Fact Sheet on Senate Budget Process: RS20198

The Role of Departments and Agencies in Budget Development

Bill Heniff Jr., Consultant in American National Government
Government and Finance Division
May 17, 1999

The initial development of the President's budget begins at the agency level. Federal agencies typically rely on their own internal process to prepare their initial budget requests. While these internal processes may vary by department and agency, most generally follow a bottom-up process. Initial budget requests are formulated by the lowest organizational level of an agency and reviewed at successively higher levels. Some departments, however, follow a top-down process in which budget guidelines are established by the highest level and communicated to the lower organizational levels.

Federal agencies usually begin work on the budget about 10 months before the President submits his budget to Congress (about 17 or 18 months before the start of the fiscal year). When federal agencies prepare their initial budget requests, they usually take an incremental approach. Agencies estimate the resources necessary to continue the existing programs at current levels for the next fiscal year. This includes spending estimates for personnel, supplies, equipment, and other program expenses. Then, agencies will include estimates for new initiatives funded with any available incremental resources. In addition, the Office of Management and Budget (OMB) will inform an agency of any presidential initiatives to be incorporated into its initial budget request.

In the typical bottom-up process, the preliminary budget request is reviewed by the next higher organizational unit. Decisions are made and passed back to the originating level. Any disagreements with these decisions may be appealed. Once decisions are made on appeals, the budget request then is consolidated with the budget requests of similarly situated units to be reviewed at the next level. This process of review and appeal continues at each level up to the highest level of a department or agency. All the lower-level budget requests then are consolidated into an agency-wide budget to be submitted to OMB.

The Government Performance and Results Act (GPRA) of 1993 (P.L. 103-62) established a statutory framework to link the formulation of the budget with government performance. Under GPRA, agencies are required to prepare strategic plans, annual performance plans, and annual program performance reports. The strategic plans must cover at least six years, and must be revised and updated at least once every three years. Beginning with the FY1999 budget, agencies were required to prepare and submit annual performance plans to OMB with their budget requests. Lastly, agencies will be required to prepare annual performance reports beginning with the FY2001 budget cycle. The first performance reports will cover FY1999 and must be submitted to the President and Congress by March 31, 2000. For more information on the role of GPRA in the federal budget process, see CRS Report 98-726 GOV, Government Performance and Results Act and the Appropriations Process.

The agency-wide budget requests and performance plans are reviewed by OMB staff responsible for the particular program area. During this review process, agency officials clarify policy and technical questions with OMB staff. Usually, such questions regarding a program's budget request are passed through the upper levels of the agency or department. The OMB director makes decisions on the budget requests and performance plans, and agencies are notified of these decisions through what is known as the OMB "passback." Agencies then are given an opportunity to appeal if they disagree with aspects of the "passback." Decisions on these appeals are made by the OMB director and, in some cases, by the President.

Once final decisions are made by OMB and the President, federal agencies and departments must revise their budget requests and performance plans to conform with these decisions. Agency officials prepare budget material for inclusion in the President's budget, which is transmitted to Congress by the first Monday of February. These materials include program descriptions, the requested spending levels, and the proposed appropriations language for each account. This information is contained in the Appendix volume of the President's budget submission. In addition, agencies' GPRA performance plans are provided to Congress soon after transmittal of the President's budget.

Agencies are responsible for defending the President's budget request as budgetary legislation is formulated in Congress. In support of the President's budget, agencies submit extensive written justification materials to the House and Senate Appropriations Committees. These materials contain detailed analysis of program activities, as well as justifications of proposed increases or decreases in spending. Agency officials use these materials to support their testimony during Appropriations subcommittee hearings. These materials usually are printed in the Appropriations Committee hearings.

In addition to the formal testimony before congressional committees, key agency officials, including department secretaries, typically will provide other congressional and press briefings to build political support for the President's budget request.