The Federal Budget Process The Budget Control Act of 2011

The federal budget is an important moral statement of what we value as a nation and where our priorities lie. With child poverty rates continuing to rise and limited resources available as the nation works to shrink the federal deficit, many programs that serve children face across-the-board cuts as part of a budget deal reached last year. Therefore, the federal budget process this year is more important than ever. CDF believes investing in programs for children and youth is the long-term answer to our country’s budget problems. We will monitor the budget process closely, looking carefully at proposed changes to funding, and how these changes would affect millions of children and low income families across the country.

The Federal Budget Process

The federal budget outlines the U.S. government’s spending plans each year and how it will pay for that spending. Federal spending falls into two major categories:

Discretionary spending must be explicitly authorized by Congress every year to keep the government operating. Total discretionary spending usually makes up about a third of the federal budget, mostly funding for defense. In 2010, the last year for which a budget was agreed upon for the full fiscal year, total discretionary spending was $1.35 trillion, of which $689 billion went to defense. Non-defense domestic discretionary funding makes up about 12 percent of the federal budget ($477 billion). These funds pay for a wide variety of programs and services such as Head Start, K-12 education, Pell grants, job training and housing programs, the Low Income Home Energy Assistance Program (LIHEAP), and highway projects.

Entitlement spending is mandated by law and does not need congressional approval each year. Entitlement spending funds programs that provide critical safety net services for children, families, seniors, and veterans. Any person meeting eligibility criteria for an entitlement program may receive the benefits. As a result of changing economic circumstances, spending on these programs varies each year depending on how many people need them, and how many enroll. Entitlement spending is the fastest-growing part of the budget and in 2010, it amounted to more than $2 trillion in federal spending. Examples of entitlement programs include Medicaid, Medicare, and Food Stamps.

Interest on the debt comprises about six percent of the federal budget.

 The Budget Process

Step 1: The President’s Fiscal Year 2013 Budget

On February 13, 2012, President Obama delivered to Congress his administration’s recommendations for spending next year. Because the power of the purse ultimately lies with Congress, the President’s budget is simply a statement of the administration’s priorities and is non-binding. The president’s budget focuses on the federal fiscal year which runs from October 1 to September 30.

Check back soon for an analysis of what the President’s FY2013 Budget means for children and low-income families.

Step 2: The Congressional Budget

Shortly after the president releases his budget, it’s Congress’ turn. Both the House and the Senate can use the president’s budget as an outline to build their own budgets, or they can ignore it completely. Ordinarily, the House and Senate are expected to pass their own non-binding budget resolutions and then go through a conference process to reconcile their differences. The resulting conference report becomes binding once both bodies have approved it. Because it is not a law, it does not require the president’s signature. However, last year, the budget process did not follow this path. Instead, Congress sidestepped the budget process in the Senate and set budget spending levels for fiscal year 2012 with a deal on August 2nd, 2011 to raise the debt ceiling (this is the maximum amount the government can borrow in order to pay its bills, as determined by Congress). The budget deal, known as the Budget Control Act of 2011, has profound implications for the FY 2013 budgets, to be released in the coming weeks and months by the President and each house of Congress, and is described below.

Step 3: The Appropriations Process

The House and Senate appropriations committees are in charge of “appropriating” or setting aside specific dollar amounts to authorized federal programs. There are 12 separate appropriations subcommittees in both the House and the Senate. For instance, the Labor, Health, and Human Services, and Education Appropriations Subcommittee is responsible for allocating funds for programs including job training programs, the Child Care and Development Block Grant, Head Start, Title I of the Elementary and Secondary Education Act, the Maternal and Child Health Block Grant, and many others. It will also have jurisdiction over Race to the Top, a signature education program of the Obama Administration.

In the appropriations process, the House and Senate are each supposed to pass 12 spending bills—one for each of the subcommittees—to fund spending for the following fiscal year. In years when Congress fails to pass some or the president fails to sign all 12 spending bills, the government can remain in operation by passing an “omnibus” spending bill which rolls all remaining spending into one bill, or a “continuing resolution” (“CR”), as occurred last year. To date, the House has passed six of the 12 appropriations bills and four more have been reported out of their respective committees, while the Senate has yet to begin the process, opting to wait for resolution of the debt ceiling debate before beginning. The appropriations process must be completed by September 30, 2012, as fiscal year 2013 begins on October 1, 2012.

The Budget Control Act of 2011

After months of intense negotiations surrounding how to raise the debt ceiling and reduce the deficit, Congress passed "The Budget Control Act of 2011":

• Raised the debt ceiling by about $2.4 trillion in several steps that allow the nation to continue to borrow until early 2013;
• Capped discretionary spending – defense and non-defense equally – for 10 years. Total discretionary spending in fiscal year 2012 would be reduced by $7 billion compared to 2011, and discretionary spending in fiscal year 2013 would be lower than fiscal year 2011 by $3 billion. This equates to as-of-yet unspecified spending cuts of nearly $1 trillion over ten years – approximately $100 billion per year and almost 10 percent of total discretionary spending. Cuts of this magnitude will likely have a dire effect on programs such as the Maternal and Child Health Block Grant, child health immunization grants, Early Head Start and Head Start, and many critical education and social services programs. Pell Grants are protected at least in part from these cuts;
• Created a bipartisan Joint Committee on Deficit Reduction (the “Supercommittee”) composed of six Republicans and six Democrats, six from each chamber of Congress, to identify and agree upon an additional $1.5 trillion in deficit reduction before the end of 2011. Because the Committee was unable to come to agreement, automatic spending cuts (referred to as “sequestration”) will now go into effect (see next bullet).
• The automatic across the board cuts required under the Budget Control Act since Congress was unable to come to an agreement will be evenly split between domestic and defense spending, and begin in the FY 2013 budget, effective January 1, 2013. Programs serving low-income and vulnerable children and families – including Medicaid, CHIP, Pell Grants, WIC, SNAP/food stamps and Social Security – are exempt from these across the board cuts.

CDF believes the nation must undertake a responsible and fair approach to developing the federal budget and continuing to reduce the deficit, but that both must adhere to core principles that embody our values and beliefs as a nation. The principle of protecting children and the most vulnerable from cuts must be a basic cornerstone of deficit reduction: the future of our nation’s children – tomorrow’s economic engine -- must not be sacrificed. The biggest threat to America’s national security and long-term economic well-being is the failure to protect, invest in and educate all our children right now. When more than 60 percent of all students in our public schools—all income brackets, racial and ethnic groups—cannot read or do math at grade level in the fourth, eighth and 12th grades—and 25 percent drop out or do not graduate on time—our economic future is in peril. As Congress continues to debate the budget in the weeks and months ahead, we must ensure that it reflects our values and protects the American dream for all children. We remain committed to protecting millions of children from budget cuts and working to ensure that the wealthiest Americans are asked to pay their fair share.