About the Author

William G. Arnold worked with the Department of Defense for 34 years, over 25 of which he spent in financial management. He has held positions as director of resource management, director of disbursing, and entitlements director with the Air Force and Defense Finance and Accounting Service. He is a certified defense financial manager with acquisition specialty (CDFMA) from the American Society of Military Comptrollers, and in 1984 he was awarded the designation of certified cost analyst (CCA) by the Institute of Cost Analysis.

Mr. Arnold holds a Master of Arts degree in financial management from Central Michigan University. For many years he taught undergraduate classes in economics and finance at Park College.

Mr. Arnold is currently an instructor with Management Concepts. Course topics include an appropriations law seminar, appropriations law for business operations, the Antideficiency Act, budget execution, the Prompt Payment Act, voucher examination, performance budgeting, and enhanced defense financial management. Mr. Arnold is the author of The Antideficiency Act Answer Book, The Prompt Payment Act Answer Book, and Performance Budgeting: What Works, What Doesn’t, all published by Management Concepts.

Chapter 1

Overview of
Appropriations Law

This first chapter introduces basic appropriations law terminology and concepts. Readers unfamiliar with appropriations and their use would be well served to read this chapter in its entirety before addressing specific questions in later chapters. More seasoned personnel with a basic familiarity of the terms and concepts can get by without reading the entire chapter but might still find it useful should they encounter a specific issue that is addressed here.

APPROPRIATIONS LAW BASICS

1. What is meant by the term appropriations law?

The term federal appropriations law or federal fiscal law means that body of law that governs the availability and use of federal funds. ¹

Federal funds are made available for obligation and expenditure by means of an appropriations act, or occasionally by other legislation, and the subsequent administrative actions that release appropriations to the spending agencies. The use or “availability” of appropriations once enacted and released—that is, the rules governing the purpose, amounts, manner, and timing of obligations and expenditures—is controlled by various authorities. These authorities include the terms of the appropriations act itself; any authorizing legislation; organic or enabling legislation, which prescribes a function or creates a program; general statutory provisions that allow or prohibit certain uses of appropriated funds; and general rules that have been developed over time through decisions of the comptroller general and the courts. These sources, together with provisions of the Constitution of the United States, form the basis of “appropriations law.” ²

2. Wouldn’t it be simpler to just look for specific statutory prohibitions against the use of funds and operate on the premise that if an action isn’t prohibited, it is authorized?

That approach would be far simpler, but it wouldn’t be correct. A federal agency is a creature of law and can function only to the extent authorized by law. The Supreme Court has expressed what is perhaps the quintessential axiom of appropriations law as follows:

That means that whenever a use of funds is proposed, the question should be: “What legal authority do I have to make this transaction?”

This is not to say that specific prohibitions do not exist. Congress specifically prohibits hundreds, if not thousands, of kinds of transactions in legislation it passes each year. Agencies must comply with such prohibitions. However, even absent a prohibition, agencies must have some legal authority to obligate and expend federal funds in a specific manner.

3. Who decides how federal funds are to be spent—the President or the Congress?

Congress has the “power of the purse.” Congress appropriates funds and prescribes the conditions governing the use of those funds. This authority stems from the Constitution, most specifically from the so-called Appropriations Clause, the first part of article I, section 9, clause 7, which states:

The Appropriations Clause is the most important tool Congress has to rein in presidential power. Regardless of the nature of the payment—salaries, payments promised under a contract, payments ordered by a court, and so on—a federal agency may not make a payment from the United States Treasury unless Congress has made the funds available.

Thus, it is up to Congress to decide whether to provide funds for a particular program or activity, to put time limits on the use of such funds, and to fix the level of such funding.

The President and agencies do have administrative discretion on the use of funds appropriated by Congress, but such discretion is limited by the restrictions of the law. Thus, agencies are free to operate as they choose so long as they stay within the boundaries established by Congress.

