The fiscal operations described so far have related to provisions contained in the authorization acts governing the highway program. Yet, as the last section described, there are also other legislative acts, such as appropriations acts, that affect the highway program. Though most of the Federalaid highway programs do not receive budget authority through appropriations acts as do most other Federal programs, the appropriations act is important in the fiscal process.
For the most part, appropriations that are enacted for the highway program are contained in the annual DOT Appropriations Act71, although they can be placed in other legislative acts such as a supplemental appropriations act. In addition to affecting the FHWA's programs, these acts also affect all other DOT agencies, as well as activities of related independent agencies such as the Architectural and Transportation Barriers Compliance Board and the National Transportation Safety Board.
The FHWA part of the act is divided into several accounts, each covering one or more highway funding categories. The accounts can be classified according to whether the type of programs composing them have contract authority or budget authority.
Appropriated Budget Authority
As stated, most Federal programs obtain their budget authority through the appropriations process. This type of funding is called "appropriated budget authority" because two steps—an authorization act and an appropriations act—are needed before obligations can be incurred. Under this process, a program (or project) is required to be authorized as part of an authorization act before funds can be appropriated for it. For an appropriated budget authority program, then, the appropriations act is crucial since it gives the go-ahead to obligate authorized funds, as well as the cash needed for reimbursement.
It should also be pointed out, however, that appropriations bills sometimes appropriate funds for programs or projects for which there is no supporting authorization. Such an action is against the budgetary rules set by Congress and can be contested by a single member of Congress raising an objection (point-of-order) against the measure. However, if a point of order is not raised and the legislation is enacted, the measure stands.
Although the majority of FHWA's programs are funded through contract authority, budget authority is provided for some highway programs through appropriations acts. For example, the FY 2006 DOT Appropriations Act provided $20 million in appropriated budget authority for the Appalachian Development Highway System.72
The source of funding for the appropriated budget authority accounts can be either the General Fund of the Treasury or the Highway Trust Fund (HTF). Since implementation of the Budget Act of 1974, general funded programs must have appropriated budget authority; i.e., they cannot have contract authority.
Funds for contract authority programs can be obligated in advance of appropriations based upon the provisions of an authorization act. Although obligations are commitments to reimburse the States for the Federal share of a project's cost, actual cash reimbursements by the Department of the Treasury cannot be made until they are appropriated. This, then, is the primary function of an appropriations act as it relates to the major part of the highway program—the provision of the cash to liquidate the Federal commitment. The act provides the bulk of this cash in one account, Federal-Aid Highways, which covers liquidating cash needs for most of the contract authority, trust-funded categories. Examples of programs included in the Federal-Aid Highways account are the Surface Transportation Program, Interstate Maintenance Program, Transportation, Community, and System Preservation Program, and High Priority Projects.
The $36.0 billion of liquidating cash provided by the FY 2006 DOT Appropriations Act in the Federal-aid highway account was based on an estimate of prior unpaid obligations plus new obligations incurred during FY 2006 for which vouchers are expected to be presented by the States for payment during the fiscal year. Therefore, this amount is the consequence of the authorization/obligation process but is not equivalent to either the amount authorized for FY 2006 or expected to be obligated in FY 2006. The liquidating cash amount will change from year to year. As discussed earlier, the liquidating cash provided in the accounts covering contract authority must come from the HTF because of the link established in the Budget and Impoundment Control Act between trust fund financing and contract authority.
Limitation on Obligations
Since the nature of the highway program (i.e., contract authority and reimbursement) prevents direct Federal control of cash outlays in any year, Congress relies on limitations on obligations to control the program and make it more responsive to prevailing budget and economic policy. By placing a ceiling on obligations, future cash outlays are indirectly controlled. It is in the budget/appropriations process that Congress concerns itself with overall Federal spending in terms of cash outflow; thus, a limitation on obligations will be included in an appropriations act.
