Budget authority is defined by section 3(2) of the Congressional Budget Act of 1974 as the authority provided by Congress for Federal entities to enter into legally binding obligations, with certain delineated specific terms.
Section 3(2) (CBA) defines both the terms “budget authority” and “new budget authority” as follows:
(2) Budget authority and new budget authority.—
(A) In general.—The term “budget authority” means the authority provided by Federal law to incur financial obligations, as follows:
(i) provisions of law that make funds available for obligation and expenditure (other than borrowing authority), including the authority to obligate and expend the proceeds of offsetting receipts and collections;
(ii) borrowing authority, which means authority granted to a Federal entity to borrow and obligate and expend the borrowed funds, including through the issuance of promissory notes or other monetary credits;
(iii) contract authority, which means the making of funds available for obligation but not for expenditure; and
(iv) offsetting receipts and collections as negative budget authority, and the reduction thereof as positive budget authority.
(B) Limitations on budget authority.—With respect to the Federal Hospital Insurance Trust Fund, the Supplementary Medical Insurance Trust Fund, the Unemployment Trust Fund, and the railroad retirement account, any amount that is precluded from obligation in a fiscal year by a provision of law (such as a limitation or a benefit formula) shall not be budget authority in that year.
(C) New budget authority.—The term “new budget authority” means, with respect to a fiscal year—
(i) budget authority that first becomes available for obligation in that year, including budget authority that becomes available in that year as a result of a reappropriation; or
(ii) a change in any account in the availability of unobligated balances of budget authority carried over from a prior year, resulting from a provision of law first effective in that year;
and includes a change in the estimated level of new budget authority provided in indefinite amounts by existing law.
budget authority: Authority provided by federal law to incur financial obligations that will result in immediate or future outlays of federal government funds. Budget authority may be provided in an appropriation act or authorization act and may take the form of a direct appropriation of funds from the Treasury, borrowing authority, contract authority, entitlement authority, or authority to obligate and expend offsetting collections or receipts. Offsetting collections and receipts are classified as negative budget authority. See budgetary resources.
Authority provided by federal law to enter into financial obligations that will result in immediate or future outlays involving federal government funds. The basic forms of budget authority include (1) appropriations, (2) borrowing authority, (3) contract authority, and (4) authority to obligate and expend offsetting receipts and collections. Budget authority includes the credit subsidy cost for direct loan and loan guarantee programs, but does not include the underlying authority to insure or guarantee the repayment of indebtedness incurred by another person or government.
Budget authority may be classified by its duration (1-year, multiple-year, or no-year), by the timing provided in the legislation (current or permanent), by the manner of determining the amount available (definite or indefinite), or by its availability for new obligations. (See also Current Level Estimate; Credit Subsidy Cost, Direct Loan, and Guaranteed Loan under Federal Credit;
Offsetting Collections under Collections.)
FORMS OF BUDGET AUTHORITY
Appropriations. Budget authority to incur obligations and to make payments from the Treasury for specified purposes. An appropriation act is the most common means of providing appropriations; however, authorizing and other legislation itself may provide appropriations. (See also Backdoor Authority/Backdoor Spending.)
Appropriations do not represent cash actually set aside in the Treasury for purposes specified in the appropriation act; they represent amounts that agencies may obligate during the period of time specified in the respective appropriation acts. An appropriation may make funds available from the general fund, special funds, or trust funds. Certain types of appropriations are not counted as budget authority because they do not provide authority to incur obligations. Among these are appropriations to liquidate contract authority (legislation to provide funds to pay obligations incurred against contract authority), to redeem outstanding debt (legislation to provide funds for debt retirement), and to refund receipts. Sometimes appropriations are contingent upon the occurrence of some other action specified in the appropriation law, such as the enactment of a subsequent authorization or the fulfillment of some action by the executive branch. (See also Appropriation Act; Discretionary; Expired Budget Authority under Availability for New Obligations under Budget Authority; Mandatory.)
Borrowing Authority. Budget authority enacted to permit an agency to borrow money and then to obligate against amounts borrowed. It may be definite or indefinite in nature. Usually the funds are borrowed from the Treasury, but in a few cases agencies borrow directly from the public. (See also Debt, Federal.)
Contract Authority. Budget authority that permits an agency to incur obligations in advance of appropriations, including collections sufficient to liquidate the obligation or receipts. Contract authority is unfunded, and a subsequent appropriation or offsetting collection is needed to liquidate the obligations. The Food and Forage Act (41 U.S.C. § 11) and the Price Anderson Act (42 U.S.C. § 2210) are examples of such authority. (See also Backdoor Authority/Backdoor Spending.)
