GUIDE TO R&D FUNDING DATA -
ONLINE TUTORIAL ON THE FEDERAL BUDGET

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How the Federal Budget Becomes Law: A Step-By-Step Look

It comes as a surprise to most people that, unlike many other nations and even state governments, the federal budget never becomes law in one piece. There is no single U.S. budget law that gets signed each year. In our fragmented, decentralized federal government there are only two opportunities to consider the entire federal budget in one piece, and then only at the beginning. The figure below shows that the budget actually becomes law through many laws, enacted at different times. The discretionary one-third of the budget is signed into law in 12 or more laws each year, all of which are supposed to move independently through the legislative process. The entitlements two-thirds of the budget is governed mostly by permanent law such as the laws that created Social Security and Medicare; other entitlements are governed by 5 to 10 year laws; and additional laws to modify these programs are optional. On the revenue side, the U.S. tax code is permanent law, but lawmakers have the option to pass additional laws to change the tax code. And interest on the national debt is truly automatic, dependent on the national debt and interest rates. So the laws providing funding for discretionary programs, known as appropriations bills, are ironically the only laws that Congress and the President have to pass each year, or else discretionary programs have to stop spending money and simply shut down. All other spending, and federal revenues, can continue automatically.

The process of enacting the federal budget into laws is long and complicated. Below is a step-by-step chronology of the federal budget process for fiscal year 2009. The federal government's fiscal year goes from October 1 through September 30, so FY 2009 begins on October 1, 2008. But the FY 2009 budget process began long before that date.

May 2007 - The Office of Management and Budget (OMB; part of the Executive Office of the President, and the office in charge of federal budgeting) issues broad strategic guidance to federal agencies for FY 2009 in the form of Administration priorities and budget targets.

Summer 2007 - Federal agencies prepare their FY 2009 proposals.

September 2007 - Agencies submit their FY 2009 proposals around Labor Day.

Fall 2007 - Agencies negotiate with OMB over their FY 2009 proposals. Agencies' budget plans are mostly crafted in isolation, so OMB's task is to make individual agencies' plans fit into a coherent whole for the federal government that reflects the President's priorities, avoids duplications or gaps, and meets budget targets. Agencies receive "passbacks," which are OMB responses to agency proposals, usually directives to trim spending. There can be multiple passbacks if agencies disagree with OMB guidance and file appeals.

January 2008 - Agencies finalize their requests after all passbacks and appeals are finished. In some cases, appeals go all the way to the President for his final decision.

February 2008 - The President releases his proposed FY 2009 budget on the first Monday in February. The proposed budget, also called the budget request, is a multi-volume document of several thousand pages that provides, in detail, what the federal government proposes to collect and spend in the coming fiscal year. This is the first time the public can see the entire federal budget for the coming year. At the same time, federal agencies and sub-units also release their own budget documents, providing even greater detail on what agencies propose to accomplish with their proposed budgets. Formally, the budget now moves from the executive branch to Congress.

Link to the President's proposed FY 2009 budget documents at OMB

Link to detailed FY 2009 budget documents from key R&D funding agencies

February - May 2008 - Agency officials, Administration officials, and others (outside experts, constituents, interest groups, etc.) testify at numerous congressional hearings. Congress uses these hearings to learn about the budget proposal and to begin to formulate its own priorities on the budget. Hearings take place at Budget Committees, Appropriations Committees, and various authorizing committees.

There are many authorizing committees, which try to write and pass authorization bills to set policy, provide guidance and priorities for programs, and recommend budgets (see Sidebar: Definitions). In practice, authorization activities take place all year long.

The Congressional Budget Office (CBO) is the congressional counterpart to OMB. It provides nonpartisan estimates of how much legislation will cost, prepares economic forecasts, and uses its estimates and forecasts to prepare its own federal budget projections, which can differ from OMB's projections. In the spring, Congress uses CBO estimates to put together its own version of the budget.

Spring 2008 - Congress drafts and approves its FY 2009 budget resolution (an internal congressional document written by the Budget Committees establishing broad spending and revenue targets for the entire budget; it contains numerical budget targets for various committees). The budget resolution is the only opportunity for Congress to consider the budget as a whole; after the resolution is approved, Congress breaks apart the budget and begins to work on the numerous laws necessary to implement the budget resolution.

