Federal Budget Process
Nine Steps in Creating the Federal Budget
The federal budget process is a nine-step plan that the U.S. Congress uses to create the federal budget. The 1974 Budget Control Act established the process. The House originates the spending bills, and the Senate amends them. The Budget Control Act centralized and consolidated that budget authority.
The Act gave Congress three powers.
- 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.
- It created the Congressional Budget Office. This office provides non-partisan analysis to facilitate Congress’s review of the budget. This includes a detailed review of the president's budget for each fiscal year.
- 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 Main Goal of the Federal Budget Process
The U.S. Constitution, Article 1, section 7 gave Congress the power to raise revenue and spend. Elected officials represent the will of the voters or they don't stay in office. Congress must agree on where the tax burden falls and who receives the benefit of spending. The budget puts in hard numbers what those priorities are. The final budget allocates specific funding for each department and its programs.
The budget process makes sure all voices within Congress are heard. It provides ample opportunity for debate. If the budget process is followed, the government runs smoothly.
Nine Steps to the Federal Budget Process
The budget process starts a full year before the fiscal year does. The fiscal year starts on October 1, the year before the calendar year starts. That means FY 2020 begins on October 1, 2019, and runs through September 30, 2020. The budget process for the FY 2020 budget began in the fall of 2018.
Early fall 2018. All federal agencies submitted their budget requests to the Office of Management and Budget. OMB prepares and manages the budget for the president.
November 2018. OMB sends its budget review comments back to the agencies.
December 2018. Agencies submitted their final budget requests. OMB then assembled the final budget and sent it to the incoming president.
January 2019. The deadline for a president to outline his budget priorities in the State of the Union Address. The Council of Economic Advisors submitted the Economic Report of the President. It analyzed economic trends. President Trump's SOTU to outline his priorities for FY 2020 was February 5, 2019.
The first Monday in February 2019. The deadline for the president to submit his budget to Congress. Trump submitted his FY 2020 budget on March 11, 2019. The president's budget puts his priorities into dollars and cents for three areas:
April 15th, 2019. Congress prepares a budget resolution to guide spending. The House and Senate budget committees each hold hearings with agency officials who explain why they need the funds requested. The committees submit their resolutions to a floor vote. The Senate and House work out their differences in a conference committee. The final budget resolution must be passed by majority votes in the House and Senate. Often Congress skips this step and defaults to the prior year's resolution.
June 10th, 2019. Congress uses the budget resolution to guide appropriations bills. They specify funds for each agency in the discretionary budget. The House and Senate each have 12 Appropriations Subcommittees. They hold more hearing, then prepare and pass their bills. These go to 12 conference committees to work out the differences. The final bills go to the floor for a vote before going to the president for signature.
Meanwhile, each house of Congress has authorizing committees to address any potential changes to mandatory spending or tax laws. These go to the Senate and House budget committees to a vote. A conference committee works out the differences. The final bill goes to the floor for a final vote before going to the president. But he typically doesn't get them until September at the earliest. The president treats this bill like any other submitted by Congress. The Constitution dictates that he must either approve or veto it within the next 10 days. A veto means the process must start all over again. The president can also allow the budget to go forward without his approval.
October 1st, 2019. Deadline to sign all bills into law. If this doesn't happen, Congress has two choices. It can pass a continuing resolution to keep federal agencies running at their current levels. The other choice is to allow a government shutdown. That means all non-essential discretionary programs close, and workers are furloughed without pay. This happened in 2013, 2018, and 2019.
July 15, 2020. The president submits a Mid-Session Review of the budget to Congress.
Role of the U.S. Treasury
The Treasury Department's Financial Management Services executes the budget once it is in effect. This is the agency that makes payments, collects revenues and delinquent debt, and issues reports including Treasury Statements.
What Happens When the Budget Process Isn't Followed
Since the FY 2010 budget, Congress has only followed the budget process twice. Some experts argue that the budget process is inherently unworkable. First, it shifted the burden of budgetary leadership to Congress. That body is not structured to take a leadership role. Second, it demands a level of coordination that Congress is not set up to meet. Third, it creates unrealistic deadlines.
The events since the mid-term elections in 2010 seem to support that argument. Republicans won a majority in the House thanks to the tea party movement. But Democrats controlled the Senate and the presidency. Republicans, refusing to support President Obama's budgets, abandoned the budget process. They used the budget as a bargaining chip to achieve their goals.
The FY 2011 budget didn't get approved until April 2011, six months behind schedule. Many government agencies almost shut down. Republicans were concerned about rising debt levels, so they cut discretionary spending by $38 billion.
The FY 2013 budget was never approved. Instead, Congress passed two continuing resolutions to keep the government running until the end of the fiscal year. These resolutions also incorporated the spending reductions mandated by sequestration.
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 a December 18 compromise.
The FY 2015 budget was approved on December 13, 2014. The process was even more outside the norm. President Obama presented his proposed budget to Congress on March 4, 2014, a month late. Then it took until December 13 for the U.S. Senate to pass the House of Representatives' $1.1 trillion spending bill. This outlined Congress’s appropriations for the remaining nine and a half months of FY 2015. It only funded Homeland Security through February 2015, in protest of President Obama's executive actions on immigration. The Bipartisan Budget Act set a cap on the discretionary portion of the FY 2015 budget, as well as the remainder of FY 2014.
The FY 2016 budget was passed on December 18, 2015, only two months behind schedule.
The FY 2017 budget was never passed. Instead, a continuing resolution kept funding at FY 2016 levels.
The FY 2018 budget was passed after the government shut down twice. A continuing resolution kept the government running until March 23, 2018. On that day, Congress passed the Omnibus Spending Bill to appropriate funds for the discretionary budget.
The first shut down occurred on January 26. Democrats opposed any bill that didn't protect immigrants eligible for Deferred Action for Childhood Arrivals. If Congress doesn't develop a permanent fix, Trump's immigration plan will end the program in February.
The second shut down occurred for four and a half hours on February 9. Senator Rand Paul objected to the bipartisan two-year spending bill. It added $320 billion to the debt by exceeding the spending caps imposed by sequestration. Republicans increased defense spending by $160 billion to $700 billion. Sequestration limited it to $549 billion. Democrats added $128 billion for nondefense discretionary spending. Sequestration limited it to $516 billion. Tax provisions added $17 billion. The Senate passed the bill shortly after 1 a.m. The House passed it at 5:30 a.m. President Trump signed it immediately, ending the shutdown before government offices opened.
Part of the bill suspended the debt ceiling until March 1, 2019. As a result, the new limit will be the debt level on that day. The Committee for a Responsible Federal Budget estimated the debt will increase to $22 trillion by then. The debt exceeded $21 trillion on March 15, 2018.
Why Congress Uses 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, Congress should use it instead of the debt ceiling.