Lesson 47: Law Making and Budgeting
In this lesson, we will learn about who decides how much money the government
will spend and how the federal budget is created. We will specifically look at
authorizations and appropriations, and budget resolutions.
The House of Representatives holds the purse. Approving government expenditures
and raising revenues is the main business of the House. One huge item that is
involved is the executive budget.
The Executive Budget is prepared and submitted by the president to Congress.
Congress breaks it down into bills, then debates, amends, and passes it some
time later. Only then is it possible to estimate government spending.
A Fiscal Year (FY) is a twelve-month period that
is used for bookkeeping, or accounting, purposes. Usually, the fiscal year does
not coincide with the calendar year. For example, the federal government's
fiscal year runs from October 1st through September 30th.
Within the fiscal year, Congress is required to conduct two reviews per year.
The first is the Spring Review, the annual process in
which the Office of Management and Budget (OMB) requires federal agencies to
review their programs, activities, and goals, and submit their requests for
funding for the next fiscal year.
Then comes the Fall Review, the annual process in
which the OMB, after receiving the agency requests for funding, reviews the
requests, makes changes, and submits its recommendations to the president.
The Election-Year Budget is a very compressed process. The outgoing president
does not set a budget for a year in which he will not be president and when the
budget needs to be approved, the incoming president has not even been chosen yet.
The budget goes through several steps from
what is possible to what is confirmed. The first is Authorization, a formal
declaration by a legislative committee that a certain amount of funding may be
available to an agency. Some authorizations terminate in a year; others are
renewable automatically without further congressional action.
Then, there is Appropriation. That is the passage, by Congress,
of a spending bill specifying the amount of authorized funds that
will actually be allocated for an agency's use.
There is a cycle to
the budget. It begins in May with the First Budget Resolution. That is the
resolution passed by Congress in May that sets overall revenue goals and
spending targets for the following fiscal year.
Then,
there is the Second Budget Resolution. It has a different tone as it is a
resolution passed by Congress in September that sets binding limits on taxes
and spending for the following fiscal year.
When Congress fails to act,
there is still a solution. The Continuing Resolution is a temporary funding law
that Congress passes when an appropriations bill has not been passed by the
beginning of the new fiscal year on October 1st.
The Federal Debt Ceiling is designed to limit spending, but there are
problems Congress can face. When government spends more than it has, it has to
issue new debt. When the federal debt reaches the debt ceiling, Congress must
then raise the debt ceiling to add more debt. If the debt ceiling is not
raised, the government faces being shut down as well as defaulting on its prior
obligations.