The term “functional classification”, or sometimes referred to as “budget function”, are categories of policies originally devised as part of the Hoover Commission (formally known as “Commission on Organization of the Executive Branch of the Government”) recommending a method achieve greater efficiency in the organization of the departments, agencies, and other instrumentalities of the Federal Government. They precede the enactment of the Congressional Budget Act of 1974, but are essential to its implementation insofar as each function receives a level of budget authority and outlays to be devoted to it in the text of the resolution. Though these amounts are only advisory, they give guidance as to the underlying assumptions that are the foundation of each budget resolution.
Functional classifications are also important in the executive branch of the government, and receive more specificity since they are further divided into “subfunctions” that are more specific policy areas within the overall more general function policy area. In addition, each spending account throughout the Federal Government is given an identification number and the last three digits incorporate the function and subfunction number.
Excerpt from OMB Circular A-11:
(d) Functional and subfunctional classification.
OMB normally assigns each expenditure and offsetting receipt account a single subfunction code (see exhibit 79A for a list of functional classifications). In rare cases, an appropriation account may be split between two or more subfunctions. If the subfunctions are in the same function, the code of the function is used (e.g., 500, 550, etc.). If two or more functions are involved, the code “999” is used. Annually,OMB consults with CBO and other relevant budget and appropriation committee staff members regarding functional and subfunctional classification. This process, which is required by statute, typically occurs from October through December (see section 25.3).
A system of classifying budget authority, outlays, receipts, and tax expenditures according to the national needs being addressed. Each concurrent resolution on the budget allocates budget authority and outlays among the various functions.
Each budget account appears in the single budget function (for example, national defense or health) that best reflects its major purpose, an important national need. A function may be divided into two or more subfunctions, depending upon the complexity of the national need addressed. (See also Budget Activity.)
Definition of Functional Classification
Functional Classification: A system of classifying budget resources by major purpose so that budget authority, outlays, and credit activities can be related in terms of the national needs being addressed (for example, national defense, health) regardless of the agency administrating the program. There are currently 20 functions. A function may be divided into two or more subfunctions depending upon the complexity of the national need addressed by that function. (See Budget Authority; Outlays.)
[The Congressional Budget Process: An Explanation, Appendix J (Glossary), Committee on the Budget of the U.S. Senate, S. Prt. 105-67 (Revised December 1998).]