In the United States, government spending isn't as simple as writing a check on an account filled with taxpayer dollars -- or, as is often the case, dollars borrowed from investors. It's the end result of a multistep budgeting process that starts with "authorization" and ends with "budget outlays."
The U.S. Constitution established only the bare bones of the federal government -- Congress, the presidency and the Supreme Court. Just about everything else had to be created through legislation originating in Congress. "Authorization" is the process by which Congress gives a government department or agency its power. Some functions of government, such as the Social Security system, were created with permanent authorization. Others must have their authorizations renewed by Congress periodically -- and without reauthorization, they can't function. In mid-2011, for example, political disputes in Congress delayed reauthorization of the Federal Aviation Administration; agency employees were furloughed, construction projects halted and aviation-related tax collections suspended.
Appropriation and Authority
Each year, Congress assembles the budget for the federal government. "Appropriation" occurs when Congress designates a specific amount of money for a department or agency. "Budget authority," usually included in appropriation legislation but sometimes separate, gives that agency the actual ability to spend money that has been appropriated. You could think of appropriation as Congress putting money in that agency's bank account and budget authority as Congress actually handing over the checkbook. Agencies don't necessarily have to spend all the money in their budget authority, but they can't spend any more without Congress expanding that authority.
When a department or agency actually spends money -- draws money from the Treasury and gives it to someone -- that's a budget outlay. Whereas the federal budget is just a spending plan, outlays represent the real cost of running the government, whether it's giving federal workers their wages, purchasing goods, sending Social Security checks or paying interest on the national debt. Again, an agency's outlays are limited by its budget authority, but it doesn't have to turn everything in its authority into outlays.
The federal budget experiences a deficit when federal outlays exceed federal revenue -- the money the government takes in from taxes, fees, tariffs and other receipts. When Congress approves the budget for a year, it has only a rough sense of what the deficit, if any, will be. "Emergency" appropriations over the course of that year -- such as for disaster relief, certain military operations or even unforeseen demand for government services -- can add significantly to total spending. It's only at the end of the year, when all the outlays are added up, does the government know how big of a deficit it has.
- Jupiterimages/Photos.com/Getty Images