A limitation on obligations and the process for distribution was included in the SAFETEA-LU for each of the years covered by the act. However, Congress may change the amounts set or revise those procedures in the annual DOT Appropriations Act. Again, this limitation is not restricting the amount of cash for reimbursements, but is a ceiling on obligations that can be incurred during the fiscal year. The ceiling for the FAH account of $36.032 billion for FY 2006 was set in the SAFETEA-LU and confirmed in the FY 2006 DOT Appropriations Act, but was subsequently reduced by a government-wide rescission.73
In addition to the annual DOT Appropriations Act, other appropriations actions can affect the funding available for the FAHP. A supplemental appropriations act is sometimes necessary during the course of a fiscal year when it becomes apparent that additional funds are needed for key operations of the Federal government. The Administration will request that Congress enact supplemental legislation when it foresees this situation. By far, the most common program relating to highways for which supplemental appropriations have been enacted is the Emergency Relief program.
A continuing resolution provides necessary appropriations to tide agencies over when a regular annual appropriations act has failed to be enacted by the beginning of the fiscal year. For the Federal highway program, the resolution provides liquidating cash so that reimbursements for authorized programs can continue to be made to the States. It may also provide an obligation limitation. A continuing resolution usually provides resources by specifying a maximum rate of use based on the previous year or the lower of the amounts provided in appropriations bills passed in the House or the Senate. In recent years, continuing resolutions have become commonplace and it has become more routine for continuing resolutions, like appropriations acts, to include provisions that establish (authorize) new, albeit small, programs.
Through legislation, unused balances of previously authorized funds can be rescinded (cancelled). In 1986 and 1990, a specified percentage of contract authority was sequestered (in effect, rescinded) when the overall Federal spending exceeded certain Budget Act74 targets, triggering automatic sequestration provisions. Similarly, in 1996, the authorizations for the FAHP were reduced due to a budget compliance provision included in Section 1003(c) of the ISTEA which placed a cap on the amount of funding that could be authorized out of the HTF in total between 1992 and 1996. This provision was triggered by the open-ended equity adjustment authorizations, contained in the ISTEA, which provided more funding to the States than was originally estimated at the time the act was passed.
In recent years, across-the-board cuts have been enacted during the appropriations process, typically in the last passed appropriations act for the fiscal year. These cuts are used to bring the total amount appropriated in all the appropriations acts for the fiscal year into line with the amount agreed to in the budget resolution or some other spending target. While the specifics of the cuts have varied, typically the cuts have applied government wide to all programs on the discretionary side of the budget, cutting appropriated budget authority, obligation limitations, and contract authority subject to obligation limitations.
Once funds are eliminated (by any mechanism), they cannot be obligated by the States.
The Federal Budget and Appropriations Acts
Omitted from the previous discussion was an explanation of how the amounts in the appropriations acts are derived. The usual course of events starts in the spring of each year, about 1½ years before the beginning of the fiscal year being addressed, when the FHWA begins work on the budget. Included in the FHWA budget are: (1) estimates of outlays (necessary cash to liquidate obligations), (2) proposed budget authority for those programs that do not have contract authority, (3) a proposed level of obligations for the Federal-aid programs that have contract authority, should some measure of control be considered necessary, (4) an estimate of the anticipated administrative costs to run the agency and oversee the program, and (5) the amount of revenue aligned budget authority (will be discussed at the end of this section). Also reviewed are policy issues that may affect the upcoming budget.
Development of the budget progresses through the FHWA, the Office of the Secretary of Transportation, and the Office of Management and Budget, where final decisions are made in early fall. The executive branch's budget activities culminate in the submission to Congress of the President's Federal Budget on the first Monday in February, less than 9 months before the fiscal year begins.
In the spring, Congress formulates its own version of the Federal budget, using the President's budget as input. The Budget Committees (one in the House and one in the Senate) were established by the 1974 Congressional Budget and Impoundment Control Act to fulfill the function of drawing up budget resolutions and shepherding them through their respective houses. The budget resolutions set spending and tax levels and must also explicitly set a deficit or surplus level for the year. The House- and the Senate-approved budget resolutions then go through the conference committee process, and the agreed-upon version is sent back to each house for approval. The President's signature is not required on budget resolutions. The congressionally-approved budget resolution is intended to guide the committees in formulating legislation for the next year.
If all is on schedule, all appropriations acts (including the DOT's) are passed and signed by the President by October 1 of each year (the House is supposed to complete action on the acts by June 30). If, as often is the case, the DOT Appropriations Act is not enacted on time, then reimbursing cash is provided through a continuing resolution as previously discussed. The Administration will establish a temporary obligation limitation based on the length of the continuing resolution and the House and Senate actions to date on the full appropriation legislation. The apportionment or allocation of funds for contract authority programs will proceed on schedule whether or not an appropriations bill has been enacted because contract authority programs proceed on the basis of an authorizing act alone.