4. How have the federal budget and appropriations processes evolved over time?

The first appropriations act, passed in 1789, illustrates how uncomplicated the process once was. The act contained only 141 words and just four appropriations for a total of $639,000. As the size and scope of the federal government grew, so did the complexity of the appropriations process. ⁵

Until 1842 the calendar year and the government’s fiscal year were identical. From 1842 until 1976, the fiscal year ran from July 1 to the following June 30. Since fiscal year 1977, it has run from October 1 to September 30. ⁶

Appropriations committees first appeared in the House and Senate during the Civil War. These committees took over appropriations duties from the House Ways and Means Committee and Senate Finance Committee. ⁷

Following World War I, Congress passed the Budget and Accounting Act of 1921. ⁸ Prior to 1921 agencies had made individual requests for appropriations. The Act required the President to submit a national budget each year and restricted the authority of agencies to present their own proposals. It also established the Bureau of the Budget (now called the Office of Management and Budget, or OMB) and provided Congress additional oversight capability over fiscal matters by creating the General Accounting Office (now called the Government Accountability Office, or GAO). ⁹

As the federal budget became more complex, it became apparent that Congress was deeply involved in the appropriations process but had little involvement in the budget process. In response to this realization, Congress passed the Congressional Budget Act of 1974. One of the fundamental objectives of the Act was to establish a process through which Congress could systematically consider the total federal budget and determine priorities for allocating budget resources. The Act set up a detailed calendar for the phases of the congressional budget and appropriations processes. It created the House and Senate Budget Committees and the Congressional Budget Office. It was also the law that changed the fiscal year to its current October through September time frame. ¹⁰

5. What are the steps involved in budget and appropriations processes?

GAO describes five phases in the “life cycle” of an appropriation: ¹¹

 Executive budget formulation and transmittal

 Congressional action

 Budget execution and control

 Audit and review

 Account closing.

An overview of the five phases follows.

Executive budget formulation and transmittal. This is a long process, often beginning years before a budget is ready to be submitted to Congress. Agencies, with oversight by OMB, develop estimates to satisfy operational requirements for a given fiscal year. OMB consolidates all the executive branch budgets, along with budgets submitted by the legislative and judicial branches, into the “Budget of the United States Government.” ¹² This is normally called the President’s Budget, and it must be submitted to Congress by the first Monday in February of each year, for the following fiscal year. ¹³

Congressional action. After receiving the President’s Budget, the Congressional Budget Office submits to the House and Senate Budget Committees a report containing its analysis of fiscal policy and budget priorities. The Budget Committees then hold hearings and prepare their versions of a concurrent resolution, which is the overall budget plan against which individual appropriation bills are to be evaluated. Congress then passes a concurrent budget resolution that includes a breakdown for each major budget function. ¹⁴

Meanwhile, the House Appropriations Committee (and its 12 subcommittees) has been studying the appropriation requests and evaluating the performance of the agencies under its purview. Each subcommittee conducts hearings at which federal officials give testimony concerning the costs and achievements of the various programs administered by their agencies and provide detailed justifications for their funding requests. Eventually, each subcommittee reports a single appropriation bill for consideration by the entire committee and then the full House membership. ¹⁵

After individual appropriation bills are passed by the House, they are sent to the Senate. A similar process takes place in the Senate, culminating with passage by the full Senate.

If the House and Senate version are different, which is almost always the case, a conference committee composed of representatives from the House and Senate Appropriations Committees is formed with the purpose of resolving all differences. The conference committee produces a conference report, which must then be passed by the full House and Senate. ¹⁶

Following passage by Congress, the bill, called an “enrolled” bill, is presented to the President for signature. Upon his signature the bill becomes an appropriations act and the appropriations contained therein become “available.” ¹⁷

The Congressional Budget Act envisioned this congressional process to be completed by October 1, the beginning of the fiscal year. ¹⁸

Budget execution and control. During this phase an agency’s task is to spend the money Congress has given it to carry out the objectives of its program legislation. OMB apportions, or distributes, budgeted amounts to the executive branch agencies, thereby making funds in appropriations accounts (held at the Treasury Department) available for obligation. Budget authority is normally apportioned by time periods (quarterly is most common) and is intended to achieve an effective and orderly use of available budget authority and to reduce the need for supplemental or deficiency appropriations. ¹⁹

