Budget Process in the U.S. Department of Education
The Federal budget, as all budgets, sets forth priorities and levels of spending, ways of financing the spending, and a plan for managing the funds. In purely financial terms, the Federal budget that comes out each year includes a record of actual receipts and spending for the fiscal year that was just completed (in the FY 2004 President's Budget, this would be FY 2002); an estimate of current-year receipts and spending (FY 2003); and estimates of receipts and spending for the upcoming fiscal year and 9 years beyond (FYs 2004 and 2005-2013).
However, since formulating a budget involves choosing among alternatives, a budget is also a very significant statement of policy; i.e. the Department of Education'sand, of course, the President'sgoals and priorities are reflected each year in the budget and supporting legislation that is formulated by the Administration and presented to the public and to Congress.
The Federal budget process is initiated in the Executive Branch with budget formulation. In the Department of Education this usually begins in May. Then, no later than the first Monday in February, by law, the President submits his budget to Congress. Congress reviews the President's plan and then adopts a budget resolution, setting forth its own guidelines for spending and revenues that it plans to follow when passing appropriations laws, tax laws and authorizations. It is the appropriations laws and the laws establishing entitlement programs that provide the legal authority for the Federal Government and its agencies to obligate and spend funds. Each appropriations law creates legally binding spending ceilings for the Federal programs it covers, and each law setting up an entitlement program, such as Medicare, establishes and mandates the reasons for and extent of Government spending.
Budgeting for a fiscal year can be divided into three phases: (1) budget formulation, (2) budget presentation and the congressional process, and (3) budget execution. For any one fiscal year (beginning October 1 and ending the following September 30), these three phases take place over the course of 2-1/2 years (sometimes more, depending on how long funds are available for obligation at the Federal level). Because of this length of time, Federal agencies must deal concurrently with 2 to 3 fiscal years at any one time.
Preparation of the budget begins in the Department of Education during May, when the Secretary sends a letter to the Senior Officers kicking off the process. This is roughly 1-1/2 years before the beginning of the fiscal year in question. The agencies begin to make their plans, set their priorities, and develop their budget requests, which are submitted to OMB, usually in early September.
After the Secretary's transmittal of the budget, OMB examiners will schedule hearings or informal discussions to obtain a better understanding of our request and to allow the Department to defend it. By late November or December, OMB examiners have made their recommendations to the Director of OMB, and decisions on budget levels are made.
Once final decisions are reached, the Department begins preparation of materials to be included in the printed President's budget and special analyses that explain and justify the budget. These documents include appropriations language; technical financing schedules; narrative explanations of the President's requests and policies; and special exhibits for such items as research and development activities, Federal credit programs, civil rights activities, and tax expenditures that aid education.
Current law states that the President must transmit the budget to the Congress after the first Monday in January but not later than the first Monday in February. The President is also required by law to submit to the Congress on or before July 15 a supplementary budget summary, which provides updated data on which the February budget can be evaluated. This summary, referred to as the Mid-Session Review, includes updated estimates of the cost of Presidential policy, summary updates of other information contained in the budget, the effect on the budget of congressional enactment or non-enactment, to date, of the President's proposals, and budget-year baseline estimatesalso called current services estimates.
In the Executive Branch
Budget presentation begins when the President's budget is transmitted to the Congress. Once the budget is transmitted, the Secretary holds a press conference and makes available a briefing document to the press and the public that provides summary and background information on the new budget. In addition, the Department provides to the Appropriations Committees detailed justifications of the budget request and special reports and analyses of a technical, programmatic, and policy nature.
The next step in the process is congressional appropriations hearings. during which the Secretary and other officials explain and justify the Department's budget proposals. The hearings are designed by the Appropriations Committees to gather information and ensure adequate review of the President's budget before they recommend appropriation amounts.
Preparation of the President's budget to Congress is only one step in the congressional budget process, but it is the step that most directly involves Executive Branch agencies. The Congress, however, does not have to adopt the President's budget and supporting legislative proposals. Congress has a process that leads to, and results in the implementation of, its own policies.
The Budget Resolution
Congress develops a budget resolutionits own plan for the appropriate levels of spending and taxes. It includes targets for total spending, total revenues, and the deficit. This budget resolution always covers the budget year and a number of future years. It is a concurrent resolution, agreed to by both Houses of Congress but, since it is designed solely to guide the Congress in its detailed deliberations on the budget, it is not signed into law by the President. Also, since it is a statement of what the Congress would like and not a law that must be carried out, it is generally a highly political statement.
