Key Issues > Federal Budgeting
budget icon, source: GAO

Federal Budgeting

An increasingly constrained budget environment underscores the importance of managing federal agency budgets prudently and developing strategies to address uncertainty in the federal budget process.

 

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Congress passes laws that authorize agencies to spend federal dollars (“incur an obligation.”) Various laws provide mandatory budget authority, while appropriations acts provide discretionary budget authority, as summarized below.

Mandatory budget authority

Discretionary budget authority

Provided by various laws

Provided by appropriations acts

Generally driven by eligibility rules and benefit formulas

Informed by agency budget estimates and congressional priorities

Supports programs such as Medicare, Social Security, and various veterans’ programs, as well as interest on publicly-held debt

Supports agency programs and operations such as most defense spending, education, housing and energy

 

As shown in the figure, mandatory spending has increased from roughly 49 percent of total federal spending in fiscal year 1995 to 62 percent in 2015. According to the Congressional Budget Office, this growth is projected to continue for the next several decades.

Composition of Total Federal Spending

Composition of Total Federal Spending

As growth in mandatory spending crowds out resources for discretionary spending, careful management of agency budgets is even more vital to ensuring that they can continue to effectively achieve their missions and deliver services to the public. 

Agencies face considerable disruptions and ongoing uncertainty in the federal appropriations process that creates additional challenges in managing their budgets: 
 
Continuing Resolutions. In all but 3 of the last 30 years, continuing resolutions (CR) have been enacted to allow agencies to continue operations until final appropriations decisions are made after the start of the fiscal year. Operating under CRs has sometimes resulted in inefficiencies such as delays in hiring and increased work issuing multiple repetitive grants and contracts for the duration of each CR within the fiscal year. When operating under a CR for a prolonged period, agencies faced additional challenges when their final budget for the year was enacted because they had to execute their budgets in a compressed time frame. Challenges included less time to hire new staff, delayed review of grant applications, and delayed implementation of program enhancements. 
 
Lapses in Appropriations. When appropriations expire and neither new appropriations nor CRs are enacted, a funding gap may occur and portions of the government may shut down. In October 2013, the federal government partially shut down for 16 days and about 850,000 employees were furloughed for part of this time. This affected operations, grants, and contractors to varying degrees. However, agencies found it difficult to assess the longer-term effects of the shutdown in isolation from other budgetary effects, such as sequestration and other reductions. 
 
Sequestration. Across-the-board spending reductions, known as sequestration, were triggered in March 2013 after the Joint Select Committee on Deficit Reduction did not propose and Congress and the President did not enact legislation to reduce the deficit by an additional $1.2 trillion. Agencies had only 7 months to absorb the cuts, resulting in a range of immediate and longer-term effects. Additional sequestration of discretionary spending may occur in the future if spending caps are breached. Sequestration of mandatory spending has resulted in smaller and delayed direct payments to program beneficiaries, reduced services, and reduced tax credits, among other things. Under current law, sequestration of mandatory spending will occur each fiscal year through 2025. 
 
The figure below shows the duration and number of continuing resolutions from fiscal years 1999 through 2016, as well as other disruptions such as the lapse in appropriations in fiscal year 2014 and the beginning of sequestration orders starting in fiscal year 2013. 
 
Duration and Number of Continuing Resolutions and Other Budget Disruptions by Fiscal Year
 
Duration and Number of Continuing Resolutions and Other Budget Disruptions by Fiscal Year

aThe fifth CR, P.L. 108-185, amended the original CR with substantive provisions but did not extend the CR period.
bIn February 2007, Congress enacted a 227-day CR that provided funding for the remainder of the fiscal year; this CR is not included in the figure.
cIn April 2011, Congress enacted a 168-day CR that provided funding for the remainder of the fiscal year. This CR is not included in the figure.
dIn March 2013, Congress enacted a 189-day CR that provided funding for the remainder of the fiscal year; this CR is not included in the figure.
eIn October 2013, the federal government partially shut down for 16 days because of a lapse in appropriations.

In conjunction with the annual appropriations process, agencies may have other mechanisms to collect and expend resources. 
 
Unobligated Balances from Multi-Year and No-Year Accounts. Sometimes agencies may carry forward funds received in prior years that remain available to use for the same purpose in a future year. Reviewing these balances and answering key questions regarding the management of the balances could provide insights into why a balance exists, what size balance is appropriate, and what opportunities (if any) for savings exist. Actively managing these balances could help agencies better respond to unexpected events, such as disruptions in funding. 
 
Revolving Funds. Agencies contribute to intragovernmental revolving funds to pay for business-like activities within or among federal agencies. Shared services—where agencies consolidate their service needs, such as payroll services, to save money or improve efficiency—may be supported through these types of funds. Following key operating principles, such as clearly delineating roles and responsibilities and measuring performance of the fund, can help agencies effectively manage their revolving funds.  
 
Federally-Owned Capital. Federally owned capital, such as buildings and ships, require agencies to obtain a significant amount of funds up front. Alternative funding mechanisms—such as operating leases and certain public private partnerships—can help agencies meet their capital needs in the short term but may be a more expensive way to acquire capital over the long term. Changes to the budgetary structure itself might provide a more consistent way to meet capital needs while helping Congress and agencies make more prudent long-term fiscal decisions. Alternative budgetary structure options, such as a government-wide capital acquisition fund, could improve transparency of both costs and benefits up front and over time.   
 
User Fees. According to the President’s budget, the federal government collected over $300 billion in user fees in fiscal year 2015, for goods and services above and beyond those normally provided to the public. For example, the government may charge fees for people to enter some national parks, and may charge fees to fund some regulatory activities. Well-designed user fees can help pay for programs while reducing taxpayer burden. Certain fee design options, such as incorporating a reserve component, can help buffer against revenue instability (i.e., fluctuations in fee collections) that can make budgeting difficult. 
 
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