Budget Issues: Key Questions to Consider When Evaluating Balances in Federal Accounts
Published: 2013-09-30T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Given the fiscal pressures facing the nation, examination of balances carried forward into future fiscal years (carryover balances) provides an opportunity to identify areas where the federal government can improve and maximize the use of resources. GAO was asked to review issues related to federal carryover balances. GAO's objectives were to (1) identify key questions for congressional committees, managers, and other reviewers to consider when evaluating carryover balances, including whether to reduce them, and (2) describe how answering these key questions provides insight into why carryover balances may exist in selected accounts.
GAO reviewed carryover balances from fiscal years 2007 through 2012 in eight selected accounts from the Departments of Defense (DOD), Health and Human Services (HHS), Housing and Urban Development (HUD), and Treasury. Account selection was based on several characteristics, including the average size of the balance, budget function, type of account, agency, and whether the account was composed of mandatory or discretionary funds.
GAO is not making any recommendations. DOD, HHS, HUD, and Treasury generally agreed with our findings and provided technical comments that were incorporated as appropriate. HHS provided comments stating that conclusions drawn from the report may not apply across the board to all accounts.
section_title: What GAO Found
paragraphs: Carryover balances in fiscal year 2012 were $2.2 trillion, of which about $800 billion had not yet been obligated. Answering key questions during review of carryover balances provides insights into why a balance exists, what size balance is appropriate, and what opportunities (if any) for savings exist. Given that a single account may support a single program or multiple programs--or that multiple accounts may support a single program--these questions can be applied when evaluating balances at either the account or program level. Examination of balances may assist decision makers in identifying opportunities to achieve budgetary savings or redirecting resources to other priorities. However, the complexity of the federal budget is such that a case-by-case analysis is needed to understand how best to achieve these financial benefits.
What mission and goals is the account or program supporting? Understanding the mission activities, goals, and programs the account supports provides information about whether a program needs to maintain a balance to operate smoothly, what size balance is appropriate, and whether opportunities for savings exist. Accounts GAO reviewed maintained balances to support activities such as long-term acquisition of military aircraft and public health emergency preparedness.
What are the sources and fiscal characteristics of the funding? The sources and fiscal characteristics of the funding present different issues in changing the size of carryover balances. Accounts such as Treasury's Exchange Stabilization Fund, receive "such sums as may be necessary" and may require programmatic changes to effectively reduce balances. In such cases, simply reducing balances may have no economic benefit and could impose unnecessary administrative costs. If funds are discretionary, such as with HUD's Homeless Assistance Grants, balances can be controlled through appropriations acts.
What factors affect the size or composition of the carryover balances? Understanding factors within and outside an agency's control that affect its "spendout rate" provides insight to the composition of the carryover balance as a whole. Funds in accounts that support activities such as certain procurement or disaster relief may be obligated fairly quickly, but are expended over a longer period as milestones are met or as grantees draw down funds. Accounts with quick spendout rates, such as those that provide cash payments to government-sponsored enterprises, disburse funds soon after obligation.
How does the agency estimate and manage carryover balances? Understanding an agency's processes for estimating and managing balances provides information to assess how effectively agencies anticipate program needs and ensure the most efficient use of resources. For the mandatory accounts GAO reviewed, such as the Federal Housing Administration's Mutual Mortgage Insurance Capital Reserve account, agencies focused on future needs of the account and relied on economic indicators and historical trends to estimate future balances. For discretionary accounts GAO reviewed, such as the U.S. Army Corps of Engineers' Construction account, agencies used historical data combined with current variables to estimate carryover balances.

section_title: Letter
paragraphs: Given the fiscal pressures facing the nation, the need to identify  opportunities for savings, find ways to better leverage resources, and  increase accountability has become even more critical to the success of  federal agencies and the programs they administer. Congress needs  pertinent and reliable information to adequately assess agencies’  progress and to ensure accountability for results. One area that managers  and other decision makers look to when seeking potential savings are  carryover balances: balances in individual agency accounts that are  carried forward into future fiscal years. Carryover balances amounted to  $2.2 trillion in fiscal year 2012, of which almost $800 billion had not yet  been obligated. Examination of these balances may assist decision  makers in identifying opportunities to achieve budgetary savings or in  redirecting resources toward other priorities. However, the complexity of  the federal budget is such that a case-by-case analysis is needed to  understand how best to achieve these financial benefits.
