Federal budget appropriation in the United States is a very complicated process. It involves numerous sub processes, limitless rules and regulations, numerous personnel involved in the executive and legislative branches as well as the active participation of the President and congressmen (Keith 1).
Making budget decisions entails a challenging web of procedures that includes action from both the legislative and executive branches. Recently, these steps have been embedded in two laws namely the Congressional Budget Act of 1974 and the Budget Enforcement Act (BEA). With the former, the policies for budget appropriation are enacted by Congress after considering independent measures (Keith 1).
On the other hand, the BEA, first enacted in 1985 and revised twice in 1990 and 1997, is the latest addition to enforcement policies and has been utilized to implement budget policies at the conclusion of Congressional session. Its enforcement procedures were recently waived and were effectively terminated toward the conclusion of the 107th Congress. Efforts to revive it went for naught and there is no clear indication whether it will be revived again in the 110th Congress (Keith 1).
During the research some of the major literature references were Microsoft Encarta and a report to the House of Representatives by the Office of Budget and Management of the President.
This paper aims to discuss the evolution of the US Federal Budget process after the enactment of the Budget and Impounded Act of 1974. It attempts to explain the steps initiated by Congress in modifying the basic laws that govern the Budget and Impounded Act of 1974.
Identification of the Problem
What is Appropriation?
Appropriation is a legislative action which authorizes the spending of public funds for some designated purpose. Through the appropriations functions, Congress can change the direction of government. In the United Kingdom, for example, Parliament was able to establish government control from the monarch (Fisher, Appropriation).
The U.S. Constitution mandates that no money shall be taken out from the Treasury Department except through appropriations enacted by law. State constitutions have the same provisions. While Congress maintains control over budget appropriations, the executive department is given huge discretion over fund spending. In many instances, there have been conflicts between the legislative and executive branches, paving the way for additional limitations by the legislative body (Fisher, Appropriation).
The United States Congress adopts a two-step appropriation process: program authorization based from recommendations by legislative committees and then funding of the programs through measures derived from funding committee report (Fisher, Appropriation).
Understanding basic issues about the US Federal Budget process is important because one can have an idea of how the system works and what are the changes that have been implemented in order to make the process efficient.
Review of Related Literature
The History of US Federal Budget
Since the Second World War, budget appropriations have been a tradition for the Federal government. Establishing a balanced budget was a major problem for previously elected officials. During this time, budget appropriations has consistently increased, regardless of which political party is in power or holds most of the seats in the House of Representatives or Senate (Cogan, Federal Budget).
Over the last four decades since World War II, Federal budget expenditures have increased from 18% in the 1950s to 23.2% in the 1990s. The budget deficit in relation to the GNP has increased more than twice. Before 1940, the US Federal Budget was even, except during war years and economic recession (Cogan, Federal Budget).
In the first 90 years of American history, the power to spend was concentrated in one committee in each house of Congress. However, in 1885, the House removed bulk of the authority of the Appropriations Committee and distributed it to various authorized committees. This practice lasted until the First World War (Cogan, Federal Budget).
From 1886 to 1916, GNP-related expenditures took place in programs which were under the jurisdiction of authorizing committees. However, compared to today, Congress immediately recognized its problem and took decisive measures to resolve them. In 1919, it set up a select budget committee, which immediately suggested for a budget process reform that focuses on a single committee who will report all appropriations. The recommendation was accepted by the House and stripped the seven authorizing committees of their appropriations power. A couple of years later, the Senate reformed their own budget appropriation process (Cogan, Federal Budget).
The reforms initiated were effective. From 1921 until the beginning of the Great Depression, GNP-related expenditures remained constant and the budget was stable. However, during the Great Depression, decentralization was re-adopted. The process was gradual initially but increased significantly in the 60s and 70s as Congress was implementing new programs and spending authority was distributed among a number of congressional committees (Cogan, Federal Budget).
