Federal agencies must manage their budgets prudently and develop strategies to address uncertainty in the federal budget process.
Congress passes laws that authorize agencies to spend (“obligate”) federal dollars. This can take the form of mandatory or discretionary budget authority.
Mandatory budget authority
Discretionary budget authority
Provided by various laws
Provided by annual 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
|Supports agency programs and operations, such as most spending on defense, education, housing, and energy|
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
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 46 years (as of FY 2022) to allow agencies to continue operations until final appropriations decisions are made. Operating under CRs has sometimes resulted in inefficiencies—such as delays in hiring and increased work from issuing multiple repetitive grants and contracts for the duration of each CR.
Other budget issues that federal agencies must navigate include:
- 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 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.
- Sequestration. 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 2030. 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.
Duration and Number of Continuing Resolutions and Other Budget Disruptions by Fiscal Year
Notes: Figure excludes continuing resolutions enacted in April 2011 and March 2013 that provided funding for the remainder of the fiscal year. The federal government partially shut down in fiscal years 2014, 2018, and 2019 because of a lapse in appropriations.
- User fees. 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.
Federal Budget: A Few Agencies and Program-Specific Factors Explain Most Unused Funds
The Nation’s Fiscal Health: After Pandemic Recovery, Focus Needed on Achieving Long-Term Fiscal Sustainability
Federal Trust Funds and Other Dedicated Funds: Fiscal Sustainability Is a Growing Concern for Some Key Funds
Fees, Fines, and Penalties: Better Reporting of Government-wide Data Would Increase Transparency and Facilitate Oversight
Federal Budget: Government-Wide Inventory of Accounts with Spending Authority and Permanent Appropriations, Fiscal Years 1995 to 2015
Budget Issues: Continuing Resolutions and Other Budget Uncertainties Present Management Challenges
Declining Resources: Selected Agencies Took Steps to Minimize Effects on Mission but Opportunities Exist for Additional Action
Permanent Funding Authorities: Some Selected Entities Should Review Financial Management, Oversight, and Transparency Policies
2014 Sequestration: Opportunities Exist to Improve Transparency of Progress Toward Deficit Reduction Goals
Federal User Fees: Fee Design Options and Implications for Managing Revenue Instability