You asked us to review the size and management of carryover balances  in various types of appropriations accounts. Our objectives were to: (1)  identify key questions to consider when evaluating carryover balances,  including whether to reduce them, and (2) describe how answering these  key questions provides insight into why carryover balances existed in  selected accounts during fiscal years 2007 through 2012, and how  agencies estimated and managed these balances. In addition, we  analyzed the size and composition of carryover balances in the federal  budget from fiscal years 2007 through 2012. This information is provided  in appendix I.
subsections: section_title: Background
paragraphs: Although federal funding may be available to obligate for one-year,  multiple years, or until expended (no-year), only accounts with multi-year  or no-year funds may carry over amounts that remain legally available for  new obligations from one fiscal year to the next. Carryover balances are  composed of two elements: (1) unobligated funds and (2) obligated funds  for which payment has not yet been made. While attention is focused on  the unobligated portion, looking at both elements provides a fuller  reflection of what is happening in an account. It also provides insights into  opportunities for potential budgetary savings.
Federal spending is categorized as “discretionary” or “mandatory.” This  distinction refers to the way budget authority is provided. Discretionary  spending is controlled through annual appropriations acts (plus in some  cases supplemental appropriations acts), which may provide multi-year or  no-year funds. Under certain legal authorities, some discretionary  accounts are funded entirely, or in part, through the collection of user  fees, interagency transactions, or dedicated excise taxes. Specifically, the  level of discretionary funding in an account is provided by, and controlled  through, the annual appropriations process.
In contrast, mandatory spending accounts, which include “entitlements,”  receive budget authority through laws other than appropriations acts.  Many mandatory programs receive budget authority for an unspecified  amount made available as the result of previously enacted legislation,  with no need for further legislative action. For example, Medicare,  veterans’ pensions, Social Security, and federal crop insurance are  mandatory programs. By statute, funding to these programs is driven by  eligibility rules and benefit formulas, which means that funds are made  available as needed to provide benefits to those who are eligible and wish  to participate. Over the last several years, mandatory accounts have  represented an increasing share of total unobligated balances across the  federal government.
Figure 1 shows how budget authority is provided and how authorized  funds may accumulate, ultimately leading to a carryover balance.
In any given year, the total budgetary resources available in an account  consist of unobligated funds carried forward from previous years, if  applicable, plus funds newly available for obligation in that fiscal year.  Based on the level of total available budget authority in the account,  agencies may then obligate funds throughout the fiscal year. An  obligation is a definite commitment that creates a legal liability of the  federal government for the payment of goods and services. For example,  an agency incurs an obligation when it places an order, signs a contract,  awards a grant or purchases a service. Payment may be made  immediately or in the future. Only when funds are actually disbursed for  payment—that is, the obligation is liquidated—does an obligation become  an outlay. The total carryover balance in a given account consists of two  parts:
Obligated balance: the amount of funds which have been obligated  but for which payment (outlay) has not yet been made; these funds  are obligated but unliquidated.
Unobligated balance: the amount of funds still legally available for  obligation that have not yet been obligated.
The two components represent different phases of budget execution and  present different opportunities for budgetary savings.
For a detailed glossary of budget terms, see appendix V.
section_title: Objectives, Scope, and Methodology
paragraphs: For our first objective, to identify key questions to consider when  evaluating balances, we identified common themes and factors that  generally contribute to fluctuations in carryover balances.the list of questions from our analysis of government-wide guidance on  budget preparation, budget execution, and internal controls. In addition,  we met with federal budget specialists, agency officials responsible for  managing the eight accounts selected as part of our second objective,  and staff within the Office of Management and Budget (OMB) to obtain  their views on the use of these questions to guide the examination of  carryover balances. All agreed that the questions were reasonable. Our   We developed  prior work on federal budgeting, user fees, budget triggers, and managing  under continuing resolutions also informed the development of the key  questions.