Table 2 shows the timetable for the Federal budget process.
|First Monday in February||President submits budget|
|February 25||Committees submit views and estimates to Budget Committee|
|April 15||Deadline for adopting budget resolution for coming year|
|May 15||Annual appropriations bills can be reported out|
|June 10||Deadline for reporting out all appropriations acts by House|
|June 30||Deadline to pass all appropriations acts by House|
|September 30||Deadline for enacting all spending measures|
|October 1||Fiscal year begins|
The congressional procedures for enacting an appropriations act are like those for an authorization act described in "Authorization Act" and illustrated in Figure 1. One major difference is that the committees with jurisdiction are the Appropriations Committees and their transportation subcommittees in both the House of Representatives and the Senate. Also, with appropriations acts, action must originate in the House of Representatives.
Budget Firewalls and Guaranteed Funding
In general, the Federal budget takes into account all spending and revenue raising activities of the Federal government. If total spending in any fiscal year exceeds total revenue, the excess spending is the deficit for that fiscal year. Conversely, if revenue exceeds spending, there is a budget surplus in that fiscal year. The amount of budget deficit is important because it largely determines the amount of funds the government must borrow from the private economy to pay for excess spending during a fiscal year. The Federal debt, also referred to as the "national debt," is the accumulated debt of the Federal government. Whenever the Federal government runs a budget deficit, the additional borrowing to finance the deficit adds to the Federal debt. By contrast, if the Federal government runs a budget surplus, the Federal debt will decrease if the Treasury uses the surplus to reduce the outstanding debt.
The Budget Enforcement Act of 1990 (BEA1990) established multi-year deficit reduction goals and established the basic spending control framework that remains in use today. It divided spending into two categories—mandatory and discretionary—based on the ability of Congress to control the spending through the annual appropriations process.
Mandatory spending generally includes all spending for specific programs that is made pursuant to laws other than appropriations laws. The fundamental characteristic of mandatory spending is the lack of annual discretion to establish spending levels due to a binding legal obligation by the Federal government to provide funding for an individual, program or activity. Generally, Congress and the President cannot increase or decrease spending for these programs in a given year without changing existing substantive law. Mandatory spending accounts for about two-thirds of all spending and is authorized by permanent law. It includes outlays for entitlement programs—such as Food Stamps, Social Security, Medicare, and veterans' benefits—through which individuals receive benefits because they are eligible based on their age, income, or other criteria. It also includes interest on the national debt and non-entitlements such as payments to States from Forest Service receipts. Two surface transportation programs are mandatory—the $100 million in Emergency Relief provided in section 125 of Title 23, U.S.C. and $639 million per/year of the Equity Bonus program.
By contrast, discretionary spending refers to those programs that are subject to annual funding decisions in the appropriations process. The Congress may reduce spending for a discretionary program by reducing its annual appropriation or, in the case of a contract authority program, by imposing an obligation limitation. Most of the operations of the Federal government are funded by discretionary spending through the 11 annual appropriations bills. Examples of discretionary spending—which accounts for approximately one-third of the all Federal spending—include funding for the Department of Defense, the Federal Bureau of Investigation, the Internal Revenue Service, the Environmental Protection Agency, and transportation.
Figure 5 shows the total spending for the Federal government for FY 2006, split between the mandatory and discretionary categories.75
The BEA1990 established annual caps on discretionary spending to help achieve its deficit reduction goals.76 Under a spending cap, the Congress must adjust the spending for any or all programs subject to the cap so that total spending for those programs does not exceed the annual cap.
Within the discretionary category, spending for certain programs has been protected by budgetary "firewalls." These firewalls take the form of separate spending caps for the protected programs that prevent the programs from being reduced in order to increase spending for other discretionary programs. Consequently, any reductions in these firewall programs for a particular year would go towards deficit reduction.
