How Federal Spending Works

The Federal Budget Process

Every year, Congress and the President go through a complex budget process that determines how the federal government spends trillions of dollars. Here's how it works, step by step.

Step 1: The President's Budget Request

Each February, the President submits a budget proposal to Congress. This document outlines spending priorities for the upcoming fiscal year (which starts October 1). It's a starting point — Congress is not required to follow it.

Step 2: Congressional Appropriations

Congress holds hearings, debates, and ultimately passes appropriations bills that authorize specific agencies to spend money. There are 12 annual appropriations bills covering different areas of government.

Step 3: Obligations

Once agencies have their funding, they "obligate" money by entering into contracts, awarding grants, or committing to other spending. An obligation is a legal commitment to pay — the government has promised to spend the money.

Step 4: Outlays

Outlays are the actual cash payments. When a contractor delivers goods and sends an invoice, or when a grant recipient draws down funds, that's an outlay. Outlays can happen weeks, months, or even years after the original obligation.

Key Terms

• --Budget Authority: The legal authority to incur obligations
• --Obligations: Binding commitments to pay (contracts signed, grants awarded)
• --Outlays: Actual cash disbursements
• --Discretionary Spending: Programs funded through annual appropriations
• --Mandatory Spending: Programs like Social Security and Medicare that are funded automatically

Why This Matters

Understanding these distinctions helps you read federal spending data correctly. When USAspending.gov shows "obligations," that means money the government has committed to spend — not necessarily money that has already been paid out.