Our second objective was to describe how answering these key questions  provides information about why carryover balances were reported in  selected accounts during fiscal years 2007 through 2012, and how  agencies estimated and managed these balances. To do this, we  selected a nongeneralizable sample of eight accounts with multi-year or  no-year funds to use as case illustrations. To start our selection process,  we collected and compared end-of-year actual unexpired unobligated  balances plus obligated balances for which payment had not yet been  made. We queried this data from OMB’s MAX database for all accounts in  the federal budget for fiscal years 2007 through 2012. We found the data  to be sufficiently reliable for the purpose of our report. We identified the  100 accounts with the largest average unobligated balance during fiscal  years 2007 through 2012.eight accounts representing a variety of characteristics, including the size  of the average unobligated balance, budget function, type of account,  agency, and whether the account was composed of mandatory funds,  discretionary funds, or a combination of both. We reviewed the selected  agencies’ estimates as they were reported in the President’s Budget  Appendices for fiscal years 2007 through 2012. Table 1 lists the selected  accounts. For the purpose of this report, we did not seek to identify  specific savings related to the selected accounts.
section_title: Four Key Questions to Consider When Evaluating Carryover Balances
paragraphs: To assist congressional and agency-level decision makers as well as  other reviewers in their evaluation of agencies’ carryover balances, we  identified four overarching key questions to consider:
What mission and goals is the account or program supporting?
What are the sources and fiscal characteristics of the funding?
What factors affect the size or composition of the carryover balance?
How does the agency estimate and manage carryover balances?
Each of the four key questions leads to a set of second-tier, more specific  questions that can help frame the analysis of carryover balances.  Answering each of the four overarching questions and their second-tier  questions provides insight into why a carryover balance exists, what size  balance is appropriate, and what opportunities, if any, for savings exist. In  addition, it may provide opportunities for enhanced oversight of agencies’  management of federal funds and identify areas where the federal  government can improve and maximize its use of resources. These  questions can be applied when evaluating carryover balances at either  the account or program level. A single account may support a single  program or multiple programs. Conversely, a single program may be  supported by multiple accounts. Further, the balance in a single year may  reflect events particular to that year and so present an incomplete or  possibly misleading view of what is happening in a given account or  program over time. Therefore, a longer view is preferable.
Since the many accounts that make up the federal budget vary greatly  and individual accounts have their own unique characteristics, we do not  suggest that the following set of questions represents all the questions  that could be considered when evaluating carryover balances. As  congressional committees, managers, and other reviewers apply these  evaluative questions, additional questions may arise. In some cases,  however, a few of the questions may provide sufficient information to  understand the nature of the balance. The following sections discuss the  questions in more detail. In addition, all of the questions are presented as  an evaluative guide in appendix II.
subsections: section_title: What Mission and Goals Is the Account or Program Supporting?
paragraphs: Understanding the mission activities, goals, and programs the account  supports provides information about whether a program needs to  maintain a balance to operate smoothly, what size balance is appropriate,  and whether opportunities for savings exist. Such context can inform  assessments of whether, and how, to reduce carryover balances and  what effect a reduction would have on the agency’s ability to carry out its  mission. For example, an account established to provide stability in the  financial or housing market needs a balance to ensure the agency has  sufficient resources to respond quickly to adverse events. Similarly, we  have previously reported on agency intragovernmental revolving funds for  which a balance is needed to maintain price stability for customer  agencies or to ensure that the providing agency has funding available to  complete services or work being performed for customer agencies that  cross fiscal years.
Examples of specific questions to understand how the mission affects balances  include
What are the primary mission and goals the account or program is intended to  achieve?
What is the nature and purpose of the balance and how does it support the  mission and goals (e.g., counter economic crisis, sustain business-like activities,  emergency funding needs)?
Have there been changes to the program or mission that may affect balances  (e.g., additional responsibilities, major reorganization)?
What type of activity (e.g., grants, procurement, direct services) is the account  used for to achieve the agency’s mission and goals? What are the implications   of carryover balances?
What programs are funded by the account and how much does each contribute,   if at all, to the carryover balance (i.e., does a large portion of the balance result  from any particular programs)?  Is it a new account or program or have the program goals and objectives  changed? How has this affected the agency’s ability to obligate funds?
section_title: What Are the Sources and Fiscal Characteristics of the Funding?
paragraphs: The sources and fiscal characteristics of the funding influence what  opportunities may exist for budgetary savings. Discretionary and  mandatory funds present different issues in changing the size of any  balance. Since discretionary accounts are controlled by the annual  appropriations process, the size of any carryover balance can also be  controlled through that process. Mandatory funding is budget authority  provided in laws other than appropriations acts, such as authorizing acts.  In such cases, to change or reduce the size of carryover balances,  changes need to be made to authorizing language affecting program or  eligibility requirements, for example. Moreover, since mandatory funds  are often provided in “such sums as may be necessary” to make  payments to those eligible, reducing the balance in such an account may  have no practical or economic benefit and instead could impose  unnecessary administrative costs. In other words, the action or effort to  rescind a portion of mandatory balances would be countered by the  action or effort to restore those funds because individuals are entitled to  payments.