The US Federal Budget Process
The manner of budget appropriation being adopted by the legislative branch is based on the procedures set forth in the Congressional Budget Act of 1974. Under this law, Congress will be required to develop an annual budget resolution while setting overarching restrictions on expenditures and tax cuts. The restrictions are applicable to legislation created by separate congressional committees as well as to any changes applied to legislations on the floors of the House or Senate. Here is the process of federal budget appropriation (Coven & Kogan, Introduction to the Budget Process):
First Stage: Presidential Request for Budget
The Federal Budget process begins with the President requesting for budget. This is usually done on or before the first Monday of February for the Federal fiscal year, which starts on October 1 (Coven & Kogan, Introduction to the Budget Process).
Prepared by the Office of Management and Budget (OMB) of the Executive Branch, the budget request has three roles. First, it informs Congress about the view of the President about what a total federal fiscal policy should be as set established by three main components: 1) the amount of projected expenditures for public purposes; 2) the amount that it should receive as tax income; 3) the amount of deficit the government should operate, which is the difference of the first two components (Coven & Kogan, Introduction to the Budget Process).
The second role of the budget request is to present the Presidents priorities on Federal programs such as on defense, education, agriculture, health, among others. The request should be as specific as possible and must have recommended funding levels for separate or small group of programs called budget accounts. (Coven & Kogan, Introduction to the Budget Process)
The budget request should lay down the governments fiscal policy and budget priorities not only for the coming year but also for the succeeding five years or more. Aside from that, it must have an accompanying table that provides previous budget figures (Coven & Kogan, Introduction to the Budget Process).
The third role of the Presidents budget request is to signal Congress about what spending and tax measures the President plans to implement. The Executive Department is not required to recommend legislative changes for components of the budget that are covered by permanent law if the President feels that it is not necessary. For example, the federal tax code is established in permanent law so it has no expiration (Coven & Kogan, Introduction to the Budget Process).
Discretionary Budget Excluded
However, there is one type of appropriation that the President need not request for annually and this is the budget for discretionary or appropriated programs, which is under the authority of the House and Senate Appropriations Committees. They should be renewed annually in order to remain enforced (Coven & Kogan, Introduction to the Budget Process).
Discretionary budgets include defense, health research, K-12 education, housing, to name just a few (Coven & Kogan, Introduction to the Budget Process).
The Presidents request for budget may likewise include the following (Coven & Kogan, Introduction to the Budget Process):
Second Stage: The Congressional Budget Resolution
As soon as Congress receives the budget request of the President, a hearing will be conducted by Congress in order to inquire about the request of the President and come up of with its own budget resolution. This will be the job of the Budget Committees of the House and Senate, whose main job is to come up with a draft budget resolution (Coven & Kogan, Introduction to the Budget Process).
When the committees have been completed, the budget resolution is then deliberated upon on House and Senate floor, where it is open for amendment. Afterwards, a House-Senate conference would be held to resolve any differences, and a conference report will be enacted in both houses (Coven & Kogan, Introduction to the Budget Process).
Compared to the Presidential budget, Congressional resolution is simple. It contains a group of numbers telling the amount Congress projects to spend for each of the 19 budget functions as well as the amount they expect to collect for the coming five years (Coven & Kogan, Introduction to the Budget Process).
Under the Congressional Budget Act, the resolution must cover at least 5 years although there are times when Congress opts for a 10-year budget. The difference between the spending ceiling and the revenue floor is the budget surplus or deficit projected annually (Coven & Kogan, Introduction to the Budget Process).
The total expenditures in the budget resolution are defined in two ways: First, as budget authority, which is the amount of money to be pledged by Congress. The other method is budget outlays, which is the actual spending made by the Treasury Department annually (Coven & Kogan, Introduction to the Budget Process).
The Congressional budget resolution is accompanied by a 302 allocation table, which takes into account the overall spending figures allocated for budget function in the budget resolution and then divides these totals according to congressional committee. The 302 allocation table for the House and Senate are distinct from each other since the jurisdiction of each committee may vary between the two houses (Coven & Kogan, Introduction to the Budget Process).
Finally, the budget resolution may likewise involve short or long-term changes to the congressional budget process (Coven & Kogan, Introduction to the Budget Process).
