What’s Going On With the Federal Budget? A Review of the Basics with a Focus on Housing and Economic Development Programs

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What’s Going On With the Federal Budget? A Review of the Basics with a Focus on Housing and Economic Development Programs

By Maureen Berner

Published October 15, 2013

Congress and the White House are in the midst of budget negotiations, making it a good time to review federal budget basics so community and economic development professionals will understand how different streams of funding are affected.  This post is a quick ‘Federal Budget Process 101’ as it relates to the current issues in the news, and it highlights a few affected programs of relevance to community economic development professionals.

This year’s shutdown is referred to as a “partial” shutdown. The reason the shutdown is only “partial” results from how the budget is constructed.

The federal budget is made up of two kinds of spending—mandatory spending and discretionary spending.  Mandatory spending is everything that is legally on ‘auto-pilot,’ including most entitlements such as Social Security, Medicare, and Medicaid.  By law, anyone who meets the statutory eligibility standards for these programs is “entitled” to receive aid.  Costs come from who enrolls and what the needs are – we do not limit the amount of funds we will spend for these programs each year, but just pay the bills for services used.  Mandatory spending also includes paying interest on our debt – also not something we can choose to pay for or not each year.   Mandatory spending is not directly affected by the government shutdown because the spending for the benefits was authorized by legislation many years ago.  Mandatory spending comprises two-thirds of the total budget.

The current confrontation around the federal budget primarily affects discretionary spending.  This spending, which is included in 12 annual appropriation bills, funds everything else the government does, including Head Start, weather forecasting, data gathering and reporting, research, defense, the national parks, foreign aid, and many, many other individual programs covering public needs.

These 12 appropriation bills must be passed each year.   In the past when there has been a political disagreement over the details in any of the bills, Congress and the President have typically agreed to temporarily continue spending at the previous year’s level through a law called a continuing resolution.  This gives the politicians time to hammer out an agreement without funding stopping cold at the end of the fiscal year (September 30).   In the last government shutdown, Congress and the President agreed on some of the annual appropriations bills, but not on others. On those where there was disagreement, Congress refused to allow continuing resolutions, so funding stopped on October 1, and a shutdown happened.  Most, but not all, departments and programs were affected.

However, this year, Congress has not passed a continuing resolution for any of the 12 appropriations bills, so no discretionary program has authority to spend any money.  In addition, the 12 appropriation bills include operating funds for running many of the mandatory programs.   The benefits are funded, but perhaps not the staff to actually cut the checks.  So even through discretionary spending is only one-third of the annual federal budget, the shutdown is affecting almost all federal programs in one way or another.

Housing programs offer some good examples of how some programs function but in a limited way during the shutdown.  According to the National Associations of Homebuilders, most FHA insured projects continue to go forward, but new commitments may be hampered.  Authorized spending from FY2013 or earlier for programs such as CDBG, HOME and related programs will still be available, unless some action for funding drawdown is needed by a HUD employee.   Permits requests for the Fish and Wildlife Service from businesses will not be processed.  The E-verify system allowing businesses to check on the status of employees is unavailable  Most rural development programs are not running.   Government reports of economic data are not being prepared or released.  In essence, any function that relies on an employee or contractor at a federal department will be slow or stopped until either the relevant appropriations bill or a continuing resolution is passed.    For example, for Rural Housing programs in the U.S. Department of Agriculture, essential personnel working during a shutdown do not include field office staff who typically issue conditional commitments, loan note guarantees, and modification approvals. Thus, lenders will not receive approvals during the shutdown.

Maureen Berner is a School of Government faculty member. Early in her career, she worked on federal budget policy for the U.S. Government Accountability Office and the U.S. House of Representatives Budget Committee.