The time limits imposed upon the funds (period of availability for new  obligation) are important to evaluating carryover balances. If an account  receives multi-year or no-year appropriations, some accounts or  programs should be expected to have carryover balances. Similarly, if an  account receives multi-year supplemental appropriations late in the fiscal  year or for long-term projects, there is an increased likelihood, and  perhaps expectation, for a carryover balance in the account.  Nevertheless, a growing carryover balance over a number of years may  indicate challenges in executing a program as planned.
Accounts that receive funding primarily from outside sources, such as  fees, have their own unique considerations. For example, an account that  is fully funded through user fees that are available without further  Congressional action may retain an unobligated balance to mitigate  cyclical changes in fee revenue, thereby increasing assurance that  sufficient funds will be available to support related mission activities. We  are separately reporting on agencies’ management of user fees and the  identification and management of unobligated balances in fee-funded  agencies.
Examples of specific questions to understand how the sources and fiscal  characteristics of the funding affect balances include
Are the account or program funds mandatory, discretionary, or a combination of  both?
In accounts or programs that receive both mandatory and discretionary  funds, what portion of each are unobligated each year?
What is the expected period over which funds will be obligated and liquidated   (i.e., multiple years versus single year)?
If multiple years, what drives the timing of the obligation and liquidation of  funds (e.g., contract award period, grant cycle)?
Did the account receive supplemental appropriations?
If so, when were the supplemental appropriations acts enacted? How much  of the balance is attributed to supplemental appropriations?
To what extent is the activity funded by fees or dedicated taxes versus general  revenues?   o  Does the account or program have the authority to use the fees or taxes  without additional congressional action?
section_title: What Factors Affect the Size or Composition of the Carryover Balance?
paragraphs: Some factors are within an agency’s control and some are not. The rate  at which obligations are incurred and subsequently liquidated in a fiscal  year—that is, the rate at which budget authority becomes outlays—can  vary with the nature of the activity. Understanding what drives this  “spendout rate” provides information on the size of the unobligated  portion of the balance versus the obligated portion; this in turn provides  insight into the composition of the carryover balance as a whole. For  example, for an account that funds procurement or grant activities, if the  timing of the procurement cycle or grant award cycle differs from the fiscal  year, the account is likely to have a slower spendout rate. As a result, the  account may have a larger share of unobligated funds reported at the end  of the fiscal year, which are then quickly obligated early in the following  fiscal year. Alternatively, it could have a large obligated portion of the  balance, which is expended over time.
External events beyond agencies’ control—such as natural disasters or  economic crises—can dramatically affect carryover balances. For  example, if an agency receives a sudden inflow of funds late in the fiscal  year from an emergency supplemental appropriation, the size of the  unobligated balance carried forward to the next fiscal year may be greater  than otherwise estimated.
Examples of specific questions to understand what affects the size and  composition of balances include
How has the account’s balance changed over time?  How has the composition of  the carryover balance (i.e., the unobligated and obligated portions) changed over  time?  o  Has the agency’s rate of obligation significantly slowed or increased as a  result of certain factors (e.g., application or review periods, regulatory  issuance)?
What portion of unobligated funds has the agency labeled as committed for  specific uses?
What conditions or external events have occurred outside the agency’s control  (e.g., events that led to changes in program demand)?  o  Were there any changes to accounting, regulatory, or statutory requirements  related to the account’s balance (e.g., bid protests, receipt of supplemental  appropriations, continuing resolutions)?
Are there questions about the agency’s ability or capacity to carry out the program  due to previously reported weaknesses (e.g., excessive risks, poor performance,  unmet objectives)?
Are interim milestones being met to ensure projects are carried out on schedule?   o  Are there known production issues that could lead to delays?
What opportunities exist to deobligate unliquidated balances (e.g., up-front  obligations to contractors, grants to states)?
section_title: How Does the Agency Estimate and Manage Carryover Balances?
paragraphs: Understanding an agency’s processes for estimating and managing  carryover balances provides information to assess how effectively  agencies anticipate program needs and ensure the most efficient use of  resources. If an agency does not have a robust strategy in place to  manage carryover balances, or is unable to adequately explain or support  the reported carryover balance, then a more in-depth review is warranted.  In those cases, balances may either fall too low to efficiently manage  operations or rise to unnecessarily high levels, producing potential  opportunities for those funds to be used more efficiently elsewhere.