Stage Three: Enforcing the Budget Resolution
The principal mechanism that hinders Congress from enacting legislations that contradicts the terms of the budget resolution is the capacity of one member of the House or Senate to raise a point of order concerning the budget on the floor or to block the passing of such law (Coven & Kogan, Introduction to the Budget Process).
Recently, raising a point of order on the floor was unimportant in the House because a simple majority vote can waive the motion. In the case of budget point of order, however, any law that surpasses the budget allocation of a committee can be prone to a point of order which may need 60 votes to be waived (Coven & Kogan, Introduction to the Budget Process).
The appropriated bill must be well within the 302 allocation submitted to the Appropriations Committee as well as the 302 sub-allocation for the next fiscal year. In the case of tax or entitlement bills as well as any attached amendments should be well within the spending limit of the budget resolution for the relevant committee for the initial year and must exceed the entire multi-year period in the budget resolution coverage (Coven & Kogan, Introduction to the Budget Process).
Step Four: Reconciling the Budget Resolution
From time to time, Congress has the option to reconcile the budget as provided for by the Congressional Budget Act. Reconciliation, which was originally known as deficit-reduction tool, is designed to implement budget cuts or increase tax demanded by the budget resolution (Coven & Kogan, Introduction to the Budget Process).
Prior to the reconciliation of the budget, a bill will be developed by various committees. This document usually involves several provisions that will have an impact on the Federal budget, whether on the mandatory expenses or on the tax side or both. A reconciliation bill is not subjected to Senate amendments so it can be passed by majority vote (Coven & Kogan, Introduction to the Budget Process).
Reconciling The Budget
The option to use the reconciliation process should be indicated in the budget resolution. This method is known as reconciliation directive. Under this procedure, various committees are instructed to create legislations within a specific date that complies with specific expenditure or tax targets. Failure to produce the legislation will subject the process to floor amendments in order to meet the scheduled targets (Coven & Kogan, Introduction to the Budget Process).
The Budget Committee will then consolidate all the bills into one bill which is then deliberated on the floor, with only minimal opportunity for amendments. When the two versions have been consolidated, a final conference report would be discussed on the floor of each chamber and then submitted to the President for signature or veto (Coven & Kogan, Introduction to the Budget Process).
The Byrd Rule
Although the reconciliation directive provides an opportunity to consolidate all the bills which can affect a wide range of programs, it faces one major obstacle known as the Byrd Rule, named after Senator Byrd of West Virginia. This principle subjects extraneous provisions of a bill to a point of order (Coven & Kogan, Introduction to the Budget Process).
When subjected to the Byrd rule, the contradicting provision will be automatically removed from the bill unless a minimum of 60 senators waive the rule. Adding policy revisions in the reconciliation bill will become challenging unless it involves implications to the fiscal policy (Coven & Kogan, Introduction to the Budget Process).
Exempted from the Byrd Rule are authorizations of discretionary appropriations, amendments to civil rights or employment law legislation, and changes to social security. Aside from that, the Byrd Rule prohibits increase of entitlements or reduction of tax that cost money which would exceed the five years period covered by the reconciliation drive (Coven & Kogan, Introduction to the Budget Process).
The Congressional Budget Act of 1974
During the so-called Great Society era of President Lyndon Johnson, there was an increase in government spending. At the same time, expenses in support of the military efforts in Vietnam went up as well (House Rules Committee, Organization of the Congress).
During the 1972 presidential campaign, then President Richard Nixon requested Congress to grant him authority to reduce Federal spending at his discretion in order to meet the proposed $250 billion budget ceiling for FY 1973. Congress did not give in to the granting of authority and it resulted to a conflict over the Presidents aggressive impoundment measures. The increasing conflict between the legislative and executive branch paved the way for another attempt to reform the congressional budget process (House Rules Committee, Organization of the Congress).
In 1972, Congress formed a Joint Study Committee on Budget Control, made up of members of the appropriations and tax committees of the House and Senate and two at-large members from each Chamber. Hearings were conducted for 7 days in March 1973 (House Rules Committee, Organization of the Congress).
