August 21, 2017 - Weekly Legislative Update

The Nuts and Bolts of the Federal Budget Process 


As we've previously reported, when Congress returns from recess after Labor Day, the two biggest immediate issues on the table will be the federal budget and the debt ceiling.  Accordingly, as things are pretty quiet on the Hill right now, we thought that this would be an opportune time to take a quick look at the fundamentals of the federal budget process, as these will be important to know once things start moving.

Here's a breakdown as to how things work -

Fiscal Year

The federal fiscal year runs from October 1 through September 30.  As we've seen happen a number of times over the past few years, if Congress hasn't passed, and/or the President hasn't signed, a final appropriations bill before the start of the new fiscal year on October 1, Congress can pass a continuing resolution (a "CR").  A CR allows the federal government to continue operating under the prior appropriations levels for the set period of time specified in the CR.  In recent years we've seen CRs that last anywhere from a few days to multiple months. 

If Congress fails to pass, or the President fails to sign, a regular appropriations bill or a CR there will be a government shutdown like we saw in 2013.  A government shutdown can occur either at the end of the fiscal year when the prior year's appropriations bill runs out or mid-year if the government has been operating under a CR that runs out without a new appropriations bill or another CR in place. 

For the 2017 fiscal year, Congress kept the government open using CRs until early May when both chambers finally passed an appropriations bill to fund the government through September 30, 2017.

President's Budget

The annual budget process is technically supposed to start when the President delivers his proposed budget to Congress.  The President's budget is supposed to be submitted to Congress by the first Monday in February.  However, there are no consequences associated with submitting the budget late.  This year President Trump didn't submit his budget until May 23. The President's budget is developed with input from federal agencies and the Office of Management and Budget (OMB) and establishes the President's recommendations and priorities.   However, Congress isn't obligated to consider the President's budget and often doesn't really do so.

Budget Resolution

As far as Congress is concerned, the budget process typically starts with the passage of a concurrent budget resolution (technically the President's budget is supposed to be considered first but often it is not submitted before the Congress starts its process).   The budget resolution sets forth the top line numbers for revenue and spending and also typically includes policy statements about the assumptions behind those numbers and how the individual appropriations bills are expected to get to them.  Both chambers need to pass the same budget resolution so generally it takes some negotiating to get the Senate and House on the same page.  The budget resolutions only require a simple majority to pass so it tends to be easier to get through than typical legislation.  

Congress is supposed to pass a concurrent budget resolution by April 15, but again, there are no consequences of not following this timeline.  In fact, Congress doesn't have to pass a budget resolution at all and can instead simply rely on the budget projections from the last concurrent budget resolution that it passed.  However, if it passes a budget resolution, Congress has the opportunity to include reconciliation instructions.  As we've discussed extensively in the context of the latest Affordable Care Act (ACA) repeal/replace efforts, using reconciliation allows Congress to pass certain bills (containing only provisions that have a direct impact on revenue and outlays) by a simple majority in the Senate because debate time is limited, meaning there is no need for 60 votes to break a filibuster.

2017 was a bit of a unique year because the top-line spending numbers were set the prior fiscal year by the Bipartisan Budget Act, making it even less necessary for a budget resolution to be passed.  Nonetheless, Congress did pass a budget resolution in mid-January which contained reconciliation instructions to open the door for the ACA repeal/replace efforts that we saw play out this spring/summer.  Congress is expected to pass a 2018 budget resolution as the Republic leadership is planning to use the 2018 budget resolution to provide reconciliation instructions for tax reform this fall.


Working from the top line numbers, the most complex and controversial part of the budget process is almost always the process of determining the program by program funding for all the various parts of the federal government.  To do this, the Senate and House Appropriations Committees divide the work across twelve separate appropriations bills that cover a specific agency or group of agencies and that are handled by a different subcommittee.  The subcommittees each conduct hearings to question officials from the Administration about their budget needs and requests and develop their specific appropriations bills.  Each of the twelve bills is then brought to the full committee for a vote on whether to send it to the House or Senate floor.   

Beyond the funding levels themselves, one way that the appropriations bills can get controversial is that they can include riders which make policy changes or prohibit the agencies from using any of the funds in the bill for certain purposes (the latest high profile example of this being proposed riders to defund Planned Parenthood).  Moreover, the appropriations bills need to stay within the terms of the budget resolution or a single member can make what is called a "budget point of order" to block the specific appropriations bill that exceeds the budget resolution.  A budget point of order is more of a concern in the Senate where the rules require 60 votes to allow the bill to move forward, whereas the House only requires a majority vote to move the bill forward.  

It is not uncommon for the appropriations bills passed by the House and Senate to be different.  Accordingly, the next step of the process is a House-Senate conference to resolve the differences between the bills.  The reconciled bills then go back to each chamber to be passed and then on to the President to be signed.  Because of the complexity of having to usher twelve bills through both chambers, it is not uncommon for the bills to be combined and negotiated and passed together, in which case the legislation is referred to as an omnibus appropriations bill.

Budget Sequestration

Hanging over the head of the entire budget process is the concept of sequestration.  In 2011, Congress passed the Budget Control Act ("BCA") with the goal of reducing the country's long term budget deficit.  In short, the BCA did two things.  First, it created discretionary spending caps for each year until 2021.  Additionally, it established a bi-partisan joint House and Senate committee (commonly referred to as the "Super Committee") that was tasked with creating recommendations to reduce the deficit by $1.2 trillion over ten years.  Under the terms of the BCA, if the Super Committee failed to come up with a proposal (which it did), it would trigger across the board cuts to spending through 2021.

Under the procedural rules, any bill to delay, modify or eliminate sequestration would be subject to a filibuster in the Senate, meaning that bi-partisan support is needed to take any of these actions.  Congress has already done this a few times under President Obama, resulting in the delay and easing up of some of the BCA sequester provisions.  It is possible this could happen again, meaning that the sequestration numbers are always a moving target and a negotiable factor in the budget process. 

What We've Been Up To

On August 7, 2017, the TIA submitted comments to the Internal Revenue Service opposing the proposed Section 2704(b) regulations which would eliminate minority discounts and largely eliminate marketability discounts for family-owned businesses.  The 2704(b) proposed regulations were one of the eight proposed and final Obama-era regulations that the IRS identified for review (and potential reform and repeal) in response to an Executive Order from the President in April targeted at reducing regulatory burdens.  We'll be devoting an alert to this topic in the near future.