AAMC Reporter: January 2009

Overview: The Federal Budget

Editor's note: This is the first in a monthly series of Overviews that will run in the Reporter throughout 2009. Each one will examine a topic of interest to the academic medicine community.

What is the budget?

The United States government budget is a blueprint for federal spending and revenue policies for federal agencies and programs during the next fiscal year. Agencies can only spend federal money once funds are approved by Congress. The Office of Management and Budget oversees the creation of the budget proposals, formulating each line item by evaluating the efficacy of certain federal programs and policies, determining how much funding is available and what the demands on that funding will be, and establishing spending priorities. The president is required by law to submit the budget to Congress by the first Monday in February.

In the 2009 fiscal year (FY), the three largest segments of the budget were defense (22 percent), Social Security (21 percent), and Medicare/Medicaid (20 percent). The Congressional Budget Office (CBO) projected a FY 2009 spending figure of $3.158 trillion. President Obama's FY 2010 budget proposal is expected to exceed this number, although specific figures will be unknown until his budget is released February 2.

How is the budget divided?

There are two main budget categories: mandatory and discretionary spending.

Discretionary spending accounts for approximately 40 percent of all federal spending and must be approved by Congress every year through the appropriations process. This spending category includes funding for programs like defense, education, research, and public health, and includes the budget of the National Institutes of Health (NIH). After reviewing the president's budget proposals, the House and Senate develop a budget resolution, which articulates of congressional priorities for revenues and spending. Then, House and Senate Appropriations Committees decide whether to follow or alter the president's proposals. The Appropriations Committees' 12 subcommittees draft spending bills for a specific topic or group of topics, which must then pass a full congressional vote and be signed into law by the president. If the president vetoes an appropriations bill, Congress can override the veto with a two-thirds majority in each chamber. The House and Senate subcommittees on Labor, Health and Human Services, Education, and Related Agencies determine spending priorities for the NIH and other health care agencies and programs that are funded through the discretionary portion of the budget.

Mandatory spending comprises approximately 60 percent of all federal spending and is generally determined by formulas governing eligibility for federal payments that are established in law. Mandatory spending does not undergo the annual appropriations process; if the government wants to change mandatory funding, it must change the law. Mandatory spending includes items like Social Security, Medicare, and Medicaid.

The budget process often seems to encounter delays. Why?

The short answer is politics. Stalemates between the president and Congress and between political parties can slow progress considerably. For example, for the fiscal year that began Oct. 1, President Bush vowed to veto any spending bill that exceeded the limits set forth in his budget. Rather than accede to the president's demands, congressional Democrats opted to defer final consideration of the spending bills until after the presidential election in the hopes of negotiating with a fellow Democrat.

If an appropriations bill has not been approved before the beginning of the new fiscal year, Congress must pass a continuing resolution, which provides funding at existing or reduced levels. (If a continuing resolution is not passed, the federal government ceases to operate.) Continuing resolutions are common: For FY 2009, nine of the 12 appropriations bills were not passed in time to avoid a continuing resolution. While continuing resolutions allow the Congress and the president to spend more time deliberating, they can disrupt new initiatives and an orderly planning process for both federal agencies and the recipients of federal dollars, including medical schools and teaching hospitals.

Why are government officials concerned with mandatory spending growth, particularly Medicare?

Government officials are concerned that rising Medicare costs will put a great strain on the nation's taxpayers and Medicare beneficiaries. According to CBO estimates, total Medicare expenditures were $454 billion in 2008, and are projected by the CBO to nearly double, to $889 billion, in 2018, which could tamp down growth in other areas of the budget, including those funded through discretionary spending.

Given the economic and political climate, will lawmakers encounter extra difficulty in meeting FY 2010 budget deadlines?

Whenever a new president takes office, there are inevitable delays in the budget release. Although President Obama will submit a budget by the February 2 deadline, the document will likely be an outline of priorities rather than a detailed blueprint for federal programs. A more detailed, nuanced version should be available sometime in the spring. Because nine of the 12 FY 2009 appropriations bills have not yet been signed into law, Congress must spend the early part of 2009 focused on passing these bills.

The first and biggest objective for Congress, however, will be creating a new economic stimulus package. Estimated to carry a price tag of at least $850 billion, the package will be intended to create jobs in various sectors, including public infrastructure, energy, and medical research. Even though most lawmakers acknowledge the need for a stimulus package, they will likely disagree on how to divide these funds.

—By Elissa Fuchs