Debt and Deficits: How the Federal Budget Process Works

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The federal debt has risen significantly over the last few years, but the Congressional Budget Office expects it to level off. Image courtesy of the CBO

The federal debt has risen significantly over the last few years, but the Congressional Budget Office expects it to level off. Image courtesy of the CBO

Quite a bit of fanfare was given to the House of Representatives and the Senate several weeks ago, as it was widely reported that for the first time in four years, a $1.1 trillion compromise budget was overwhelmingly passed by both chambers.

Two days later, President Obama signed the deal, ensuring that the government would not suffer another damaging shutdown through at least the end of the fiscal year — right?

Not exactly. There has been no actual ‘budget’ finalized. So what precisely was passed, and what are the next steps in the process?

Omnibus Appropriations Bill

What was reported as a ‘budget’ by the press was, in actuality, the Consolidated Appropriations Act of 2014. Per Business Dictionary, the definition of an appropriations bill is as follows:

An Act of Congress that proposes the use of public money , which is provided by U.S. Treasury funds, for a specific purpose or action. This legislative act essentially gives Congress the legal permission necessary to use the funds. Each fiscal year, certain appropriation bills must be approved by members of Congress. Certain appropriation bills may require revisions if political parties are divided on the use or amount of the bill.

It should be noted that the appropriations bill covers discretionary spending. Mandatory spending, such as Social Security and Medicare (which are legal obligations of the United States), are governed by Authorizations.

Next Up: The President Submits His Budget

This step is often a flash point for political division and debate over policies and priorities. The process was established by the 1974 Congressional Budget and Impoundment Control Act, which came into effect after President Nixon balked at spending approximately $12 billion of funds previously approved by Congress due to concerns over deficits and inflation.

The President’s budget for the upcoming fiscal year (which starts on October 1) is due in February. Since the appropriations bill was only just recently passed, the Obama Administration reportedly won’t release their 2015 budget proposal until March 4, 2014.

Budget Resolutions After the President Submits Proposal

After the president submits his budget, both the House and Senate get to work reviewing the proposal. As one might expect, this process can take months to complete, which is the reason for the requirement to submit in February, which is nearly eight months before the new fiscal year begins. Ultimately, both houses write separate budget resolutions, which set limits for various agencies and programs and provide a framework for other related items, including taxes.

After each resolution passes its respective legislative body, Congress creates a joint conference to reconcile the two versions. If the reconciled version passes both the House and the Senate, it becomes the official budget approved by the Congress.

Congressional Subcommittees Work on ‘Markup’ Bills

With the omnibus appropriations levels set, the budget submitted by the President and ultimately amended by the Congress, the next step is determining the exact dollar amounts to be appropriated for each discretionary item. This outcome, termed budget authority, entails hearings with Agency leaders and other meetings to work through the final dollars needed for each program.

Once completed, each subcommittee writes a separate appropriations bill. If the subcommittee then passes the bill, it goes to the Appropriations Committee for consideration, and eventually, the full Congress itself.

The House and Senate Vote on the Appropriations Bills

Congress must ultimately approve the final budget and appropriations bills. Image by Vcelloho

Congress must ultimately approve the final budget and appropriations bills. Image by Vcelloho

As there are twelve subcommittees, ultimately there are twelve separate appropriations bills that must pass each chamber of Congress. These appropriations bills differ from the omnibus appropriation mentioned in step one as they are specific, targeted appropriations to program spending requirements, as opposed to general spending limits.

Once the bill passes, Congress establishes a conference committee to reconcile the differences between the House and Senate versions. When the committee completes this task, the bills go back to the House and Senate for approval as unified appropriations bills.

The Final Budget Step: The President’s Signature

The last step in the long process is presenting the budget and appropriations bills for the President’s signature. After he signs, the budget becomes law for the next fiscal year.

Why Did the Media Present This First Step as a ‘Budget?’

It is almost certain that the lion’s share of the press do not closely follow the complicated steps required to turn a framework spending agreement into a detailed budget, nor does the general public. Furthermore, with the budget process seeming to approach a normal status for the first time in over four years, any agreement by both parties pertaining to the budget process will be trumpeted as a ‘budget agreement.’

Although it seems likely that the budget process will proceed relatively normally this year, there are still pitfalls to overcome, not the least of which is the impending debt ceiling showdown slated for the end of this month. If you thought this rare display of bipartisanship signaled the end of the fighting in Congress, think again.

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