© by Charles S. Konigsberg, www.federalbudgetgroup.com, www.realtimenumbers.com

The President's Budget is ordinarily transmitted to Congress each year on the first Monday of February. Preparation of the President's Budget typically begins nine months prior to transmittal. For example, formulation of the President's FY 2012 Budget (transmitted to Congress in February 2011) began in the spring of 2010 when the President's Office of Management and Budget (OMB) issued guidance to the various departments and agencies to develop budget proposals based on the President's priorities and goals.

After several months of examining program needs and priorities, each department and agency submits to OMB its initial budget request in early fall. OMB then conducts a review of agency budget requests and combines them—with OMB modifications—into a complete set of budget proposals.

Following an opportunity for agencies to review the OMB draft budget (called “passback”) and to appeal issues of concern to the OMB Director and the President, OMB makes final adjustments to the budget and transmits the massive documents to Congress on the first Monday of February, as required by law. Elements of the upcoming President's Budget are often incorporated into the State of the Union address just prior to budget transmittal.

Following the State of the Union and transmittal of the President's Budget requests, Congress begins its own budget process for making fiscal policy decisions on total spending and revenue levels, spending levels for individual programs, and changes – if any – to entitlement programs and the tax code.

The Senate and House Budget Committees hold public hearings in February at which they receive testimony on the President's Budget proposals from Administration officials, outside experts, trade associations and other interest groups, Members of Congress, and the general public.

At the same time, the other committees of Congress carefully review the President's Budget proposals and transmit to the Budget Committees their own "views and estimates" on appropriate spending or revenue levels for programs within their respective jurisdictions.

The Senate and House Budget Committees -- using the President's Budget request, information from their own hearings, views and estimates from other committees of Congress, and Congressional Budget Office reports -- each draft a “Congressional Budget Resolution” during March in a series of working meetings known as committee "mark-ups."

The Budget Resolution does not become a law and is not presented to the President for signature. Rather, it is a congressional blueprint to guide subsequent action on specific spending and revenue measures. The Budget Resolution sets total spending and revenue levels, allocates total spending among the various committees of jurisdiction, and establishes procedures to enforce the budget blueprint.

The Budget Resolution may also include special provisions called "reconciliation instructions" directing the authorizing committees of the Senate and House to report legislation by a specified deadline making changes in entitlement programs and tax laws to achieve budgetary objectives (increasing or reducing entitlement spending or tax revenues). Legislation reported in response to these special instructions is considered by Congress under special procedural protections and, most importantly, cannot be filibustered in the Senate, which means there is no need to secure 60 votes to end a filibuster;  51 votes is sufficient.

When the House and Senate Budget Committees complete committee action on their respective budget resolutions, they report them to the full House and full Senate. Members of the House and Senate then have an opportunity to alter the work of their respective Budget Committees by offering amendments to the Budget Resolutions as they are debated on the House and Senate Floors.

When the Senate and House have both passed their respective versions of the Budget Resolution, they appoint several of their Members to a Senate-House conference committee to resolve differences between the Senate- and House-passed resolutions. When differences have been resolved, each chamber must then vote on the compromise version of the Budget Resolution called a "Conference Report."

Following adoption of a Budget Resolution Conference Report, the Budget Committees allocate total spending among the various committees of the House and Senate based on jurisdiction, with all discretionary appropriations allocated in one lump sum to the House and Senate Appropriations Committees, respectively.

The Appropriations Committees then subdivide their allocations among their 12 subcommittees, respectively. These allocations of discretionary spending (more than $1 trillion) by the full Appropriations Committees among their 12 subcommittees are called “302(b) allocations” and are a key decision point in the budget process; 302(b) allocations determine how much spending is allocated to agriculture vs. defense vs. energy vs. law enforcement, etc.

Following 302(b) allocations, the 12 appropriations subcommittees “mark-up” appropriations bills for the upcoming fiscal year. The bills then go to the full Appropriations Committees for consideration. Following full committee action, appropriations bills travel to the House and Senate Floor, respectively, for consideration by the full chamber. After Floor action, the bills then go to a House-Senate Conference Committee, generally composed of senior members of the relevant appropriations subcommittees. The task of the conferees is to resolve all differences between the House and Senate versions of the bill, producing a conference report. The major constraint under which the conferees operate is to produce a conference report consistent with the 302(b) spending allocations (explained in the previous paragraph).  

If the Budget Resolution included “Reconciliation Instructions” to change revenue levels or entitlement spending levels, the authorizing committees work on Reconciliation legislation at the same time the Appropriations Committees are assembling their appropriations bills.  After the authorizing committees report Reconciliation legislation, it is packaged into a single Reconciliation bill for House and Senate Floor consideration, followed by a House-Senate conference and a final vote on a Conference Report. Reconciliation legislation is considered under special expedited procedures that preclude Senate filibuster and strictly limit amendments, making "Budget Reconciliation" a very powerful mechanism for bringing the tax code and entitlement laws into compliance with Budget Resolution spending and revenue levels.

Congress' annual objective is to complete action on all twelve appropriations bills as well as Budget Reconciliation legislation by October 1, when the new fiscal year begins. However, if action on particular appropriations bills is not completed by the start of the new fiscal year, Congress passes a "continuing resolution" (CR) to keep agencies operating at a particular level of funding (usually the lower of House-passed, Senate-passed, or the previous year's funding level) while they endeavor to complete appropriations action. Sometimes, as occurred with FY 2011 appropriations levels, many CRs are adopted until final agreement is reached.

During the course of the new fiscal year, Senators and Representatives can raise objections on the Senate or House Floor to consideration of legislation that would cause a breach of the total spending or revenue levels, or committee allocations, established by that year's Budget Resolution.

In addition, the federal “pay-as-you-go” statute (PAYGO) requires that the cost of new tax cuts or mandatory spending increases must be fully offset by mandatory spending cuts or revenue increases.  Violation of statutory PAYGO triggers automatic cuts in certain entitlement programs including Medicare. However, while the statutory PAYGO requirement operated quite effectively in the 1990s to hold the line on deficits, it is much less effective in its 2010 reincarnation due to exemptions for extension of middle-class tax cuts, relief from Medicare physician payment cuts, estate and gift tax relief, and alternative minimum tax relief.

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