Each agency then makes allotments of its apportioned authority. An allotment is a delegation of authority to agency officials that allows them to incur obligations. ²⁰

Agency officials then obligate the funds allotted to them to carry out their assigned duties. An obligation is a legally binding agreement between the government and another party that promises payment to the other party in exchange for the provision of needed goods or services. ²¹

Ultimately, payment is made to liquidate obligations. Such payments made to entities external to the federal government are called outlays. ²²

Audit and review. There are a number of audit and review requirements:

 Every federal agency has a responsibility to ensure that its use of public funds complies with appropriations acts and other laws. An internal audit program helps agencies comply with this requirement.

 Ensuring the legality of proposed payments is also a basic responsibility of agency certifying officers.

 The Chief Financial Officers Act of 1990 provides for the preparation and audit of financial statements by the largest agencies.

 Treasury is required to submit an annual financial statement for the executive branch that has been audited by GAO.

 GAO also regularly audits federal programs. ²³

Account closing. At midnight on the last day of an appropriation’s period of availability, the appropriation account expires and is no longer available for incurring new obligations. However, unexpended balances, both obligated and unobligated, retain limited availability for an additional five years. This expired availability is for the purpose of paying obligations incurred prior to the account’s expiration and adjusting obligations that were previously unrecorded or under-recorded. After five years, the expired account is closed and the balances remaining are canceled. ²⁴

6. You mentioned 12 subcommittees each producing an appropriations bill. Does that mean there are only 12 appropriations?

There are 12 appropriations acts each year, but each act contains multiple appropriations. Thus, hundreds of appropriations are contained within the 12 appropriations acts.

The 12 appropriations acts are as follows: ²⁵

 Agriculture

 Commerce/Justice/Science

 Defense

 Energy and Water

 Financial Services

 Homeland Security

 Interior and Environment

 Labor/Health and Human Services/Education

 Legislative Branch

 Military Construction/Veterans Affairs

 State/Foreign Operations

 Transportation/Housing and Urban Development.

Smaller agencies not listed show up in various acts as “Independent and Related Agencies.”

7. Where does GAO fit into the appropriations process?

GAO, part of the legislative branch, was created by the Budget and Accounting Act of 1921. That act abolished the offices of the Comptroller of the Treasury and six Auditors and transferred their functions to the comptroller general, who heads GAO. Among these functions was issuing legal decisions to agency officials concerning the availability and use of appropriated funds. ²⁶

8. Are comptroller general decisions binding on the executive branch?

It depends on whom you ask.

GAO certainly thinks they are binding. Quoting from GAO’s Principles of Federal Appropriations Law: “A decision regarding an account of the government is binding on the executive branch and on the Comptroller General himself, but is not binding on a private party who, if dissatisfied, retains whatever recourse to the courts he would otherwise have had.” Congress clearly intended its decisions to be binding. 31 U.S.C. 3526(d) states that “on settling an account of the Government, the balance certified by the Comptroller General is conclusive on the executive branch of the Government.” ²⁷

The Justice Department Office of Legal Counsel (OLC) disagrees. That office has a “longstanding precedent that GAO’s decisions are not binding on the Executive Branch.” In a 2009 memorandum the Deputy Assistant Attorney General referenced several previous memoranda and OLC decisions on the subject. Among the quotations are the following: ²⁸

The Office of Legal Counsel considers GAO’s assertion that its decisions are binding on the executive branch to be an infringement on the constitutional separation of the executive and legislative branches.

9. What is an agency head or certifying officer to do if GAO and OLC disagree? Whose opinion counts?

Happily, GAO and OLC are in agreement most of the time. In fact, OLC often seeks or references GAO’s opinions. However, when OLC specifically disagrees with GAO and issues its own decision, agency heads need to remember whom they work for—the executive branch. Certifying officers are in a more precarious position. GAO grants or denies relief of liability for all certifying officers, except for the armed forces. Therefore, the safest course of action for such non-armed forces certifying officers is to follow GAO guidance while trying to avoid trouble in their own agency.

