2. BASIC BUDGET CONCEPTS By Kenneth Kelly June 2008

3. What are the basic budget terms that I need to know? Collections/receipts Deficit/Surplus Federal debt Budget authority Obligations Outlays Balances

4. What are collections? Collections is the generic term for all the money collected by the Government. Collections are recorded as: Governmental receipts, which are compared in total to outlays to calculate the surplus or deficit, or Offsetting receipts and offsetting collections, which are deducted from gross budget authority and outlays

5. What are “receipts”? Governmental receipts (a.k.a. receipts, revenues, and miscellaneous receipts) result from the Government’s exercise of its sovereign power. They: Include taxes, custom duties, fines and penalties, license fees, excise taxes, gifts and donations Are always deposited in receipt accounts Examples: Land and Water Conservation Fund, and Highway Trust Fund. Are different from “offsetting receipts” and “offsetting collections”

6. Receipts, continued Offsetting receipts and offsetting collections normally result from business-like transactions with the public or from intra-governmental transactions Sometimes OMB misclassifies certain governmental receipts as offsetting because of requirements in law Offsetting receipts Are always deposited in receipt accounts Are offsets to BA and outlays, not compared in total to outlays Are usually deducted at the agency and sub-function levels May be earmarked for appropriation, if credited to special or trust fund receipt accounts

7. Receipts, continued Offsetting collections Are credited directly to expenditure accounts from which they will be spent, when authorized by law Revolving funds, such as TVA, operate with this authority The collections are deducted from gross BA and outlays of the expenditure account

8. What is a deficit or a surplus? A deficit is the amount by which outlays exceed receipts in a fiscal year Outlays Receipts

9. What is a deficit or a surplus? A surplus is the amount by which receipts exceed outlays in a fiscal year Receipts Outlays

10. What is Federal Debt? The amount of principal owed by the Federal Government to the people who loaned it the money to pay for past deficits. A surplus is used to repay Debt. A deficit is financed by borrowing, i.e., more debt.

11. What is Budget Authority? BA is the authority to incur financial obligations that will result in outlays BA comes in four basic “forms” BA comes in three “dimensions”: In specified “amounts” For specified “purposes” For specified periods of “time”

12. What are the four forms of BA? Appropriations – Permits obligations and payment (outlay) Contract authority – Permits obligations in advance of an appropriation to pay or in anticipation of collections – cannot disburse Borrowing authority – Permits obligations against the authority to borrow (disbursements can be made once amounts are actually borrowed (generally from the Treasury) Spending authority from offsetting collections – Permits obligation and payment using offsetting collections

13. What are the three dimensions of BA? I. AMOUNT. How much is available? Definite amount -- there is hereby appropriated $100… Indefinite amount -- … such sums as may be necessary or in such amounts as are collected…

14. II. PURPOSE. What can I spend it on? Salaries and expenses Contracts Grants Loans Capital Assets What are the three dimensions of BA? Law

15. III. TIME. How long can it be used? BA can be available for “new” spending Up to one fiscal year. This is known as annual money. More than one fiscal year with a specific end date. This is known as multi-year money. Until it is spent. This is known as no-year money. The default is “annual” authority. Annual and multi-year BA expire and are canceled 5 years later Unexpired phase. The amount is available to incur new obligations and to pay those bills. Expired phase. The BA is NOT available to incur new bills, but it is available to pay old bills. This phase usually lasts for five fiscal years, unless a provision of law extends the disbursement period for programs that take a long time to spend out. Canceled phase – after the 5 th expired year the account is closed and is not available for any reason. What are the three dimensions of BA?

16. What are “obligations”? Obligations are actions that legally obligate the Federal Government to pay someone. Obligations are required by law to be covered by BA. You incur an obligation when you: earn your pay sign a contract award a grant approve a loan As an illustration, each year, BA is appropriated for our salaries and expenses in each of the regular appropriations Bills.

17. What are “outlays”? Outlays are payments to liquidate an obligation Outlays are a measure of Government spending Outlays are generally equal to cash disbursement Outlays normally occur when the Federal government pays its bills UNCLE SAM

18. What are balances of BA? Obligated balances are the amounts of BA that are obligated and not yet disbursed Unobligated balances are the amounts of BA that are not yet obligated “Unobligated balances carried forward” – Indicates that these balances are from either no-year or multi-year BA that has not expired Obligated balances are liquidated as payments are made and outlays are recorded

19. What other things would be useful for me to know about these terms? Normally, a budget account is a consolidation of all the Treasury accounts with the same appropriation title. As an illustration, the FY 2005 column of the P&F schedule for “Salaries and expenses” in the budget Appendix would cover outlays made in FY 2007 from the unexpired FY 2007 annual appropriation, the FY 2005- 2007 multi-year appropriation, the no-year appropriation, and the five expired annual appropriations (FY2002 through FY 2006) As a result, some amounts in the tables you are responsible for will be from unexpired accounts while other amounts will be from both unexpired and expired accounts. This is especially true of the P&F schedule, which is schedule P in the MAX database.

20. Treasury Reporting Requirements Account Structure Operations 69-1301 Department of Transportation: Federal Aviation Administration 021-12-1301 Facilities, engineering, and development 69-1303 Annual 69-05-1301 69-04-1301 Multi-year 69-05/06-1301 69-04/05-1301 69-03/04-1301 No-year 69-X-1301 No-year 69-X-1303 Each Budget account may contain multiple Treasury accounts, while each Treasury account may contain multiple periods of availability OMB Account Treasury Account Treasury Appropriation Fund Symbol (TAFS)

21. P&F schedule: MAX schedule P This schedule must do two different things at the same time: It must focus on the new BA that is being requested, and It must show the relationship of the individual accounts to the deficit This means that it uses a mixture of unexpired and expired amounts See the exhibits that follow

25. What other terms should I know? o “Spendout” rate means “outlay” rate. This term is used in setting up outlay calculations. Outlay rates are entered for BA in the current and budget years. These are percentages of the total BA that will be outlayed over the time period collected by MAX. “New” v. “prior” indicates whether the outlays resulted from new BA or balances of prior year BA.

26. Spendout Rates

27. What other terms should I know? “Mandatory” v. “discretionary” spending Discretionary spending means the BA that is controlled by annual appropriations acts. Examples include money for OMB’s salaries and expenses. Mandatory spending means BA and outlays controlled by “permanent law” rather than annual appropriations. An example is Social Security. The President and the Congress can change the law to change the eligibility criteria and thus the level of spending on mandatory programs, but they don’t have to take annual action to ensure the continuation of spending.