Discretionary Spending in the United States

Mandatory (or Direct) and discretionary spending

The authority for discretionary spending stems from annual appropriation acts, which are under the control of the House and Senate Appropriations Committees. Most defense, education, and transportation programs, for example, are funded that way, as are a variety of other federal programs and activities. Those appropriations are subject to a set of budget enforcement rules and processes that differ from those that apply to mandatory spending. As the Congress considers appropriation acts, CBO tallies the budget authority those acts would provide and estimates the outlays that would result.

Mandatory—or direct—spending (see more here) includes spending for entitlement programs and certain other payments to people, businesses, and state and local governments.

Legislation

Legislation that affects mandatory spending—unlike that for discretionary spending—is subject to House and Senate points of order (parliamentary objections that legislation violates a certain rule) as well as to procedures specified in the Statutory Pay-As-You-Go (PAYGO) Act of 2010.

Discretionary appropriations are subject to a set of budget enforcement rules and processes that differ from those that apply to mandatory spending. Budgetary points of order and PAYGO procedures do not apply to authorizations for new discretionary programs or to legislation that modifies existing discretionary programs or activities as long as the provisions do not provide or change appropriations; in such cases, for a change in spending to occur, lawmakers must take further action. If they do so, by providing funding through an appropriation act, the spending changes are reflected in the budget estimates for that subsequent piece of legislation. The budget authority provided in appropriation acts is currently subject to caps on spending that were set in the Budget Control Act of 2011, enforceable through a process of across-the-board reductions called sequestration.

Other legislation affect discretionary spending, but not directly. Often, legislation other than an annual appropriation act calls for—or “authorizes”—discretionary spending by extending an agency’s authority to operate an existing discretionary program, by authorizing an agency to undertake a new discretionary program or activity, or by changing the way an existing discretionary program is operated. But even when such authorizing legislation is enacted, those potential changes in spending still depend on future appropriation acts. Thus, unlike provisions that affect mandatory spending, provisions that apply to discretionary programs (other than those in an annual appropriation act) do not, by themselves, affect federal spending or the budget deficit.

Congressional Budget Office Role

The Congressional Budget Office’s cost estimates distinguish mandatory from discretionary spending. The Congressional Budget Office ’s estimates are tools that the Congress can use to implement its budget enforcement procedures, and Congressional rules and statutory procedures related to budget enforcement recognize the fundamental distinction between the two types of spending.

Cost estimates distinguish between the two types of spending. To do so, the Congressional Budget Office uses different terms to describe proposed bills’ effects on funding: Funding for mandatory activities is called budget authority because it allows an agency to make financial commitments that result in federal outlays. In contrast, possible future changes in appropriations for discretionary programs are labeled authorization levels because the amount of any resulting financial commitments will depend on actions by the House or Senate Appropriations Committees. Cost estimates also show the Congressional Budget Office’s estimate of the outlays that would result from that budget authority or from future appropriations that are consistent with such authorization levels.

Budgetary effects

A key element in every the Congressional Budget Office cost estimate is the benchmark—the amount of spending that CBO estimates will occur under current law—against which the estimated changes in spending are measured. In the case of mandatory spending, the benchmark is current law, as reflected in CBO’s baseline, which is CBO’s projection of government spending for the current year and the next decade. (Most mandatory programs continue automatically throughout the 10-year baseline period.)

For discretionary programs the benchmark is also current law, which in this case consists of enacted appropriations for the current year and any amounts appropriated or authorized to be appropriated in the future. Most programs have no authorization after the current year, and lawmakers ordinarily do not provide appropriations beyond the current year. (Thus, a bill that would extend the authorization for an existing discretionary program for another year would be shown as having a cost in that year, even if the authorized funding is the same as the current year’s appropriation.)

The Congressional Budget Office’s baseline generally is not the basis for cost estimates involving discretionary programs because the baseline projections for individual discretionary programs incorporate the assumption that appropriations will continue in future years to provide amounts equal to current-year appropriations, adjusted for anticipated inflation. (the Congressional Budget Office’s overall baseline projections for discretionary spending are constrained by separate caps on aggregate defense and nondefense spending.) However, because those projections are based on assumptions about future appropriations, they do not constitute the current-law benchmark used to measure the cost of legislation that authorizes discretionary programs.

Discretionary spending authorization

Authorizing bills can indicate potential effects on future appropriations with varying degrees of specificity. Some bills, which would extend the authority to operate an existing program, or authorize a new program, name specific amounts that may be appropriated to carry out that program’s activities. Other bills authorize the appropriation of “such sums as may be necessary” to carry out the program’s activities. And still others set forth programmatic directions that require an agency to undertake new activities but that do not explicitly authorize appropriations for those purposes.

Cost estimates address those authorizations. In each instance, the Congressional Budget Office estimates authorized funding—the amount (if any) specified in the bill or the funding that would be necessary to implement the bill’s directions (under the assumption that appropriations will be made in the future). The Congressional Budget Office also estimates the outlays that would result if subsequent appropriations were provided in the amount specifically authorized or estimated to be necessary.

Spending Power

There is an entry devoted to the spending powers in this legal Encyclopedia here.

Presidential Spending Power

According to the Encyclopedia of the American Constitution, the Constitution assigns to Congress the exclusive power to authorize spending. Article I, section 9, prohibits money being drawn from the Treasury “but in Consequence of Appropriations made by law.” Nevertheless, the power of the purse is shared with the President. Read more about the Presidential Spending Power by clicking here.