemptions lapsed at the end of 2011.
Budget Control Act of 2011, Spending Caps and Sequestration
The Budget Control Act of 2011 (BCA) added a new layer of enforcement on the budget process in order to reduce deficits. Caps were imposed on total defense and non-defense discretionary spending for each year through FY 2021 in order to reduce deficits by more than $900 billion (including interest savings). The caps are enforced by automatic across-the-board budget cuts (sequestration) if they are breached.
In addition, the BCA established a congressional “Super Committee” to achieve another $1.2 trillion in long-term deficit reduction by November of 2011. However, because the Super Committee failed to agree on a long-term deficit reduction package, automatic budget cuts (sequestration) will go into effect on January 2, 2013 to cut defense and non-defense spending by $110 billion by the end of the fiscal year. The cuts in 2013 are split evenly between defense and nondefense and imposed across-the-board, excluding exempt programs. This will require reductions of roughly 8% in non-defense programs and 11% in defense programs.
Sequestration reductions of $110 billion will also be applied in each subsequent year through 2021, although there is more discretion in how to achieve the budget savings, i.e., they need not be strictly across-the-board.