Offsetting Receipts and Collections. A form of budget authority that permits agencies to obligate and expend the proceeds of offsetting receipts and collections. The Congressional Budget Act of 1974, as amended by the Budget Enforcement Act (BEA) of 1990, defines offsetting receipts and collections as negative budget authority and the reductions to it as positive budget authority. In the President’s budget, the Office of Management and Budget (OMB) reports offsetting receipts as appropriations.
One-Year Authority. Budget authority available for obligation only during a specific fiscal year that expires at the end of that fiscal year. It is also known as “fiscal year” or “annual” budget authority.
Multiple-Year Authority (Multiyear). Budget authority available for a fixed period of time in excess of 1 fiscal year. This authority generally takes the form of 2-year, 3-year, and so forth, availability but may cover periods that do not coincide with the start or end of a fiscal year. For example, the authority may be available from July 1 of one fiscal year through September 30 of the following fiscal year, a period of 15 months. This latter type of multiple-year authority is sometimes referred to as “forward funding.” (For a distinction, see Advance Appropriation; Advance Funding. See also Full Funding.)
No-Year Authority. Budget authority that remains available for obligation for an indefinite period of time. A no-year appropriation is usually identified by language such as “to remain available until expended.”
Reappropriation. Legislation permitting an agency to obligate, whether for the same or different purposes, all or part of the unobligated portion of budget authority that has expired or would otherwise expire if not reappropriated. In the President’s budget, reappropriations of expired balances are counted as new budget authority or balance transfers depending on the year for which the amounts are reappropriated.
TIMING OF LEGISLATIVE ACTION
Current Authority. Budget authority made available by Congress for the fiscal year or years during which the funds are available for obligation.
Permanent Authority. Budget authority that is available as the result of previously enacted legislation and is available without further legislative action. For example, authority to retain and use offsetting receipts tends to be permanent authority. Such budget authority can be the result of substantive legislation or appropriation acts.
DETERMINATION OF AMOUNT
Definite Authority. Budget authority that is stated as a specified sum at the time the authority is enacted. This type of authority, whether in an appropriation act or other law, includes authority stated as “not to exceed” a specified amount.
Indefinite Authority. Budget authority that, at time of enactment, is for an unspecified amount. Indefinite budget authority may be appropriated as all or part of the amount of proceeds from the sale of financial assets, the amount necessary to cover obligations associated with payments, the receipts from specified sources—the exact amount of which is determinable only at some future date—or it may be appropriated as “such sums as may be necessary” for a given purpose.
AVAILABILITY FOR NEW OBLIGATIONS
Expired Budget Authority. Budget authority that is no longer available to incur new obligations but is available for an additional 5 fiscal years for disbursement of obligations properly incurred during the budget authority’s period of availability. Unobligated balances of expired budget authority remain available for 5 years to cover legitimate obligation adjustments or for obligations properly incurred during the budget authority’s period of availability that the agency failed to record. (See 31 U.S.C. §§ 1552(a), 1553(a).) (See also Expired Account; Unobligated Balance under Obligational Authority; Warrant.)
Unexpired Budget Authority. Budget authority that is available for incurring new obligations.
Definition of Budget Authority and Outlays
Budget Authority and Outlays
Spending levels in congressional budget resolutions are measured in dollars in two ways: budget authority and outlays. Outlays represent actual disbursements by the Treasury. When the Treasury issues a check in fiscal year 1998, that is a fiscal year 1998 outlay. Budget authority, on the other hand, is the legal authority for an agency to enter into obligations of dollars in a certain amount that will result in outlays. When Congress appropriates funds for a particular program, it is enacting budget authority—not outlays.
To illustrate the relationship of budget authority to outlays, assume that the Congress has decided to build an aircraft carrier starting in fiscal year 1997 and that the total cost is $4.0 billion. To do so, Congress would appropriate $4.0 billion of new budget authority for the ship in the defense appropriations bill for fiscal year 1997. Often such an appropriation is made with the understanding that all the money will not actually be spent (result in outlays) in that fiscal year. The creation of this $4.0 billion of budget authority means that the Department of Defense has legal authority to enter into obligations (generally, contracts) totaling $4.0 billion during fiscal year 1997. Often, contractors are paid upon completion of each stage of the construction rather than the full amount in advance. The $4.0 billion of budget authority would result in outlays when the contractors are actually issued checks by the Treasury, which might occur over several years. In this example (displayed in the table below) assume that $.50 billion is paid (results in outlays) in the first year (fiscal year 1997) to cover the costs of designing the carrier, $1.50 billion is paid (results in outlays) in the second year (fiscal year 1998) to begin construction, and the remaining $2.0 billion is paid (results in outlays) in the final year (fiscal year 1999) to complete construction.
U.S. Congress, Senate Budget Committee, The Congressional Budget Process – An Explanation (S. Prt. 105-67) December 1998, p. 2.