10. If an agency ignores GAO decisions, what happens?

The comptroller general has no power to enforce decisions but does have the ear of Congress. Agency officials who act contrary to comptroller general decisions might have to respond to congressional appropriations and program oversight committees. ²⁹ Congress might also pass clarifying legislation reiterating GAO’s position, perhaps including some onerous reporting requirements. Remember that agencies disregard GAO, appropriations committees, and oversight committees at their own peril. The power of the purse is a mighty weapon that Congress is not reluctant to use.

11. How are comptroller general decisions annotated?

Two basic styles of annotation are used. Older decisions that were published in the Decisions of the Comptroller General volumes are cited by volume, page number on which the decision begins, and year; for example, 31 Comp. Gen. 350 (1952). ³⁰ This means you go to volume 31 of the Decisions and open to page 350. Unpublished decisions before 1994 and all decisions thereafter are cited by file number and date. They take the form B-123456, date. Whenever you see a “B” followed by a six-digit number and a date, you know you are looking at a reference to a comptroller general decision.

12. How would someone research a comptroller general decision?

Normally the first place to look is in the relevant chapter of the Redbook, GAO’s Principles of Federal Appropriations Law. Failing that, GAO’s website, www.gao.gov, has a search engine for comptroller general decisions. If you have the reference number, for example, “B-312477, April 15, 2007,” type it into the search engine and the decision will be displayed. If you don’t have the reference number, use the search engine by entering some key words about the topic at hand, and decisions containing those words will be displayed.

13. What other forms of annotation is someone likely to encounter?

In addition to comptroller general decisions, the most common references will be to public laws, the United States Code, and the Code of Federal Regulations.

Public laws are the actual acts passed by Congress. Their annotation takes the form P.L. 109–155. In this example, the 109 represents the number of the Congress that passed the law, and the 155 means this was the 155^th law passed by the 109^th Congress. Each Congress lasts two years, beginning with the first Congress back in 1789–1790. The current Congress is the 112^th Congress (2011–2012).

The United States Code contains an updated compilation of all permanent provisions of public laws previously passed; thus, it is our body of permanent federal law. In congressional parlance, “permanent” means that the provision stays in effect forever, or until some future Congress changes it. Permanent provisions typically contain some words of futurity to indicate that Congress intends them to be permanent; such words include hereafter, thereafter, henceforth, and after the effective date of this act. The United States Code is broken up into 51 titles, or chapters, each dealing with a different aspect of the government. ³¹ For example, Title 5 is about administration and personnel, Title 10 contains laws about the armed forces, and Title 31 is about money and banking. Annotation takes the form of 31 U.S.C. 1341. That means it is section 1341 of Title 31. The section number is merely a placeholder that allows one to find it within the specified title.

The Code of Federal Regulations has a similar form of annotation. For example, 5 CFR 1315 refers to Part 1315 of Title 5 of the Code. Regulations are written by agencies ³² and published as prescribed in the Administrative Procedures Act. There is not a one-to-one correlation between United States Code and Code of Federal Regulations title numbers, so one needs a separate list to determine the content of each of the titles.

APPROPRIATIONS TERMINOLOGY

Budget Authority

14. The terms budget authority and obligation authority are often used as synonyms. Are they the same thing?

There is a difference between the two, but most of the time there won’t be any confusion if the terms are used interchangeably.

Congress finances federal programs and activities by providing budget authority. Budget authority is a general term referring to various forms of authority provided by law to enter into financial obligations that will result in immediate or future outlays of government funds. Budget authority flows from Congress to an agency. Obligation authority, on the other hand, is created when an agency provides an individual the authority to enter into obligations that will result in outlays. Most of the time the dividing line between budget authority and obligation authority is the issuance of an allotment. So an agency receives budget authority from OMB in the form of an apportionment, and the agency then uses an allotment to pass on obligation authority to the responsible funds holder.