• The basic unit of classification generally is the appropriation or fund account. Any split of an account into two or more subfunctions requires a compelling reason, and must involve relatively large amounts for each subfunction.

• Each unit is classified into the single best or predominant purpose served. Thus, a unit is assigned to one (and only one) function.

• Activities and programs are normally classified by common purpose (or function) regardless of which agencies conduct the activities.

The 1976 Budget incorporates the first major revision of the functional classification in 14 years. The revision was adopted to make the functional classification more appropriate for the composition of budget outlays as they now occur.3

Types of funds.-Agency activities are financed through Federal funds and through trust funds, both of which are included in the budget.

Federal funds are of four types. The general fund is credited with receipts not earmarked by law for a specific purpose, and is charged with payments from such revenues and from general borrowing. Special funds contain Federal receipts earmarked for specific purposes, other than for carrying out a cycle of operations. Public enterprise (revolving) funds finance a cycle of business-type operations in which outlays generate receipts, primarily from the public. Intragovernmental revolving and management funds facilitate financing operations within and between Government agencies.

Trust funds are established to account for receipt and expenditure of moneys by the Government for use in carrying out specific purposes and programs in accordance with the terms of a trust agreement or statute. These moneys are not available for the general purposes of the Government. Within the category of trust funds there is a special subcategory of trust revolving funds which carry on a cycle of businesstype operations.

Current expense and capital outlay. The budget includes spending for both current operating expenses and capital outlays such as the purchase of lands, structures, and equipment. It also includes capital outlays in the form of lending and the purchase of investments. However, it excludes from obligations and outlays the acquisition of Federal securities issued by the Government itself (either by the Treasury Department or other Federal agencies).

3 A further discussion of this subject is found in Part 5 of this volume.

BUDGET AUTHORITY AND RELATED TRANSACTIONS

Budget authority.-Government agencies are permitted to enter into obligations, requiring either immediate or future payment of money, only when they have been granted authority to do so by law. The amounts thus authorized by the Congress are called budget authority.

Budget authority permits obligations to be incurred, and for most accounts the amount of the authority is related to the obligations expected to be incurred during the year. In some cases-especially construction (other than water resources projects), research, and procurement-budget authority is requested and granted to finance the full cost of each project at the time it is started, regardless of when obligations are expected to be incurred and the expected time of completion. Budget authority usually takes the form of appropriations, which permit obligations to be incurred and payments to be made. Some budget authority is in the form of contract authority, which permits obligations in advance of appropriations but requires a subsequent appropriation or receipts to "liquidate" (pay) these obligations. There is also authority to spend debt receipts (i.e., borrowing authority); such budget authority permits the use of borrowed money to incur obligations and make payments. Where such authority pertains to the use of Treasury borrowing, it is authority to spend public debt receipts. Authority for a Government agency to borrow directly from the public or from a Government-administered fund available for investment is authority to spend agency debt receipts.

Starting in January 1976, it will not be in order for either House of the Congress to consider any bill that provides new borrowing or contract authority, with certain exceptions, unless that bill also provides that such new spending authority will be effective only to the extent provided in appropriations acts.

Most appropriations for current operations are made available for obligation only within the year (1-year appropriations). Some are for a specified longer period (multiple-year appropriations). Others, including most of those for construction, some for research, and nearly all trust fund appropriations, are made available for obligation until the objectives have been attained (no-year appropriations).

When budget authority is made available by the Congress for a specific period of time, any part that is not used for obligations during that period lapses and cannot be used later. However, reappropriations-congressional actions to continue availability of unused balances that have lapsed-are counted as budget authority in the year of the congressional action.

A rescission is a congressional action that cancels budget authority previously granted that is still unused and available for obligation. Such rescissions are offset against new budget authority in arriving at the total of budget authority for each year. A deferral is an executive branch action or inaction-including the establishment of reserves under the Antideficiency Act-that effectively delays the obligation or expenditure of budget authority.

Most authority to obligate funds is granted year by year (current authority). Under certain laws, some budget authority in Federal funds and most budget authority in the trust funds become available from time to time without further action by the Congress (permanent authority).

The amount of budget authority is usually stated specifically in the legislation that makes it available (definite authority). In a few cases the amount is left indefinite to be determined by subsequent circumstances (indefinite authority). Examples of the latter type are the appropriation for interest on the public debt, and the trust fund appropriation equal to receipts under the Federal Insurance Contributions Act (social security).

While budget authority is normally granted with the intention that spending of a similar amount will occur, certain insurance or other programs are provided with standby budget authority that may never be used fully but is available if certain contingencies should arise.

Obligations incurred. Following the enactment of budget authority, obligations are incurred by Government agencies. Such obligations include the currently accruing liabilities for salaries and wages, certain contractual services, and interest; entering into contracts for the purchase of supplies and equipment, construction, and land; entering into contracts to make loans; and other contractual arrangements requiring the payment of money.

