Introduction
Like all companies including both public and private entities federal governments of all countries also plan and develop federal budgets for their operations of the next fiscal year. Preparation of federal is a complex procedure that involves extensive round-ups of discussion, evaluations, valuations, and recommendations by various public offices and departments to be compiled in a federal budget which is used by the state. Federal budgets typically indicate sources of income of the government and their spending for the next year. Any shortage of funds is indicated as budget deficits which are covered through governmental borrowings from their central banks. Few have suggested that government budgeting is a difficult public policy subject that requires an understanding of the process of making budgets (Posner, Lewis and Laufe). This highlights the importance of the selected topic. In order to provide a clear understanding, this paper will instigate the process of U.S. federal budgeting and major highlights will be summarized in order to draw useful conclusions on the extent and scope of the federal budgeting process.
Federal Budgeting Process
A discussion regarding an important aspect of the monetary function of any government brings us to the evaluation of the role of federal budgets which are prepared by all governments to estimate their revenues and expenditures for a specific period of time typically a one-year period referred to as a fiscal year or financial year and it may not coincide with the calendar year. Budgets allow governments to execute their economic policies by managing economic activity indirectly or directly through resource allocation (Jay). The budgetary process is the means by which the two parts of government both executive and legislative branches work together to formulate a combined set of taxing and spending proposals. However, the extent of the role each part of the government plays in the budgeting process differs from one country to another.
The budget process in the U.S. requires both executive and legislative components’ involvement. The federal budgeting process in the U.S. is regularized under a framework used by Congress for formulating the budget. This framework was established by the Budget and Accounting Act of 1921 followed by the Congressional Budget and Impoundment Control Act of 1974 and several other budget-related legislations. Since 1921 the process of organizing and compiling the budget of the United States has been the responsibility of the President. The entire process of preparing budget proposals and submission of the budget resolution to the House of Senate is described under the following sub-headings.
Planning and Formulation of Budget Request
The U.S. President has the responsibility of initiating, overseeing the budgeting process, and presenting the budget request for Congressional consideration. Prior to this submission, the budget request is formulated over a period of months under the direct authority of the President by the Office of Management and Budget (OMB) which is the largest office within the Executive Office of the President and is responsible for oversight, supervision, coordinate and formulate a consolidated budget request (GAO). The administrative process which may take years prior to presenting the budget for a particular year involves each federal executive department and independent agency to review current operations, collect data on program objectives and formulate future plans. Appendix-I presents a comprehensive view of the Federal Budget Formulation Process prepared by the Senate Budget Committee in December 1998. This clearly highlights the role of administrative agencies (the department, agency or lower component levels) which are responsible for preparing budget estimates and submitting budget requests of their department OMB which reexamines the economic assumptions and fiscal policies used by the agencies. If an issue remains unresolved between OMB and agencies it is referred to the President seeking his approval. Once all issues are resolved the OMB prepares documentation for the President to approve and present to Congress. The agencies support OMB by preparing additional supportive documents and are also responsible for attending Congressional hearings regarding the budget request (GAO). The budget request developed by OMO plays a significant role in communicating overall federal fiscal policy indicating how much money the government should spend on public projects and how much tax revenues should be collected. Any mismatch between these two components highlights the levels of the budget deficit or surplus which the government should target. It also lays out emphasis on different federal programs and how much money should be spent on those programs considered by the President. Finally, the overall fiscal policy and changes recommended by the President. However, the President is required to ask for funding of discretionary or appropriate programs normally falling under the jurisdiction of the House and Senate Appropriations Committee (U.S. Department of State).
Once this process is completed the budget request is made in January every year through the submission of three documents by the President to Congress. These documents include the State of the Union Message, the Budget and the Economic Report. The first of these documents address a broader national policy outlining the long-term strategic objectives of the government. The second document is the actual budget presenting revenues and expenditures and in particular budget deficit details. The final document includes the overall economic policy that seeks to assess the economic impact of the budget and its outcomes on various aspects of public policy. All of these documents are subject to the next step of Congress Resolution.
Congressional Budget Resolution
Once the budget request is received Congress conducts questioning the agencies about their requests. There is no consideration of the budget request as a whole by a single committee (U.S. Department of State). Instead at the House of Representatives, the budget proposal is distributed among the Appropriations Committees which are concerned with a particular organizational unit. These committees put forward their views and estimates on spending and revenue estimations for programs falling in their jurisdiction. Using aggregates of budget levels and budget functions submitted by these sub-committees the Budget Committee develops the total inflows and outflows, the deficit or surplus, the public debt, and spending by functional category estimates that are then proposed in the concurrent budget resolution. The Joint Economic Committee submits its recommendations to the Budget Committee concerning the fiscal policy to supplement this resolution (GAO). The budget resolution is debated in both Senate and House to reconcile any differences and a joint explanatory statement. However, it is to be clearly understood that the budget resolution does not suggest authorizing levels of spending in fact they set out upper limits for expenditures and lower benchmarks for revenue collection.
Budget Reconciliation
The Congressional Budget Act allows the provision of a special procedure known as reconciliation which allows Congress to force committees to reinterpret the assumptions and produce spending cuts or tax increases. Congress uses the reconciliation process to produce a single piece of legislation that includes multiple provisions affecting the federal act. Also, sometimes Executive tranche of the government can refuse to implement appropriations made by Congress and thus leads to voting at the floor of the House to reconcile any differences. Once all differences between both Houses are reconciled the legislation must be signed by the President to become law prior to the month of October in which the budget is enacted as legislation. After the appropriations are made to the sub-committee full administrative controls are implemented through fund control regulations. Another important statute that is useful for mentioning here is the Antideficiency Act which regulates the allotment of funds and if any expenditure exceeds the appropriation it is considered a violation of the Act.
Therefore, from the above discussion, the process of developing federal budgets could be considered as consisting of four major steps that initiate from the request made by the U.S President and includes the Congressional Budget Resolution, Amendments to Budget Resolution and the Budget Reconciliation Process. This is a complicated and lengthy process that involves various administrative offices and requires careful planning ahead of the actual implementation of the budget which in the case of the U.S. is the month of October of the following year (GAO). The interpretation of different divisions of the Federal Budget is not part of the current paper and could be an interesting topic for future study.
Works Cited
- GAO. A Glossary of Terms Used in the Federal Budget Process. Washington: United States Government Accountability Office, 2005.
- Jay, J. A. Government Budget. 2009.
- Posner, P., T. V. Lewis and H. Laufe. “Budgeting for Federal Capital.” Public Budgeting & Finance (1998): 11-23.
- U.S. Department of State. Introduction to the Federal Budget Process. 2009. Web.
Appendix I
