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(Title 31, Chapter 11, s. 1112). However, there is no legal requirement for state and local governments to report budgetary developments to the federal government for consolidation in nationwide accounts and for information to Congress. Such information can be produced by informal arrangements.

4. Legal provisions for each stage of the budget cycle

4.1. Budget preparation and presentation by the executive

4.1.1. Institutional coverage of the budget

The federal budget covers all federal agencies and programmes, including the legislature, the judiciary, the Executive Office of the President, 15 departments, and independent agencies (including the Environment Protection Agency, the General Service Administration, and the Social Security Administration), and about 90 smaller agencies, boards, councils, and offices. The federal budget does not include the state and local government, nor does the federal government provide guidelines for the budgets of states and local governments.

4.1.2. Extrabudgetary funds and earmarking of revenues

The federal budget has relatively few extrabudgetary funds. “Off-budget” has a special meaning. The social security funds (old-age, survivors, and disability insurance) and the Postal Service funds are by law classified as “offbudget” in the federal budget. They are federally owned and controlled funds whose receipts, outlays, surplus or deficit, and budget authority are excluded from the “on-budget” totals. However, most tables in the budget documents include the on-budget and off-budget amounts in the “unified budget” totals (OMB, 2004a). Federal outlays and receipts are therefore shown comprehensively. The unified budget totals generally receive the most attention from policy makers and the public.

4.1.3. Definition of budget aggregates

The President’s budget is prepared by the OMB according to the requirements of the BAA, which requires estimates for the current fiscal year, projections for the budget year and for the following four years in order to reflect the effect of budget decisions over the longer term despite no binding effects on the following fiscal year’s budget (Title 31, Chapter 11, s. 1105). The CBO must by law present similar aggregate estimated projections (s. 202, CBA). In practice, the CBO has provided data for nine years past the budget year.

4.1.4. Fiscal rules

Fiscal rules were embodied in law, notably the GRH Act 1985, which included declining quantitative limits on the consolidated deficit

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through 1990, and the BEA with its caps on discretionary spending and the PAYGO rule for mandatory expenditures and budget revenue. Since September 2002, when the enforcement mechanisms of the BEA expired, there are no legally binding fiscal rules at federal level. Each year, under the CBA, the House and the Senate are required to agree on total revenues and expenditures in a “budget resolution” (see below); however, the agreement is not legally binding.

4.1.5. The timetable for budget preparation and presentation to the legislature

The fiscal year begins on 1st October and ends on 30 September. Title 31 requires the President to submit a draft budget for the following fiscal year to Congress no later than the first Monday in February (Chapter 11, s. 1105). It also requires the head of each agency to prepare and submit to the President each appropriation request for the agency in the form prescribed by the President and by the date established by the President (s. 1108). The OMB and the federal agencies work together to prepare a budget to meet the February deadline according to a schedule established annually in an OMB circular (Box 4). The budget preparation process begins about 18 months before the beginning of the fiscal year. This is much earlier than any other OECD country.

4.1.6. Approval process within the executive

The approval procedure within the executive is stated in OMB circulars (s. 10.5), not law. It is regarded as an internal process. There is no Cabinet meeting to discuss the complete set of departmental budget proposals prepared by the OMB. Secretaries of departments can appeal the decisions of the OMB regarding their totals. Appeals are first made to the OMB itself and most are settled at that level. Any further appeals are normally made to a Budget Review Board (although not every President uses a Budget Review Board), composed of the Vice-President, the White House Chief of Staff, the Director of the OMB, and one or two senior White House officials (the composition varies from administration to administration as well as year to year). Final decisions may be appealed to the President who has the final decision-making authority.

4.1.7. Documents to accompany the budget law

The President is required to provide a budget message and summary in each budget transmitted to Congress (Title 31, s. 1105). Each year, the budget message and summary are included in “The Budget of the United States Government”, which provides information on the President’s budget and management priorities, and budget overviews for each agency, including

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Box 4. United States: Key steps in the annual budget process within the executive

April May: spring guidance and review

●The OMB director issues a letter to the head of each agency providing policy guidance for the agency’s budget request in the fiscal year which begins in approximately 18 months. This begins the process of formulating the budget for year (+2).

●The OMB works with agencies to identify major issues for the budget for year (+2), to develop and analyse options for the upcoming autumn review, and to plan for the analysis of issues that will need future decisions.

July: OMB issues Circular No. A-11, which provides detailed instructions to all federal agencies on how to prepare and submit the budget to OMB for review (s. 1104).

September: Agencies make initial budget submissions.

October November: autumn review

●OMB staff analyse agency budget proposals in the light of presidential priorities, programme performance, and budget constraints. They raise issues and present options to OMB policy officials for decision.

Late November: passback

●OMB briefs the President and senior advisors on proposed budget policies. OMB usually informs all executive branch agencies at the same time about decisions on budget requests.