Outlays. Obligations generally are liquidated by the issuance of checks or the disbursement of cash; such payments are called outlays. In lieu of issuing checks, obligations may also be liquidated (and outlays occur) by the maturing of interest coupons in the case of some bonds, or by the issuance of bonds or notes (or increases in the redemption value of bonds outstanding).

Outlays during any fiscal year may be payments of obligations incurred in prior years or in the same year. Such outlays, therefore, flow in part from unexpended balances of prior year budget authority and in part from budget authority provided for the year in which the money is spent.4

This process is depicted on a chart "Relation of Budget Authority to Outlays-1976 Budget" in Part 2 of this volume.

Balances of authority.—Not all budget authority enacted for a fiscal year is obligated and paid out in the same year. In the case of salaries and wages, 1 to 3 weeks elapse between the time of obligation and the time of payment. In the case of major procurement and construction, up to several years may elapse. Amounts that have been obligated, and the balances of budget authority to cover such obligations, are carried forward until the obligations are subsequently paid. Such amounts are known as obligated balances.

In addition, in multiple-year or no-year accounts, amounts that are still available for obligation may be carried forward. These are unobligated balances. Therefore, a change in the amount of budget authority for a given year does not necessarily result in a similar change either in the obligations incurred or the budget outlays in that same year. A change in budget authority in any one year may have an effect on obligations for 2 or more years, and may affect budget outlays for an even longer period. In the case of standby budget authority, obligations and outlays may never materialize.

Allocations between agencies. In some cases, one or more agencies may share in the administration of a program for which appropriations are made to another agency or to the President. This is made possible, in the accounts, by the establishment of allocations from the "parent" account (the account to which the appropriation was made). Such allocations permit the other agencies to incur obligations that are included with the parent account in the Budget (without separate identification) and in the Budget Appendix (where the total obligations of each participating agency are identified separately).

RECEIPTS

In general. Receipts represent collections during the year, and are classified into two types:

Budget receipts, which are compared with total outlays in calculating the budget surplus or deficit.

• Offsetting receipts, which are deducted from spending in calculating total outlays. Corresponding offsets are made in arriving at total budget authority and net obligations incurred.

Budget receipts.-The fundamental characteristic of budget receipts is that they are collections from the public that result from the exercise of the Government's sovereign or governmental powers. These consist primarily of tax revenues, but also include receipts from court fines, regulatory requirements for certain licenses, war reparations (in applicable years), and the like. Gifts and contributions. (as distinguished from payments for services or cost-sharing deposits by State and local governments) are also counted as budget receipts.

580-000 - 75 - 12

Offsetting

circumstances:

receipts. Offsetting receipts occur in

four

Revolving funds.-For three types of funds-public enterprise, intragovernmental, and trust revolving-outlays are regularly stated net of receipts collected by the fund.

Reimbursements and refunds.-When authorized by law, some incidental sums received are treated as reimbursements to appropriations; these are netted in determining outlays from such appropriations. The collection of refunds, representing a return of previous erroneous outlays, is also usually offset against outlays of the amount involved. Proprietary receipts from the public.-Receipts that arise out of the businesslike and market-oriented activities of the Government (e.g., loan repayments, interest, sale of property and products, charges for nonregulatory services, rents and 10yalties, etc.) are deposited in the general fund, special funds, or trust funds. Such collections are not counted as budget receipts, and with one exception, are offset against total budget authority and outlays for each agency and for each function.5

Intragovernmental transactions.-Any payment from a federally owned or administered account to another Federal account is treated as an offset to budget outlays rather than as a receipt. As previously described, many such transactions occur in the case of payments to revolving funds or as reimbursements to appropriations. All such transactions not falling into either of these categories are classified as intragovernmental transactions. Intragovernmental transactions may be either intrabudgetary (in cases where the payment and receipt both occur within the budgetary universe) or result from receipts from offbudget Federal agencies in those cases where the payment comes from a Federal agency whose funds are excluded from the budget totals. Normally intragovernmental transactions are deducted from both the outlays and the budget authority for the agency receiving the payment."

Intrabudgetary transactions are further subdivided into three groups: (1) interfund transactions, where the payment is from one fund group (either Federal funds or trust funds) and the receipt is

5 Receipts from rents and royalties from the Outer Continental Shelf lands are deducted from total budget authority and outlays for the Government as a whole rather than any single agency or func

tion.

In two situations intragovernmental transactions are not deducted from the figures of any agency or function, but appear as special deduct lines in computing total budget authority and outlays for the Government as a whole. One of these consists of the agencies' payments (including payments by off-budget agencies) as employers into trust funds for retirement of employees. The other is the payment of interest to trust (nonrevolving) funds.