There are two types of spending treated in the budget resolution: mandatory and discretionary. For discretionary programs, Congress and the President must act each year to provide spending authority. For mandatory programs, they may act to change the spending that current laws require. More specifically:
Discretionary spending. which accounted for about 35 percent of all Federal spending in fiscal year 2002, is what the President and Congress must decide to spend for the next year, and is provided through the 13 annual appropriations bills. It includes money for such activities as the FBI and the Coast Guard, for housing and education, for space exploration and highway construction, and for defense and foreign aid. Non-defense discretionary spending has shrunk as a share of the budget from 23 percent in 1966 to about 18 percent in 2002.
In the Department of Education, discretionary spending constituted approximately 88 percent of the 2002 budget and includes nearly all programs, the major exceptions being student loans and Vocational Rehabilitation State Grants.
Mandatory spending. which accounted for about 65 percent of all Federal spending in fiscal year 2002, is authorized by permanent laws, not by the 13 annual appropriations bills. It includes entitlementssuch as Social Security, Medicare, veterans' benefits, and farm price supportsthrough which individuals receive benefits because they are eligible based on their age, income, or other criteria. It also includes interest on the national debt, which the Government pays to individuals and institutions that hold Treasury bonds and other Government securities. The President and Congress can change the law in order to change the spending on entitlements and other mandatory programsbut they are not required to do so.
In the Department of Education, the Federal Government is mandated by law to cover the cost of guaranteeing and directly making loans to students. The variable costs of the student loan programs are largely beyond control, and the costs fluctuate based on the number of students who borrow or default and the prevailing interest rates. The only other significant mandatory funding in the Department of Education is for Vocational Rehabilitation State Grants. The Rehabilitation Act mandates that the appropriation for State Grants must increase each year at the rate of change in the Consumer Price Index.
Included in the conference report accompanying the Concurrent Budget Resolution are instructions to the appropriating, authorizing, and tax committees of Congress concerning the revenue changes, programmatic changes and appropriation amounts that are assumed in the budget resolution ceilings. These directions to the committees are called "reconciliation instructions." The process of taking action to pass the legislation that would carry out the assumptions made in the Concurrent Budget Resolution is called "reconciliation."
Most often, a reconciliation bill makes changes in the laws governing taxes, mandatory and entitlement spending, and the debt ceiling. Changing discretionary programs and enacting new
programs is most often done in separate pieces of legislation; e.g. the Elementary and Secondary Education Act of 1965, as amended. However, reconciliation legislation may take the form of one omnibus bill that covers most or all of the changes necessary.
It may be the case that many of the changes proposed by the President will be included in an omnibus reconciliation bill, even though the new proposals have already been proposed separately. Incorporating many different programmatic and economic proposals in a single reconciliation bill was the successful strategy used by Ronald Reagan, when he began his first year in office, to enact quickly and implement many of his programs. Since that time, new congressional rules make it difficultbut not impossiblefor material not "germane" to the purpose of a bill to be considered by Congress, and legislation on discretionary programs is not germane to a reconciliation bill.
In any case, Congress is supposed to complete action on reconciliation legislation by June 15, but this schedule is not always adhered to and there are no built-in consequences for not meeting this statutory schedule.
While spending for entitlement programs is usually a function of the authorizing statutes creating the programs, and is not generally affected by appropriations laws, spending for discretionary programs is decided in the annual appropriations process. Most Department of Education programs, accounting for about 89 percent of our funds in 2002, are discretionaryfor example, Title I, Impact Aid, Vocational Education, Special Education, Pell Grants, Research, and Statistics. This is quite different from funds government-wide, for which only about 35 percent of Federal spending was controlled by the Appropriations Committees in 2002.
The Constitution requires that all revenue (tax) bills originate in the House, and, by custom, the House also originates appropriations measures. Therefore, generally starting in late May, the House begins to mark up annual appropriations bills. The House Appropriations Committee is supposed to report its last annual appropriations bill by June 10, with House floor action completed by June 30. No such schedule exists for the Senate, but all congressional action is supposed to be completed by October 1. the beginning of the new fiscal year.
If a new appropriations bill is not enacted before the old one lapses, an agency must cease ongoing functions. In order to keep the government operating until annual appropriations are passed, Congress usually passes a continuing resolution. A continuing resolution, commonly called a CR, generally continues existing programs at limited spending levels for a short period of time until an annual appropriation is passed. If Congress does not pass an annual appropriations bill before the expiration of the CR, another CR will be passed, and so on, until Congress passes and the President signs an annual funding bill.