December: appeal process

●Executive branch agencies may appeal to the OMB and the President. An agency head may ask OMB to reverse or modify certain decisions.

First Monday in February: President transmits the budget to Congress.*

*The actual timing may vary from the plan. For example, on several occasions, a President has submitted the budget later than specified for various reasons, including late enactment of appropriations for the previous fiscal year or a change in the administration.

Source: OMB, 2004d.

assessments of their performance. Detailed information is required to be put in the message by 10 pages of law (Title 31, s. 1105). Each year, much of the required information is provided in:

●Analytical Perspectives, which contain analyses designed to highlight specific subject areas or provide other presentations of budget data. This volume includes economic and accounting analyses; information on federal

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receipts and collections; analyses of federal spending; detailed information on federal borrowing and debt; baseline or current services estimates; information on programme performance (including PART information), long-range budget estimates; and other technical presentations.

●Historical Tables, which provide data on budget receipts, outlays, surpluses or deficits, federal debt, and federal employment, over extended historical periods (data begin as early as 1940) and for the future (the law requires projections for the four years beyond the budget year).

●The Appendix, which is designed primarily for the use of the appropriations committees. It contains very detailed financial information on individual programmes and appropriation accounts. It includes for each agency: the proposed text of appropriations language, budget schedules for each account, new legislative proposals, explanations of why funds are needed, and provisions applicable to appropriations of entire agencies or groups of agencies. Information is also provided on activities whose outlays are not part of the budget totals.

Medium-term macroeconomic framework and fiscal strategy. The budget presents estimates for each of the four years beyond the budget year (for example, for budget year 2005, years 2006 through 2009). The formulation of the macroeconomic assumptions for budget projection is a shared responsibility of the CEA, the Treasury Department, and OMB. The budget proposal includes substantial discussion of its underlying economic assumptions as well as reconciliation against the previous year’s forecasts (OMB, 2004a). The economic assumptions include estimates of the effects of Presidential policies if adopted. In contrast, the CBO provides a set of economic assumptions that contest the assumptions of the OMB and do not include effects of policy change. Since the expiry of the BEA, multi-year expenditure projections are not legally binding limits.

New measures versus existing expenditure policies. Title 31 requires estimated receipts for the fiscal year for which the budget is submitted and the four fiscal years after that year under: 1) laws in effect when the budget is submitted, and 2) proposals in the budget to increase revenues (Chapter 11, s. 1105). Estimates of new initiatives and the ongoing cost of government policies are therefore clearly distinguished in the budget documents. The law also requires that each budget proposal that would expand a government activity or function, have a table showing the impact on appropriations and expenditures for the fiscal year and each of the four fiscal years after that year.

Performance-related information. The GPRA requires agencies to produce strategic plans, annual performance plans, and annual programme performance reports. In addition to this, as from 2004, the OMB started a new systematic evaluation procedure (the PART process). This shows five ratings on the

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implementation of programmes: effective, moderately effective, adequate, ineffective, and results not demonstrated. The government has assessed approximately 400 programmes representing approximately 40% of the federal budget: 234 programmes in 2003 and 173 programmes in 2004. The assessments indicate that about 40% of programmes were rated either “effective” or “moderately effective”, and a quarter of programmes rated just “adequate” or “ineffective”, and 40% of programmes were unable to demonstrate results (OMB, 2004a). This information is required to be produced annually as part of the President’s budget (Part 6 of OMB Circular No. A-11).

Tax expenditures, contingent liabilities and fiscal risks. Tax expenditures are defined in the CBA as “revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability”. The CBA requires that a list of tax expenditures for individual and corporation income taxes be included in the budget (s. 3). Analytical Perspectives 2005 includes a chapter that outlines all significant tax expenditures. The largest tax expenditures are those associated with income taxes, including deductions and exclusions provided for pension contributions and earnings, employer contributions for medical insurance and home mortgage interest payments. The cost of tax expenditures is presented for the same period for which budget information is provided (the past fiscal year, the current fiscal year, and the following four years). Several states prepare tax expenditure estimates when presenting their budgets to state legislatures.14

The budget does not include a comprehensive list of contingent liabilities or fiscal risks.15 However, since 1990, the law requires the long-term costs of federal credit programmes to be budgeted. The Federal Credit Reform Act (FCRA)16 1990 changed the budgetary treatment of direct loans and loan guarantees by requiring that the budgetary cost of a credit programme be the long-term subsidy cost at the time the credit is provided (s. 502). Annual outlays for credit programmes in the budget are estimated based on the present value of the long-term subsidy costs of direct loans or loan guarantees issued in each year. This is more transparent than prior practice, which reported only the cash flows associated with direct loans or loan guarantees.

Other information required by law. The OMB also provides highly detailed information to Congress in the budget, in line with BAA requirements (Box 5).

4.1.8. Budgets of the legislature and other constitutional bodies

The budgets of the legislative and the judicial branches are prepared independently from the executive branch according to provisions of the