Among the major recommendations of the Joint Committee was to improve possibilities of Congress examination of budget from a general point of view, along with a system of deciding priorities. The report likewise stated that it was necessary to understand that the budget deficit should not be bigger than what is considered by Congress as appropriate (House Rules Committee, Organization of the Congress).
The recommendations of the Joint Study Committee were reviewed and further studied by the House Rule Committee, Senate Governmental Affairs Committee, and the Senate Rules and Administration Committee. Aside from that, considerations of codifying and limiting the impoundment authority of the president were joined with measures to improve legislative budgetary controls (House Rules Committee, Organization of the Congress).
As a reaction to the frustrations which resulted from the fragmentation of the congressional budget process and the perceived encroachment of the President of the budget appropriation authority of the legislative department, Congress passed into law the Congressional Budget and Impounded Control Act of 1974. (House Rules Committee, Organization of the Congress)
The Congressional Budget Act of 1974 was enacted by Congress because of the following reasons: 1) there is a need to ensure effective congressional support over the process of budget appropriation; 2) there is a need for the provision of an annual congressional determination on the correct level of Federal income and expenses; 3) there is a need for systematic impoundment control procedure; 4) there is a need for an established budget priorities; and 5) to provide information by the Executive Department in order to help Congress perform its duties (Government Printing Office, Congressional Budget Act).
The aim of the Act is to enhance the role of Congress in budget appropriation by strengthening and centralizing its budget capability. It requires additional committees and staff. The House and Senate Budget Committees were established in order to coordinate the congressional appropriation of the budget. Other changes in the Act included the establishment of the Congressional Budgetary Office as a source for a non-partisan evaluation and information which has something to do with the Budget and the economy (House Rules Committee, Organization of the Congress).
In order to make the process orderly as possible, the Act outlined a specific time table for action on the budget. The tool used in coordinating various sections of the budget was the current budget resolution, a method of congressional decision that can bind legislative action but does not call for the signature of the President (House Rules Committee, Organization of the Congress).
Under the Act, the budget resolution would be prepared by April 15 of each year and Congress acts on it not later than May 15. For the legislative department, it was their opportunity to act on the budget as a joint chamber. After the passing of the resolution, Congress would then go back to its old procedure but the committees were forced to adopt the limited parameters established in the resolution (House Rules Committee, Organization of the Congress).
The Congressional Budget and Impoundment Control Act of 1974 were signed into law on July 12 by then President Richard Nixon. Political analysts believe that it was an attempt to save himself from impeachment over the Watergate scandal (Bartlett, 25 Years Under the Budget Act).
For most presidents, the Congressional Budget Act did not auger well for them because it eliminates their impoundment authority. Used since the time of George Washington, the impoundment authority gives the President the power to veto any provision on the appropriation bill that was not justified (Bartlett, 25 Years Under the Budget Act).
During the regime of Richard Nixon, the wage and price control measures implemented in 1971 was starting to break down as well as the 1973 OPEC oil embargo. As a result, inflation rate began to increase. With a hostile Congress, Nixon started to depend largely on his impoundment authority which prompted the legislative branch to put an end to the practice (Bartlett, 25 Years Under the Budget Act).
Accomplishments of the Congressional Budget Act of 1974
During the first five years of its implementation, the Congressional Budget Act of 1974 initially experienced rough sailing. In a 1979 testimony made by Congressional Budget Office (CBO) Director Alice Rivlin, the goals set forth by the Act have not yet been fully recognized. According to Director Rivlin, Congress has not yet been successful on the following fronts (Rivlin, CBO Testimony):
During the 1990s, the budget process was known for missing deadlines. In fact, in 1997, the legislative and executive branch was not able to get along in drafting a budget for that year. Almost at the halfway mark and the two branches of government had to accomplish two budgets in a time period which has proven to be insufficient for a single budget. In 1995, the 104th Congress was unable to allocate the needed budget for the Clinton administration (Utt, Getting the Federal Budget back on Track).
Despite the missed deadlines, however, the budget allocation for the Clinton administration from 1993 2001, the United States had the strongest economy in a generation. According to the National Bureau of Economic Research and Council of Economic Advisors, February 2000 was the longest economic expansion in American history with 107 months (National Security Council, A Nation Transformed).
