Rural Housing and the Federal Budget Process

The Budget Process

Enacting a federal budget involves both the executive and legislative branches of the federal government. Congress is vested with the sole power to write and enact budget legislation, but the president submits each fiscal year’s initial budget proposal. The president’s budget functions as a blueprint from which Congress makes its own changes. The federal budget is actually a combination of separate pieces of legislation, which taken together represent the sum of federal spending for the upcoming fiscal year. The federal budget is composed of budget resolutions, which set targets and guidelines for spending, and appropriations acts, which authorize agents of the government to spend money. The federal government’s fiscal year runs from October 1 to September 30. Fiscal year 1996, for example, began on October 1, 1995.

The president’s budget proposal is prepared by the Office of Management and Budget, under the direction of the Budget Director, who is appointed by the president. The budget is sent to Capitol Hill in late January, budget numbers and fiscal projections are reviewed by the Congressional Budget Office (CBO), and it is then sent to the budget and appropriations committees of the U.S. House of Representatives and the U.S. Senate. The Budget Committees in each house of Congress must pass a nonbinding First Resolution by April 15 each year. The First Resolution recommends levels for budget authority in different spending categories, estimates revenues, and functions as a formal reply to the president’s proposal. The First Resolution is a guideline for Congress, so it does not have the force of law. House and Senate differences are resolved in a joint conference committee. Congress may now begins authorizing legislation, which outlines new programs or authorizes changes to existing ones. Congress also may separately work on appropriations to fund government activities. The target date for completion of all the appropriations bills is the Monday after Labor Day.

As appropriations legislation is passed, the House and Senate Budget Committees hold hearings to adjust the First Resolution guidelines to changes made through the appropriations measures. As appropriations are debated and enacted, the Budget Committees draft the Second Concurrent Resolution, which is an adjusted version of First Resolution spending and revenue projections. The Second Resolution’s total budget figures, once passed by both houses of Congress, are considered binding, and all appropriations made after passage of the Second Resolution must conform to its guidelines. In practical terms, the Second Resolution represents the federal budget. However, the budget resolutions do not contain the authorization needed by agencies to actually spend money. This authorization must come from appropriations legislation.

The Budget Committee may use reconciliation instructions to pressure the appropriations committees into adhering to the spending limits established in the First Resolution. Reconciliation instructions order the appropriations committees to reconcile spending or taxing changes to the guidelines established in the First Resolution. If the appropriations committees cannot accomplish this reconciliation, then funding is stopped at the source until the instructions have been met.

The appropriations committees in each house of Congress are further divided into subcommittees, which review spending measures for particular areas of government activity or particular departments and agencies. For example, funding for the Rural Housing Service (RHS) is reviewed in the House of Representatives by the Agriculture, Rural Development, and Related Agencies Subcommittee of the Committee on Appropriations.

Each appropriations bill is composed of individual spending items, which are called “line items.” Each line item sets the amount of federal funds that may be spent during the fiscal year for a particular program or purchase. The amount set in each line item is called budget authority, which authorizes the release of funds from the U.S. Treasury. Budget authority does not represent the actual dollar amounts spent by the federal government each year, but is an estimate of government expenditures. When money is spent, it is called an outlay. Outlays cannot be made without budget authority. In many cases, budget authority overestimates or underestimates program costs, and so outlays frequently do not match budget authority numbers exactly.

There are two different types of line item: those which estimate spending for entitlements, and those which authorize discretionary spending. Entitlements are appropriations which have objective criteria for eligibility, and which thus require more money if more people meet the qualifications in a given year. Social Security and Food Stamps are entitlements. Discretionary items are determined each year during budget negotiations, usually represent funding for a particular program, and are set at fixed dollar amounts. Entitlements make up roughly two thirds of the federal budget, while discretionary spending comprises about one third. The chart on page one shows the major categories of entitlement spending in relation to the budget percentage of discretionary spending. RHS and the Department of Housing and Urban Development (HUD) fall under discretionary spending, and make up only 5.2 percent of discretionary budget authority, or about 1.9 percent of total spending.1 The chart on this page shows the HUD and RHS budget authority in relation to other selected categories of the discretionary budget.

Congress sends an enacted appropriations bill to the president, who either signs it into law or rejects it with a veto. Once signed, those agencies covered by the appropriation receive their funding for the current year. Congress may enact the appropriation over a veto with a two thirds majority of both houses. If Congress cannot override the veto, then the agencies covered by the spending bill receive no funding. As the end of the fiscal year nears, Congress may pass a “continuing resolution,” which provides temporary funding for agencies which have not yet had an appropriation signed by the president. Continuing resolutions have traditionally authorized agencies to spend at the level mandated in the previous year’s budget, but at a reduced rate. For example, HUD might be authorized to spend funds under a continuing resolution at 85 percent of its appropriation from the prior year. Continuing resolutions usually cover a limited amount of time, such as one month of spending, with the hope that work on remaining appropriations bills will be completed in that time period.

If Congress does not pass a continuing resolution, or does not renew a continuing resolution when it is due to expire, all of the agencies without an appropriation have to close down their operations. This is also the case if the president vetoes a continuing resolution passed by Congress. This is what occurs when the federal government “shuts down.” Only personnel performing work that is deemed “essential” to the functioning of society, such as air traffic controllers or military personnel, continue to report to work, while other federal employees are “furloughed.”

One of the reasons a president may veto an appropriations bill or a continuing resolution is that Congress may attach “riders” to the spending measures. This means that in addition to the allocation of funds spelled out in the spending legislation, Congress has included some line items that make policy, regulatory, or program changes. Traditionally, legislation which alters how programs are run, how regulations are enforced, or who is served by a program are passed separately from funding legislation, and these legislative acts are called authorizing legislation. Once a program has been created or altered through authorizing legislation, only then do the appropriations committees address spending for the program. Since a president is likely to feel pressure to sign spending legislation required to keep government agencies operating, Congress is more likely to have its rules changes “ride along” with the appropriations measure. This is one way that Congress may pressure the president to approve programs or regulatory changes that would not pass if they had to be judged on their own merit.

A controversy that has entered into recent budget debates concerns how to define what constitutes a budget “cut.” Many of the entitlement programs, and even quite a few discretionary programs, are authorized to increase their funding automatically from year to year in order to keep pace with inflation. This is called a cost-of-living adjustment (COLA), and these adjustments have contributed to the increasing price tag for programs such as Medicare and Social Security, since the programs automatically increase their outlays as inflation rises each year. When the public thinks of a budget cut, the most common perception is that spending for a program will be reduced in the current year from what it had been in the previous year. However, if Congress decides to reduce the percentage of the COLA for a program like Medicare or Social Security, the federal government will save money since it will not have to spend as much in the effort to keep up with inflation. Nonetheless, the amount of money that must be appropriated, even with a reduced COLA, will be greater than for the previous year. This is a budget cut in the sense that the budget allocation will purchase fewer goods and services given the higher costs brought on by inflation.

Budgeting is one of the most complex legislative actions engaged in by the federal government. It is complicated by competing political interests, different methods of tabulating program costs, and legislative innovation in using parliamentary tactics, such as attaching riders to spending bills. Nonetheless, understanding the budget process is crucial to knowing how programs serving low-income households grow or decline through the years. For more information on how bills become laws within the federal legislative process, see HAC’s information sheet on “Rural Housing and the Federal Legislative Process.”


This Information Sheet was prepared by the Housing Assistance Council. The work that provided the basis for this publication was supported with funding from the Ford Foundation