Federal Budgeting

Congress passes laws that authorize agencies to spend federal dollars for certain purposes. This can take the form of mandatory or discretionary budget authority.

In FYs 2020 and 2021, the federal government responded in an unprecedented manner to address the COVID-19 pandemic and resulting severe economic repercussions. Of the trillions of federal dollars spent on pandemic recovery, the majority has taken the form of mandatory spending. As a result, mandatory spending has further increased compared to discretionary spending, continuing a trend that has been in place for several decades and is projected to continue.

Composition of Total Federal Spending

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Note: Net interest is primarily interest paid on debt held by the public. It is part of current outlays (spending) by the government and appears as an outlay in the budget.

Given the relative decline in resources for discretionary spending, careful management of agency budgets is vital to ensuring that agencies can continue to effectively achieve their missions and deliver services to the public. Agencies have managed their funds in various ways to do so, such as carrying over funds from the prior year for use in the current year, and using intragovernmental revolving funds to pay for activities (i.e., payroll) within or among federal agencies. 

However, agencies also face disruptions and ongoing uncertainty in the federal appropriations process. For instance, Congress has enacted continuing resolutions (CRs) in all but 3 of the last 48 years (as of FY 2024) to allow agencies to continue operations until final appropriations decisions are made. Operating under CRs has sometimes resulted in administrative inefficiencies and limited management options in areas such as hiring and travel for the agencies. Agencies have developed strategies to mitigate the possible disruptions from CRs, allowing operations and services to continue. These strategies include using other available sources of funding from multi-year appropriations or delaying the start of grant programs until later in the year.

Other budget issues that federal agencies must navigate include: 

• 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 FY 2019, the federal government partially shut down for 35 days, which affected 800,000 employees at various federal agencies and delayed about $18 billion in discretionary spending. To help with this process in the future, agencies could make improvements in their shutdown plans and operations.
• Automatic, across-the-board spending reductions to both mandatory and discretionary spending (known as sequestration) were triggered in March 2013 after Congress and the President did not enact required legislation to reduce the deficit. Since 2013, sequestration of mandatory spending has occurred each year, resulting 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 continue through 2031. To promote transparency of this process, the Office of Management and Budget could publicly report the actual reductions in budget authority each year as a result of sequestration. 
• Some agencies collect funds through user fees—fees assessed to users for goods or services the federal government provides, such as fees to enter some national parks. Some of these agencies relied on their fee reserves when they experienced revenue instability during the pandemic—and could better plan for future user fee disruptions. Additionally, there is no comprehensive, government-wide data that identifies specific user fees—which could help Congress identify trends in collections and significant changes that could be an indication of an agency’s performance.