Examples of specific questions to understand how agency estimation and  management practices affect balances include
What assumptions or factors did the agency incorporate into its estimate of the  account’s carryover balance (e.g., historical experience, demand models)?
To what extent and how often does the agency revisit or adjust estimates of  unobligated balances to reflect historical data or other information?
Does the agency have a routine mechanism for reviewing its obligations and  determining whether there are opportunities to deobligate funds (e.g., written  procedures or ad hoc processes)?
What is the agency’s timeline for obligating and expending funds in the account?  o  Does the agency or program tend to under-execute its budget?  o  What is the spendout rate after funds have been obligated?
Has the agency followed its own procedures for ensuring fiscally responsible  management of balances?
section_title: Selected Agencies Managed Balances According to Mission, Funding, Operations, and Estimated Demand for Services
paragraphs: To provide context and perspective in terms of an individual account or  program, we selected a nongeneralizable sample of eight accounts and  conducted further analysis of their carryover balances (see table 2). Our  analysis is framed in the context of the four key overarching questions  presented in the previous section. For the purpose of this report, we did  not seek to identify specific savings related to the selected accounts.  Detailed information on our analysis of each of the eight accounts is  presented in appendix III.
The accounts in our review contained carryover balances so that they  could support the agency’s ability to carry out its mission. The eight  accounts we reviewed received multi-year or no-year funds and  supported a wide variety of missions, such as homeless assistance,  aquatic ecosystem restoration, disaster recovery, financial market  stability, and military readiness. Accordingly, the specific types of  activities funded through the accounts varied as well, including  construction projects, procurement, grants, and emergency  preparedness. Over the fiscal year 2007 through 2012 period, each of  the accounts had a carryover balance that was tied to the manner in  which the agency went about fulfilling its related mission responsibilities.
For example, the Mutual Mortgage Insurance Capital Reserve account  maintains a balance for unexpected insurance claim expenses and was  established to hold reserve funds to meet Federal Housing  Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund)  statutory capital reserve requirement. Under the MMI Fund, FHA insures  a variety of mortgages for home purchases and refinancing to meet the  housing needs of traditionally underserved borrowers. balance in the capital reserve account is composed entirely of  unobligated funds and is affected by changes in the anticipated  performance of FHA-insured mortgages. Consequently, the housing crisis  that started in 2007 had a significant effect on the size of the account’s  unobligated balance. During the housing crisis, the balance was drawn  down as more pessimistic forecasts of economic conditions—house  prices, in particular—resulted in higher projected insurance claims. In  fiscal year 2007, the unobligated balance was approximately $21 billion,  but the balance had decreased to $3.3 billion by fiscal year 2012.
FHA also insures reverse mortgages that permit persons 62 and older to convert their  home equity into cash advances. that the Department of the Treasury (Treasury) has the authority to  transfer sums as needed to the GSEs to ensure their positive net worth;  that is, when the two GSEs’ liabilities exceed assets. Such payments are  made on a quarterly basis if needed and decrease the account balance  accordingly. Created in 2008, the account’s unobligated balance peaked  in 2009 at $304 billion, after Congress authorized an increase to the  allowable funding commitment Treasury could provide to the GSEs.  Subsequently, the balance gradually declined through 2012.
subsections: section_title: Sources and Fiscal Characteristics of Funding Affected Timing and Use of Balances
paragraphs: The sources of funding and their fiscal characteristics across our sample  of accounts varied. Three accounts were made up of solely mandatory  amounts, four consisted solely of discretionary funds, and one account  was split: it had a combination of both mandatory and discretionary funds.  Accounts in our review that received discretionary funds were funded by  annual appropriations and supplemental appropriations. The period of  availability of funds included multi-year and no-year money provided  through annual or supplemental appropriations, or both.
The sources and fiscal characteristics of funding for an account or  program affect the timing of when funds are obligated and disbursed, and  provide insight into why amounts may be carried forward from one fiscal  year to the next. For example, in some cases where an account received  supplemental appropriations, the level of carryover funds was significantly  affected by the timing of that supplemental appropriation. For example,  the Community Development Fund (CDF) account, which primarily  supports the Community Development Block Grant (CDBG) program,  received a large supplemental appropriation on September 30, 2008, to  provide disaster relief to areas affected by hurricanes, floods, and other  natural disasters. The receipt of supplemental funds at the end of the  fiscal year caused a significant spike in the account’s carryover balance  for that year.