Accompanying any appropriations bill as it goes through the process of becoming a law are committee reports. These are the House and Senate Appropriations Committee reports and the Conference Committee report. These reports include explanations of the Committee's actions, as well as expectations and, most importantly, directives concerning the Department's actions relative to a specific program or programs.
Report language, unlike bill language, does not have the force of law and, at least technically, compliance is not required. However, for reasons of maintaining a good relationship with the Appropriations Committees, unless compliance is legally or programmatically impossible, the Department tries to carry out the Committees' wishes stated in the various reports. Members of Congress generally consider report language to be very important, and the Committees require that, in the annual Justifications of the Budget to Congress, the Department report the status of action on any directives included in the previous year's reports.
Many Members try to get various requirements for the Department into bill language, since once language is enacted into law the Department must comply. However, the Committees are aware that taking care of special interests in the Labor-HHS-Education Appropriations bill is difficult in that the special bill language generally would override the competitive process (by requiring an award to a specific grantee, for example), might have to override an existing program statute, and would severely micro-manage the Department. As a result, the Committee reportwhich is, again, not legally bindingis frequently the repository of such language.
After the Congress and the President enact legislation to create budget authority each year, the President is responsible for executing it.
OMB regulates the distribution of budget authority to the agencies through the apportionment process. The Director of OMB apportions budget authority to each agency either by time periods (usually quarters) or by activities over the duration of the appropriation to ensure the economical and effective use of funds, preclude the need for additional appropriations, and especially, avoid an over obligation of funds.
Once OMB apportions funds to an agency, it is the agency's responsibility to control the use of those funds, and it does so through the allotment process. In the Department of Education, Principal Offices are required to submit to the Budget Service an operating plan detailing the approximate dates funds will be required, and allotments are issued in accordance with this plan.
After the end of a fiscal year (September 30), the financial transactions that have taken place during that fiscal year are certified by November 13, and the totals become the "actual year" columnthe first columnthat will appear in the new President's budget.
From time to time, it becomes necessary for an agency to change the amount of funding provided for a program in an appropriation. It is possible to do this, in limited circumstances, through a reprogramming, an action that requires congressional approval.
A reprogramming action is the shifting of funds within an appropriation account to use for different purposes from those contemplated at the time of the appropriation. The reallocation of funds is limited to activities within the same appropriation account, and cannot violate the appropriations language, including any earmarks, for the fiscal year involved.
A reallocation of funds to a different account or a reallocation that would result in violation of an earmark in appropriations language within an account cannot be handled as a reprogramming. Such a reallocation is called a transfer and requires legislative authority.
A reprogramming must be requested if funds in excess of 10 percent or $500,000, whichever is less, would be reallocated from one program to another; if the reallocated funds would initiate a new program or terminate an existing one; if the reallocation represents a significant departure from budget plans previously presented to the Congress; or if the reallocation changes allocations specifically denied, limited, or increased by the Congress in report language or in the appropriations table included in the report.
A reprogramming request to the Congress must be prepared by the Department's Budget Service and submitted in a letter signed by the Secretary to the House and Senate Appropriations Subcommittee chairmen and ranking minority members. A reprogramming request must indicate where the funds would be used and from where they would be taken; and must include a thorough discussion of the reasons for the request. The Committees will provide a written response indicating whether they accept the reprogramming request.
Supplementals and Rescissions
Responding to changes in law or economic conditions during the fiscal year or meeting urgent national needs may require the enactment of changes in budget authority. Additional funding is provided by Congress in supplemental appropriations bills, and reduced funding is accomplished in rescission bills. Supplementals and rescissions are taken up by Congress in the same manner as a regular appropriations bill is considered, except that the timing of these appropriations is different. Supplementals and rescissions tend to be considered by Congress in May-June and/or in September. The supplemental bills considered in September are generally the ones that include any necessary emergency funding.
The sequester process was originally established in the Gramm-Rudman-Hollings law (the Balanced Budget and Emergency Deficit Control Act) in 1985, as amended by the Budget Enforcement Act. If OMB determines that legislation for a given year will not meet the deficit target or discretionary spending limits, then the President must issue an order to sequester (reduce or cancel) budget authority. A sequester reduces budget authority across the board equally for all discretionary programs. Mandatory programs are reduced by certain "special rules" included in the Gramm-Rudman-Hollings law.
The Appendix which follows presents a sample budget calendar. tracing fiscal year 2004 from its initial planning stages to its conclusion. The calendar is intended to illustrate and clarify the progression of the budget process as implemented in the Department of Education.
For further information contact the ED Budget Service .