The TEA-21 created just such a firewall between highway spending, transit spending, and other domestic discretionary spending for FYs 1999 through 2003. Therefore, for FY 1999, there were five separate categories for discretionary spending: defense, violent crime reduction, highways, mass transit, and all other discretionary programs (lumped into a "non-defense spending" category).77 The broad discretionary caps in the BEA 1990 ended with 2002, but SAFETEALU established new firewalls for FYs 2005 through 2009 for the highway and mass transit categories as was done under TEA-21.78
In addition to the firewalls, TEA-21 and SAFETEA-LU each provided a second level of protection for the guaranteed level of funding in the form of a point of order included in the Rules of the House of Representatives. Section 8003 of SAFETEA-LU, specified the amount of discretionary funding that is protected by the firewall. Section 8004 amends the House Rules to specify that it is out of order to consider a bill, joint resolution, amendment, or conference report that would result in funding at a lower level than that set in section 8003 of SAFETEA-LU, as adjusted.79
As shown in Table 3, of the amounts authorized for surface transportation programs in the SAFETEA-LU, $244 billion is guaranteed to be available for obligation during the 5-year period covered by the act—$199 billion for highway and highway safety programs (which includes the discretionary spending firewall amount and mandatory spending) and $45 billion for transit programs. The highway firewall protects the obligation limitation for Federal-aid Highways, and the contract authority from the Highway Trust Fund for the programs of the Federal Motor Carrier Safety Administration and the National Highway Traffic Safety Administration. Funding for the Emergency Relief program and a portion of the Equity Bonus program ($639 million per year) are mandatory spending. Authorizations contained in the SAFETEA-LU for fiscal years 2005-2009 in excess of the guaranteed funding levels may be made available by Congress through the annual appropriations process.
|Discretionary Spending "Firewalls":|
|Highway Category (Sec. 8003(a)):|
|FAH Obligation Limitation||$34,423||$36,032||$38,244||$39,585||$41,200||$189,484|
|Motor Carrier Safety||$443||$495||$517||$528||$541||$2,524|
|Transit Category (Sec. 8003(b)):||$7,646||$8,623||$8,975||$9,731||$10,338||$45,313|
|Total, Discretionary Firewalls||$42,811||$45,843||$48,436||$50,555||$52,808||$240,453|
|TOTAL, Guaranteed Funding||$43,550||$46,582||$49,175||$51,294||$53,547||$244,148|
Revenue Aligned Budget Authority
The firewall amount for the highway category was set based on assumptions about future receipts to the Highway Account of the HTF. SAFETEA-LU provides that, beginning in 2007, when newer projections of receipts and actual receipts become available, the highway category firewall is adjusted accordingly. To smooth out the effects of any adjustments, the calculated adjustment will be split over two years. When the firewall amount is adjusted, either upward or downward, equal adjustments are to be made to the Federal-aid Highways (FAH) obligation limitation and authorizations. The adjustment of authorizations is called Revenue Aligned Budget Authority (RABA), but this term is often used to refer to the entire adjustment process.80 While the adjustment can be either positive or negative, no negative adjustment will be made in a fiscal year if, as of October 1 of that year, the balance in the Highway Account is more than $6 billion.
Section 8002 of the SAFETEA-LU contains projections of receipts into the Highway Account of the HTF for FYs 2005 through 2009, made at the time the legislation was developed. As part of the FY 2007 budget submission, the SAFETEA-LU requires the Administration to compare actual FY 2005 Highway Account receipts with the SAFETEA-LU FY 2005 projection, and to compare revised Department of the Treasury projections of FY 2006 Highway Account receipts with the SAFETEA-LUFY 2006 projection. The sum of these differences is $1,684,508,333 and half of this amount ($842,254,167) will be the RABA funding level for FY 2007. (The other half will be combined with half of the calculation made for FY 2008 to become the FY 2008 RABA.) Thus, under the guaranteed funding provisions, the FY 2007 FAH obligation limitation would be increased from the amount set in the SAFETEALU ($38,244,210,516, see Table 3) to $39,086,464,683. This would cause the firewall for the highway category, which is composed of the obligation limitations for Federal-aid Highways, Motor Carrier Safety, and National Highway Traffic Safety Administration (NHTSA), to be increased from $39,460,710,516 (see Table 3) to $41,041,964,683. When budgets are developed for each of fiscal years 2008 and 2009, a similar computation—looking at actual receipts from 2 years prior to the budget year plus revised receipt projections for the current year—will occur.