What, exactly, is the function of the govt. budget, and is it binding? (Kind of long)

Factual Questions
1

Although I’d consider myself a person interested in politics and pretty much up to date on current issues, I have to admit ashamedly that I don’t really understand the importance of one of the central (and most controversial) things in modern politics – the government budget.

I understand that in most jurisdictions government spending needs parliamentary approval, and that historically the power of the legislative assembly to control the revenues and spendings has been one of its most effective tools. But it seems to me that there are many instances where the government will spend, and will even have to, spend money no matter if the budget covers that or not.

As I understand, modern budgets draw a distinction between mandatory and discretionary spending. That makes sense; discretionary spending encompasses everything to which the government is not legally obliged. Let’s take the purchase of a police car as an example. That’s discretionary, so if the government wants to buy a new car (or a number of cars – the larger the entity which enacts the budget, the less likely it is that there will be a budget item for the purchase of one single car), it needs authorization to do so in a budget. Then again, I also read about appropriation acts, which I guess are acts authorizing a certain spending. What’s, then, the remaining function of the budget itself?

Things get more complicated with mandatory spending. Say there’s an act of legislation which entitles everybody who meets certain requirements to receive welfare. Certainly the government will have to pay that welfare to anyone who meets these requirements, and it can be sued for it if it refuses to pay. That’s why I don’t understand why the budget, which is enacted before the period it covers, contains a certain sum for welfare payments. The budget makers can’t know in advance how many people will be welfare recipients in the fiscal year to come. What happens if the total amount of welfare paid exceeds the amount authorized in the budget? Surely welfare recipients will have to get their money. Or vice versa, if the total amount is less than what had been anticipated, what happens to the surplus? Doesn’t that practically abolish the principle that only parliament (or Congress, or whatever it’s called in the particular jurisdiction) may authorize spending? One might say in this case that there still is parliamentary control over the monies, since it was the legislature itself which enacted the welfare legislation in the first place; but what about instances where the government is liable for damages which have been caused unlawfully by some government agency? In this case, damages will have to be paid, because the government will have to meet its legal obligations, no matter what the budget says.

And what happens if there’s no budget at all, for example because in obe year it’s particularly controversial, so the legislature doesn’t find a compromise until after the fiscal year begins? In that case, there is no spending authorized at all; but the work the government has to do continues, and you can hardly shut down all agencies, so what is done in this case?

It seems to me that government budgets are more an estimated prognosis of future revenues and spendings, but they can’t be fully binding because that would not be practicable. Anyone can enlighten me on that?

2

Wow, you ask a lot of complex questions, the answers of which will vary according to where you are.

For the US Federal government, “budget” means a couple of things. First, the President is required by law to submit a budget proposal to Congress that makes estimates on mandatory spending and proposes discretionary spending, as well as containing estimates on revenues. Congress then takes this budget request and turns it into a budget resolution. This is like the conceptual framework for how next year’s budget should actually look. It isn’t binding, it isn’t law, but it is kind of like a working draft of how Congress will act on spending and revenue proposals over the next several months. The budget resolution directs how much discretionary spending there will be for the next year, and can direct that changes be made in tax or mandatory spending policies. So what is its real purpose? To provide a snapshot of how revenues match up with spending, and to provide the broadest level guidance on where the government should be spending money.

In a perfect world, all discretionary spending is first authorized by some provision of law, and then the funds are appropriated to carry out the authorization. One can think of authorizations like opening a bank account for a specific purpose, and appropriations deposit the money into the account. To use another example, an authorization may say, “Up to $15 billion is authorized over the next three years to combat AIDS and malaria in Africa.” But that doesn’t mean anything until funds are appropriated.

As far as mandatory programs go, yes, the budgets proposed by the President and the budget resolutions approved by Congress are based upon estimates. But just like insurance companies have people whose entire job is to estimate your odds of dying at what age or your likelihood of crashing your car or burning your house down, the government employs those same sorts of people to estimate how many people will need welfare or Social Security next year. Honestly, if we’re going to spend, say, several hundred billions of dollars on certain entitlements, nobody really needs to sweat whether the estimates are off by a few thousand people here or there.

What happens if appropriations bills don’t get passed before the end of a fiscal year: the government shuts down. But generally Congress would pass something known as a continuing resolution, which continues last year’s budget for a certain period of time (maybe days or weeks) until work can proceed on passing the new appropriations bills. This happens pretty much every year in Washington.

3

It’s my understanding that “mandatory spending” is a deceptive term. The legislature may or may not appropriate the necessary funds to pay for “mandatory spending”. It isn’t something that they have no control over, although it may be politically painful to deal with.

4

That may be the case in some jurisdictions, but it really isn’t true at the Federal level. There are some appropriated funds that, when spent, are technically mandatory (eg, the DOD has an accrual account for military retirement pay - appropriated money goes in, mandatory spending goes out) but I highly doubt even 1 percent of Federal mandatory spending has anything to do with appropriations.

5

If you are not aware, in 1995 President Clinton and the Republican-controlled Congress could not agree on a budget. This forced many agencies and government functions to shutdown. I’m sure there are many good articles on it, here’s the Wiki article.

6

In that case, the government does indeed shut down all non-essential agencies. Perhaps the best-known example of this on this side of the pond happened in 1995, when President Clinton and Newt Gingrich (then speaker of the House) couldn’t even agree on temporary measures to keep the government running, resulting in about four weeks total of non-essential service shutdown.

ETA: Beaten to the punch.

7

A more recent example occurred in New Jersey in 2006. Gov. Corzine and the state legislature could not agree on a budget in time, and nearly the entire state government shut down. This especially hurt some businesses, since casinos can’t operate without state inspectors on the premises.

8

Mandatory funds are essentially on autopilot. The programs they fund keep going unless Congress and the President agree to change them in some way.