The Federal Budget Process 101
It's useful to think of the federal budget cycle in four phases. The first phase is agency planning; the second phase covers budget review by the Office of Management and Budget. These two phases together amount to the President's budget formulation. A third phase is the Congressional appropriations cycle; and the fourth and final phase is the execution of the budget by the agencies starting October 1, the beginning of the fiscal year. Altogether, it takes the machinery of government well over two years to formulate, appropriate, and execute a single fiscal year's budget. That means three budgets are in play at any given time. For instance, at the time of this writing, agencies are executing their FY 2014 budgets; Congress is grappling with FY 2015 appropriations; and federal agencies are already planning for FY 2016.
Steps in the process are described below.
THE PRESIDENT'S BUDGET FORMULATION
The most public portion of the cycle is the Congressional process, typically beginning in the spring before the fiscal year starts. However, the process actually begins a year before then – and a full 18 months or more before the start of the fiscal year in question – when federal agencies begin their internal budget planning. This means that, for instance, in spring 2010, agencies were already beginning to plan for the FY 2012 budget, which didn't take effect until October 1, 2011 (see the below schematic).
The agency budget process is an information-intensive mix of bottom-up formulation and top-down guidance. Individual offices or units take the lead, with departmental oversight, in developing their strategic plans, identifying their key priorities and goals, and producing estimates of the staff and resources necessary for achieving those goals. Offices receive broad guidance on policy and funding priorities from agency leadership. For instance, in late spring the National Institutes of Health (NIH) has typically convened a budget retreat for institute directors to discuss priorities and options for the upcoming fiscal year. As a part of the process, most agencies may also draw on outside information provided throughout the year by advisory boards and various external stakeholders. Agencies may also have to respond to Congressional guidance, legislative changes, and mandates in previous appropriations bills and reports.
The Executive Office of the President also performs an important oversight role. Agencies and offices receive their primary guidance from the Office of Management and Budget (OMB), which orchestrates the budget formulation process, serves as an information resource, and carries out the President's policy preferences. This guidance is delivered via meetings, memoranda, or more informal interpersonal contacts, and can include directives on general priorities, principles, strategies, or targets for increases and cuts. Science programs also receive budget guidance from the Office of Science and Technology Policy (OSTP), formally through a joint OMB/OSTP guidance memo typically released in the summer. This memo (see one example) identifies key areas for investment, such as climate research, biotechnology, or advanced manufacturing, for instance.
Eventually, agency requests are completed and submitted to OMB for a stringent, thorough review in early fall. OMB reviews the requests, decides what the Administration will and will not support, and notifies agencies of these decisions through what are called “passbacks,” usually issued around Thanksgiving. The agencies can then either accept OMB’s decisions or, more often, appeal. OMB and the agencies must hash out their differences by January, in time for the President’s budget submission to Congress.
The Budget and Accounting Act of 1921 sets the requirements for the budget submission. Current law requires submission by the first Monday in February, though the budget can be delayed if the Administration deems it necessary. For instance, the Obama Administration delayed the FY 2012 and FY 2013 requests by one week each; the FY 2014 and FY 2015 requests, of course, were issued much later. The budget is also typically delayed during presidential transition years.
THE CONGRESSIONAL PROCESS
The President's job is to issue the budget request, but only Congress can actually grant funding, known as appropriations. Fiscally speaking, the President starts the conversation, but Congress finishes it; or, in the old line, "The President proposes, the Congress disposes." Congress does this by passing the 12 appropriations bills necessary to fund the government each year. This process gets underway when the President delivers his or her budget in February. In addition, Congress receives reports on the long-term fiscal and economic outlook from the Congressional Budget Office. These documents identify long-term trends in economic growth, spending, and deficits.
With these materials in hand, the Congressional budget process commences. The first item of business for Congress is passage of the annual budget resolution. The budget resolution, which is developed by the House and Senate Budget Committees, sets an overall framework for funding decisions. It is not signed by the President, and thus is not law, but still serves to bind Congressional appropriations decisions later.
The two Budget Committees, working separately, establish top-line numbers for revenues, mandatory or direct spending, and discretionary spending, with input from other legislators, committee chairs, and party leadership. The discretionary spending target is particularly important for federal R&D, as the federal R&D budget doesn't tend to fluctuate much as a share of the federal discretionary budget.
The resolution must pass both the House and Senate floor by a simple majority, and any differences between the two versions are worked out by conference committee, a joint committee composed of members of both chambers. This work is to be completed by April 15, but the resolution is often delayed. Indeed, in many years the House and Senate cannot agree on overall figures, and fail to pass a concurrent budget resolution. When this occurs, each chamber can adopt its own framework in the form of a “deeming resolution,” meaning that each chamber can operate under its own spending target, which can create major problems when it's time to resolve the differences.
Once these targets are established, the Appropriations Committees begin their work. The Appropriations Committee in each chamber takes the discretionary spending target and divides it among the appropriations subcommittees, through what are called 302(b) allocations after the relevant section of the Congressional Budget Act. Each subcommittee is responsible for producing one spending bill; there are 12 appropriations subcommittees, one for each necessary bill, and each committee gets its own allocation. This allocation limits the size of the spending bill produced by each subcommittee, and they can be very different: the Defense appropriations subcommittees might have $500 billion to work with, while the Interior & Environment subcommittees have less than a tenth of that.
Science agencies are scattered throughout these 12 bills, and often must compete with non-science agencies for funding. For instance, the NIH budget is part of the Labor, Health and Human Services, and Education appropriations bill, and thus competes directly with the Labor and Education departments for funding from the same pool.
Appropriations subcommittees begin to hold hearings on the President’s budget request as early as February, mere weeks after the request has been issued. Usually in April, the subcommittees – traditionally starting with the House first – begin marking up and amending their respective bills. Each of the 12 bills must be passed by its subcommittee before being considered by the full Appropriations Committee. It is during the subcommittee and committee phase that earmarks were usually attached, though Congressional leaders declared a moratorium on them beginning in FY 2011. While earmarks are in reality a very small portion of overall spending, their number grew in the decades leading up to the moratorium, and their relative merits continue to be debated in some quarters.
Once each spending bill has passed the chamber’s Appropriations Committee, it is subject to action by the full chamber. The bills can again be amended on the chamber floor, though the 302(b) spending limits mentioned above remain in force. Thus, most amendments looking to increase spending for a given program must shift spending around rather than add to the sum total. Spending bills can pass the House by a simple majority, but are subject to filibuster in the Senate. Spending bills are also subject to Presidential veto, and the Administration may threaten a veto or otherwise issue a position on a bill through policy statements. Once a spending bill has passed both chambers of Congress, a conference committee is formed to work out the differences between the two versions, and eventually the completed bill is sent to the White House for the President’s signature.
The federal fiscal year ends September 30, so all 12 spending bills must be completed and signed by then. If Congress cannot finish their appropriations work on time and want to avoid a shutdown, they have the option of passing a continuing resolution. Continuing resolutions typically just extend the level of funding from the prior year, though they can also contain funding changes targeted at specific programs. These changes are known as "anomalies." For instance, when Congress has passed continuing resolutions covering the Department of Energy, they've sometimes added extra funding for nonproliferation R&D, even as most other civilian energy programs remained flat.
In some years, multiple continuing resolutions are required to avoid a shutdown, one after the other, until final appropriations are passed. Congress can also bundle multiple appropriations bills together into an omnibus spending package. These steps have been common in recent years due to continuing conflict over spending and deficits. Lastly, the President can issue, and Congress can pass, supplemental or emergency spending bills. These may be necessary to provide sufficient funds for wars, hurricane relief, or other needs.