Various congressional committees receive budget targets from the budget resolution to draft reconciliation bills (a special kind of bill that changes entitlement programs or tax laws, so named because they RECONCILE differences between current policy and the budget resolution; see Definitions). Each committee gets a target: the House and Senate Agriculture committees, for example, could be instructed to come up with $3 billion in savings in mandatory agriculture programs over five years.

May 2008 - Congressional Appropriations Committees (two of them: House and Senate) receive 302(a) allocations from the budget resolution (the total amount of discretionary spending for FY 2009, by functional category such as defense, international, and health).

Appropriations Committees then determine their 302(b) allocations (total discretionary spending divided among the individual (12) appropriations bills; these can differ between the House and Senate initially, and change constantly.)

Summer 2008 - Appropriations subcommittees write appropriations bills (bills that provide funding for discretionary programs, the only bills that Congress must pass annually; see Definitions), staying within 302(b) allocations. In the process, appropriators make numerous adjustments to the President's request. The draft bills are amended and then approved by the full Appropriations Committee in each chamber. Then, the bills go to the House or Senate floors and are amended and then approved by the full House or Senate.

September 2008 - The House and Senate take their separate versions of appropriations bills to conference (a committee to resolve differences between the House and Senate versions of a bill), debate and give final approval to the conference report (the final, compromise version of a bill), and send the bill to the President for his signature. If the President vetoes a bill, start over.

Congress begins work on a reconciliation bill; various committees draft their sections of the bill, and then the various changes to entitlements and tax laws are rolled into one reconciliation bill that is considered under special procedures in Congress that limit the ability of lawmakers to amend or block the bill.

October 1 2008 - The beginning of fiscal year 2009, and the formal deadline for all pieces of the FY 2009 budget to be signed into law. In practice, this deadline is rarely met; in recent years, only 1 or 2 of the appropriations bills have been signed into law by this date. But discretionary programs must have a signed appropriations bill or they have no legal authority to spend money and must shut down. To give Congress and the President more time, they enact a continuing resolution (CR; a temporary or stop-gap appropriations bills that allows all programs in unfinished appropriations bills to continue to spend money for a limited period of time). Agencies are usually allowed to keep spending money at the previous year's rate, but cannot start new programs or make large new commitments. (In 1995, President Clinton vetoed a CR because it contained extra provisions he opposed; as a result, there was a partial government shutdown until Congress sent him a CR without the provisions.)

The last FY 2008 appropriations bill was signed into law on December 26, nearly three months into the fiscal year, after 4 CRs. The last FY 2007 appropriations bill was signed into law on February 15, nearly 5 months late. For FY 2008, 11 of the 12 bills had to be bundled together into an omnibus appropriations bill (an appropriations bill combining two or more regular bills). FY 2006 was the last time all the appropriations bills were enacted separately, while FY 1997 was the last time all the appropriations bills were enacted on time.

ANYTIME - When spending needs not included in the federal budget come up, Congress and the President go outside the usual appropriations process through emergency or supplemental appropriations bills. They originate in Appropriations Committees, but are not among the annual 12 bills and can be enacted at any time. Normally, supplementals are for natural disasters or other emergencies that can't be anticipated in the February budget request. But the Bush Administration has refused to include Iraq and Afghanistan war and occupation spending in its budget requests, so many of these costs have been funded through periodic supplemental bills when the Pentagon starts to run out of money. In June 2008, an FY 2008 emergency supplemental appropriations bill of $187 billion was signed into law, mostly for the Pentagon to pay for ongoing operations in Iraq.

The budget process above repeats for the FY 2010 budget. As this timeline shows, federal agencies are often working on three years' budgets at the same time: in September 2008, for example, agencies were negotiating with OMB over their FY 2010 proposals, waiting for Congress to approve their FY 2009 budgets, and spending the last of their FY 2008 budgets.

The FY 2010 timeline will be slightly different because a new President takes office on January 20, 2009. A new president gets extra time to submit his first budget; he will likely submit a budget outline in late February 2009, and the full FY 2010 budget proposal in late April 2009.

This complicated process can also be summarized in the graph below (click here to view the graph in PDF ).

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