Federal Budget Process

Who's Who, What's What and How It Works (When It's Followed)

S. President George W. Bush (L) talks with former President Bill Clinton
U.S. President George W. Bush (L) talks with former President Bill Clinton during a photo-op with other former presidents and incoming President-elect Barack Obama in the Oval Office January 7, 2009 in Washington, DC. On January 20, 2009 Barack Obama will be sworn in as the nations�s 44th president. Ron Sachs-Pool/Getty Images

The Federal Budget process gives the U.S. Congress all the power it needs to control federal spending. It was created by the 1974 Budget Control Act. It also gives Congress three additional powers:

  1. It allows the House of Representatives and the Senate to have their own standing budget committees. This gives them the ability to create their own budgets to use in negotiating the final appropriations bills.
  1. It created the Congressional Budget Office (CBO). This provides non-partisan analysis to Congress to facilitate its review of the budget. This includes a detailed review of the President's budget for each fiscal year. 
  2. It moved the beginning of the fiscal year from July 1 to October 1 to give newly elected officials more time to review each year's budget. 

The Federal Budget Process

To understand the Federal budget process, you need to know that the fiscal year starts on the October 1 before the calendar year starts. That means FY 2015 began on October 1 2014 and runs through September 30 2015.

The budget process actually starts a full year before the fiscal year does. That means the process for the FY 2015 budget began in the fall of 2013.

In the early fall, all Federal agencies submit their budget requests to the Executive Office of Management and Budget (OMB), which prepares and manages the budget for the President.

In November, OMB sends its budget review comments back to the agencies. They submit their final budget requests in December. OMB then assembles the final budget for the following fiscal year, and sends it to the President.

In January, the President outlines his budget priorities in the State of the Union Address.

The Council of Economic Advisors also submit the "Economic Report of the President," which analyzes upcoming economic trends.

By the first Monday in February the President submits his budget to Congress. It puts his priorities into dollars and cents for three areas:

  1. Funding levels for Federal agencies.
  2. Changes to Mandatory programs already enacted by Congress. These include Medicare, Social Security, Medicaid,TARP and the Affordable Care Act.
  3. Changes to the tax code. The budget must show the impact on Federal revenue.

Congress uses the President's budget as a base to prepare a Budget Resolution by April 15th. Each house of Congress develops their own budget proposals separately. They base this on hearings held with agency officials, who explain why they need the funds requested. They then meet in a Conference Committee to work out their differences. The final Budget Resolution must approved by majority votes in the House and Senate.

Congress creates spending Appropriation Bills  by June 10th. The bills appropriate funds for each agency in the Discretionary budget.They base these bills on more hearings held with the agency officials and outside public testimonies. First, the House Appropriations Subcommittees prepare their bills and pass their bills internally.

These bills go to the Senate, which revises and must approve them before they go to the President. 

The House must approve all the bills by June 30. However, often the President doesn't get them until September

The President treats this bill like any other submitted by Congress. The Constitution dictates that he must either approve these bills, veto them (starting the process all over again) or allow them to go forward without his approval within the next 10 days.

All the bills must be signed into law before October 1st, the beginning of the new fiscal year. If this doesn't happen, Congress passes a Continuing Resolution (CR) to keep Federal agencies running at their current funding levels until a budget can be passed. If a CR isn't passed, then a government shutdown occurs. That means all non-essential Discretionary programs close, and workers are furloughed without pay.

In addition, the President usually submits a Mid-Session Review of the budget to Congress by July 15.(Source: Washington Post, Federal Budget Process; The Federal Budget Process in a Perfect World; enter on Budget and Policy Priorities, The Federal Budget Process; American Mathematical Society, Timeline of Federal Budget Process)

What Is the Role of the U.S.Treasury?

The Treasury Department's Financial Management Services executes the budget. This is the agency that makes payments, collects revenues and delinquent debt and issues reports including the Treasury statements.

Why Did Congress Use the Debt Ceiling Instead of the Budget Process?

Before 1974, Congress's only tool to control the budget was the debt ceiling, created in 1917. This gave it a very limited yes-no power. Now that the budget process is much better, why would Congress ever feel the need to use the debt ceiling at all?

In 2010, Republicans won a majority in the House of Representatives thanks to the tea party movement. However, Democrats control the Senate and the Presidency. Therefore, Republicans cannot support for their budgets, and have abandoned the budget process. Instead, they either don't approve a new budget, don't pass continuing resolutions to fund the government at current levels, don't raise the debt ceiling, thereby risking America's first-ever debt default.

Some people argue that the budget process is inherently unworkable. Professor Iwan Morgan says that, first, it shifted the burden of budgetary leadership to Congress, which isn't designed to be a leadership body. Second, it demands a level of coordination that Congress is not set up to meet. Third, it creates unrealistic deadlines. (Source University of California Berkeley, 1974 Budget Control Act

What Happens When the Budget Process Isn't Followed

On December 13, 2014, the U.S. Senate passed the House of Representatives'  $1.1 trillion spending bill that outlined the appropriations to fund the government for the rest of FY 2015 (October 1, 2014 - September 30, 2015). However, it only fundws Homeland Security through February 2015. That was in protest of President Obama's executive actions on immigration.

The bill rolled back the part of the Dodd-Frank Wall Street Reform Act that required banks to keep their derivatives trading below 3% of revenue. If this portion of the spending bill passes, banks will be allowed to use FDIC-guaranteed deposits to fund derivatives trading. However, the budget does provide more funds for the CFTC, which oversees derivatives trading. (Washington Post, "What Jamie Dimon Lost When He Won on the Government Spending Bill," December 12, 2014)

The spending bill also allows individuals to give up to 10 times the current limit on contributions to national political parties. (Source: "House Passes $1.1 Trillion Spending Bill Ahead of Midnight Deadline," WSJ, December 11, 2014)

This spending bill fleshed out departmental spending to meet the overall levels Congress set for the FY 2015 budget on December 18, 2013.  The Bi-Partisan Budget Act set a cap on the Discretionary portion of the FY 2015 budget, as well as the remainder of FY 2014.

This whole process was well outside of the normal Federal budget process. The President did follow the first part of the process. He presented his proposed FY 2015 budget to Congress on March 4, 2014. It outlined the expected revenue and expenses for October 1, 2014 - September 30, 2015.  However, it was a month late.

Normally, it would be debated and approved by September 30, before the next fiscal year started on October 1. However, ever since the 2010 mid-term elections, tea party Republicans have refused to use this process. As a result, the President's budget won't be passed. However, it's still a good outline of projected total spending and revenue intake, especially for Mandatory spending.

The FY 2014 budget wasn't approved, either.  Instead, Republicans forced a government shutdown for 16 days. The government reopened when they finally agreed to enter a budget conference committee, which resulted in the December 18 compromise.

The FY 2013 budget was never approved. Instead, Congress passed two continuing resolutions to keep the government running until the end of the 2013 Fiscal Year. These resolutions also incorporated the spending reductions mandated by sequestration

The FY 2012 budget wasn't approved until December 2011, two months behind schedule. The FY 2011 Budget didn't get approved until April 2011 -- six months behind schedule. Many government agencies almost had to shut down. Article updated February 23, 2016.

Current Federal Budget

Past Federal Budgets