Additionally, the timing of final appropriations decisions had a significant  effect on the size of unobligated balances in certain accounts. When  continuing resolutions (CR) are enacted in lieu of annual appropriations  bills, it creates uncertainty about both the timing and level of funding that  ultimately will be available. For example, agencies are directed to operate  at a conservative rate of spending while CRs are in effect, thus  compressing the time period to obligate funds once final appropriations  decisions are made. We have previously reported that this also limits an  agency’s management options. In addition to affecting the rate of  obligations, agencies may be uncertain how Congress will ultimately  choose to direct funds until final appropriations decisions are made. For  example, the U.S. Army Corps of Engineers develops and presents  construction plans for specific projects as part of its annual budget  request. Corps officials reported that in some cases, committee reports  accompanying appropriations acts included language directing the Corps  to carry out additional construction projects than those which already had  work plans developed. Consequently, Corps officials said obligating the  funds to support these additional priorities was delayed while they  developed the necessary work plans.
section_title: Agency Operations Affected the Size and Composition of Carryover Balances
paragraphs: For each of the accounts in our review, the way an agency or program  operates affected the size and composition of carryover balances. During  fiscal years 2007 through 2012, the size of the carryover balances in each  of the eight accounts we reviewed ranged from a low of $2.5 billion in the  U.S. Army Corps of Engineers-Civil Works Construction account to $304  billion in Treasury’s GSE Preferred Stock Purchase Agreements account.  Depending on the needs of the program and the way the agency  managed the funding, the portion of the carryover balance attributed to  unobligated versus obligated also varied across the eight accounts. For  example, the GSE purchase agreement account, which was created in  2008, had a large unobligated balance and no obligated balance. The  account made direct quarterly payments to Fannie Mae and Freddie Mac  as needed. The spendout rate was very quick—that is, funds were  disbursed soon after obligation—which resulted in the agency reporting  no obligated balance in the account by year end. Accordingly, the  remaining unobligated balance represents the cash balance in the  account.
In contrast, the carryover balance in Army’s Aircraft Procurement account  was largely made up of unliquidated obligations. This was due, in part, to  the nature of the procurement cycle, which results in a slower spendout  rate. As the agency entered into a contract, funds were obligated up front  to reflect the government’s liability. However, funds were disbursed only  as work was completed according to the terms of the contract.
In the case of the grant accounts we reviewed, the size of the carryover  balance depended on the particular grant cycle. For example, the  carryover balance in the Department of Housing and Urban  Development’s (HUD) Homeless Assistance Grants account contained a  relatively smaller portion of unobligated funds compared to obligated  funds. The unobligated balance resulted from the timing of the grant  award process, which is done on a calendar year rather than fiscal year  basis. Consequently, while a portion of funds are unobligated at the end  of the fiscal year, the agency plans to award grants at a later date during  the current or next calendar year, likely during a new fiscal year, at which  point the available multi-year funds will be obligated. The size of the  obligated but unliquidated balance depends on the rate at which the  grantees draw down, or spend, the funds.
Some accounts experienced a dramatic spike in their balances while  others remained relatively steady. For example, when the Exchange  Stabilization Fund (ESF) received almost $50 billion in allocations from  the International Monetary Fund (IMF) over a one-month period late in  fiscal year 2009, the unobligated balance spiked. Treasury officials said  the new allocations were an important element of the response to the  global economic crisis. In addition, beginning in fiscal year 2010, the size  of the obligated portion of the balance in the account grew dramatically  after Treasury implemented a budgetary reporting change that resulted in  significant adjustments to ESF account balances for fiscal years 2010  through 2012.
section_title: Estimation and Management of Carryover Balances Differed between Mandatory and Discretionary Accounts
paragraphs: The methods by which agencies in our sample estimated future carryover  balances depended, in part, on whether the account was mandatory or  discretionary. In the case of mandatory accounts, agencies focused on  future needs of the account and relied on economic indicators as well as  historical trends to estimate future balances of the account, including  carryover balances. For example, budget-year estimates of carryover  balances in the GSE Preferred Stock Purchase Agreements account are  derived from the projected draws—payments to the two GSEs—from year  to year. To do this, Treasury annually prepares a series of long-range  forecasts to determine the estimated amount of contingent liability to the  GSEs under the purchase agreements. Based on the size of the  projected payments, Treasury estimates the amount of budget authority  that will be carried over into the next fiscal year.