In 1992, the budget deficit was $290 billion which is the biggest in the history of the United States. In 1993, the CBO forecasted that the deficit would increase to $513 billion come 2001. In that same year, the prediction was changed to a surplus of $256 billion for 2001 (National Security Council, A Nation Transformed).
From 1997 to 2000, the Federal government had been busy settling the national debt. In 2001, $237 billion worth of debt was paid off. As a result of the reduction in the debt, interest rates likewise went down. If the trend continues, it is expected that the national debt of the United States would be paid off by 2010 (National Security Council, A Nation Transformed).
With the improvement in US economy, the Federal government was able to undertake on several projects. 22.5 million jobs were generated since 1993, which is the highest number recorded in a single regime. From the 22.5 million, 92 percent of the generated jobs came from the private sector (National Security Council, A Nation Transformed).
In addition, the unemployment rate likewise saw a gradual drop from 7.5 percent in 1992 to 4.0 percent in November 2000, the lowest in more than thirty years. The Clinton Administration likewise recorded the longest and quickest growth in the aspect of real wage over the last thirty years (National Security Council, A Nation Transformed).
In the family and community sector, 15 million working families got a tax relief due to the Presidents extension of the Earned Income Tax Credit. In 1999, it was responsible for the upliftment of the lives of 4.1 million people which is more than twice the number registered in 1993 (National Security Council, A Nation Transformed).
With the Family and Medical Leave Act, workers were eligible for paid leaves up to 12 weeks in order to care for critically ill members of the family. Close to 91 million employees are covered by the Family and Medical Leave Act with 35 million seeking leaves due to family and medical reasons (National Security Council, A Nation Transformed).
The education sector likewise benefited from the stable budget of the Clinton Administration with the implementation of the Hope Scholarships and Lifetime Learning tax credits. $7 billion worth of tax credits was claimed by close to 10 million American families (National Security Council, A Nation Transformed).
What changes have taken place since the enactment of the Congressional Budget and Impoundment Act of 1974? Budget allocation is one of the most difficult legislative acts.
Federal budget appropriation in the United States is a very complicated process. It involves numerous sub processes, limitless rules and regulations, numerous personnel involved in the executive and legislative branches as well as the active participation of the President and congressmen
The manner of budget appropriation being adopted by the legislative branch is based on the procedures set forth in the Congressional Budget Act of 1974. Under this law, Congress will be required to develop an annual budget resolution while setting overarching restrictions on expenditures and tax cuts. The restrictions are applicable to legislation created by separate congressional committees as well as to any changes applied to legislations on the floors of the House or Senate.
Allocation begins with the budget request coming from the Office of Budget and Management of the Executive Department. Congress will then conduct hearings on the Budget Request.
The Clinton-Gore administration had a very stable budget that it was able to register the strongest economy in the history of the United States. With a strong budget allocation, the Federal government was able to initiate vital measures. Crime rate went down, education increased, and family life improved.
Budget appropriation is a vital legislative act that determines how far the Executive Department can go about implementing projects for the nation.
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Bartlett, Bruce. 25 Years Under the Budget Act. 1999 July 21. National Center for Policy Analysis. 2008 September 7.
Cogan, John. Federal Budget. The Concise Encyclopedia of Economics. 2008 September 7.
Congressional Budget Act Budget Enforcement Act. Government Printing Office. 2008 September 7.
Coven, Martha. & Kogan, Richard. Introduction to the Federal Budget Process. 2007 December 3. Center on Budget Policy and Policy Priorities. 2008 September 7.
Fisher, Louis. Appropriation. Microsoft Encarta Online Encyclopedia. 2008 September 7.
Rivlin, Alice. CBO Testimony. 1979 December 11. Congressional Budget Office. 2008 September 7.
The Congressional Budget and Impoundment Control Act of 1974. House Committee on Rules. 2008 September 7.
Utt, Ronald. Getting The Federal Budget Process Back on Track. 1996 March 18. The Heritage Foundation. 2008 September 7.