Similarly, estimated future carryover balances for the Exchange  Stabilization Fund (ESF) represent projected net interest earnings on  investments. The estimates are subject to considerable variation,  depending on changes in the amount and composition of assets and the  interest rates applied to investments.
Among the eight accounts we reviewed, the discretionary accounts used  historical data combined with current variables to estimate carryover  balances. For example, when estimating the carryover amounts in HUD’s  Homeless Assistance Grants (HAG) account, officials said they look at  the composition of the balance over recent years, including factors such  as historical rates of obligations and outlays. Additionally, officials  estimate balances based on experience of which programs are likely to  request renewals. Estimating the use of the program based on historical  trends helps officials estimate both the unobligated and obligated portion  of carryover balances.
section_title: Concluding Observations
paragraphs: Given the fiscal pressures facing the nation, examination of carryover  balances provides an opportunity for enhanced oversight of agencies’  management of federal funds. It also may help identify areas where the  federal government can improve and maximize the use of resources. The  increase in the size of total end-of-year carryover balances across the  federal government between fiscal years 2007 through 2012 may raise  questions. Is the balance in an account or program appropriate? Does an  account or program with a significant or growing balance need these  funds? Do the balances indicate there are opportunities to reduce or  rescind balances and direct those resources towards other programs or  priorities?
There is no single answer to these questions—they depend on the  characteristics of the specific account or program in question. The answer  requires an analysis of the mission, funding, composition, and agency  management of carryover balances. Understanding the mission activities  and goals supported by the account or program in question enhances the  ability of decision makers and reviewers to see the trade-offs or risks  involved in deciding to reduce a carryover balance and the consequential  effect on the agency’s ability to achieve its mission. Understanding the  details of the fiscal characteristics and source of funding for the account  or program can highlight the boundaries where real savings opportunities  exist versus those that would have no real economic benefit.
Careful examination can also provide information about changes in  factors affecting budget execution in the relevant area. Not all factors  affecting the size and composition of balances are within an agency’s  control. Nevertheless, taking into consideration the agency’s processes  for estimating carryover balances and its ability to effectively manage  balances throughout the year can draw attention to good practices as well  as areas where execution could be improved. Given the complex  characteristics of the various accounts and programs that constitute the  federal budget, the most effective way to identify real opportunities for  savings from carryover balances is to analyze them on an account-by- account or program-by-program basis.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Secretaries of Defense, Health  and Human Services, Housing and Urban Development, and the  Treasury for review and comment. All four departments generally agreed  with our findings and provided technical comments that were incorporated  as appropriate. HHS provided comments that are discussed below and  reprinted in appendix IV.
The comments submitted by the HHS Assistant Secretary for Legislation  stressed the need to recognize that our audit focused on a select number  of federal accounts, which may or may not be representative of all  government accounts with carryover balances. Furthermore, HHS said  that any conclusions drawn from the report may not apply across the  board to all accounts with multi-year or no-year funds. As stated in  multiple sections of our report, including the objectives, scope, and  methodology section, we selected a nongeneralizable sample of eight  accounts with multi-year or no-year funds to use as case illustrations to  answer the four key overarching questions we identified in this report. Our  draft report called attention to the varied and unique characteristics  among the many accounts that make up the federal budget and the need  to analyze balances on an account-by-account or program-by-program  basis. Furthermore, we state that the list of evaluative questions we  identified is not intended to represent all of the questions that could be  considered when evaluating carryover balances.
HHS emphasized that the Public Health and Social Services Emergency  Fund has complexities and authorities that may differ from other federal  accounts. The agency stated that looking at trends over time in an  account may not be the correct approach to overcome these complexities  when trying to determine spend rates or reasons for fluctuations in spend  rates. As noted above, multiple sections of the report cite the variety and  uniqueness of the many accounts in the federal budget. Furthermore, as  stated in the report, we deliberately chose a selection of accounts  representing a variety of characteristics to give a sense of the range of  issues that may be involved when evaluating carryover balances. We also  emphasize that reviewing the carryover balance in an account for just a  single year may reflect events particular to that year and so present an  incomplete or possibly misleading view of what is happening in a given  account or program. We still consider a longer view—that is, reviewing  balances over multiple years—to be the more preferable approach.
We are sending copies of this report to the Secretaries of Defense, Health  and Human Services, Housing and Urban Development, and the  Treasury. We are also sending copies of this report to relevant  congressional committees. In addition, the report is available at no charge  on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Susan J. Irving at (202) 512-6806 or irvings@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who have made contributions to  this report are listed in appendix VI.
section_title: Appendix I: Overview of Carryover Balances across Federal Accounts in Fiscal Years 2007 through 2012
paragraphs: The size of the overall carryover balances in the federal budget increased  significantly from 2007 through 2012 with the unobligated portion  representing approximately one-third of that total balance throughout the  period. Specifically, the sum of total carryover balances across the federal  government was $1.5 trillion in fiscal year 2007, of which $471 billion— approximately 30 percent—was unobligated. At the end of fiscal year  2012, the sum of total carryover balances across all accounts was $2.2  trillion, of which $788 billion—approximately 35 percent—was  unobligated.
The number of accounts with carryover balances also increased from  fiscal years 2007 through 2012 with the majority of them reporting  unobligated balances each year. Specifically, the number of accounts that  reported carryover balances in fiscal year 2007 was 1,178, of which 895  reported unobligated balances, or approximately 76 percent. At the end of  fiscal year 2012, the number of accounts that reported carryover balances  was 1,274, of which nearly 1,000 reported unobligated balances, or   Included in these numbers are some newly  approximately 78 percent. established accounts that were created by significant legislation during  the federal government’s response to the economic downturn and the  housing crisis, such as the Housing and Economic Recovery Act of 2008,  the Emergency Economic Stabilization Act of 2008,American Recovery and Reinvestment Act.
The nature of the funds—whether they are mandatory, discretionary, or  split—influences what opportunities may exist for budgetary savings. For example, if the funds are primarily mandatory, programmatic changes are  often necessary to change or reduce the size of carryover balances.  Focusing only on the unobligated portion of carryover balances, figure 1  shows that mandatory accounts represented an increasing share of the  federal government’s unobligated balances. Specifically, in fiscal year  2007, 23 percent of the total unobligated funds in federal accounts were  attributed to mandatory accounts. By the end of fiscal year 2012, almost  48 percent of unobligated balances resided in mandatory accounts.
The 10 largest unobligated balances reported at the end of fiscal year  2012 were in accounts with mandatory or split funding (see table 3). The  combined balances in those 10 accounts represented 58 percent of the  total unobligated balances government-wide that year.
As shown in figures that follow, during fiscal years 2007 through 2012,  unobligated balances were concentrated in mandatory accounts and  centered on three national priorities and eight agencies. The GSE  Preferred Stock Purchase Agreements account, which was created in  2008, held by far the largest unobligated balance and affected the  composition of balances across the federal government accordingly.
The three largest mandatory accounts on average were Treasury’s
GSE Preferred Stock Purchase Agreement account,
Exchange Stabilization Fund, and
Troubled Asset Relief Program (TARP) Housing Programs.
Split accounts with both mandatory and discretionary funds made up  roughly half of the unobligated balances government-wide in fiscal year  2007, but decreased to one-third by fiscal year 2012. The three largest  split accounts on average were the
Office of Personnel Management’s Employee Life Insurance Fund,
Federal Deposit Insurance Corporation’s (FDIC) Deposit Insurance
Department of Transportation’s (DOT) Federal-aid Highways account.
Discretionary accounts made up the smallest portion of unobligated  balances across the federal budget. The three largest discretionary  accounts on average were the
Department of Education’s State Fiscal Stabilization Fund established  under the American Recovery and Reinvestment Act,
Department of Defense’s (DOD) Navy Shipbuilding and Conversion
DOT’s Capital Assistance for High Speed Rail Corridors and Intercity  Rail Service, established under the American Recovery and  Reinvestment Act.
Each federal account is assigned to a budget function, which identifies  the national priority supported by the account. As shown in figure 3, the  majority of unobligated balances were attributed to three national  priorities: commerce and housing credit (function 370), national defense  (function 050), and international affairs (function 150). In general  throughout this period, commerce and housing credit accounted for the  largest share of unobligated balances government-wide, growing from 21  percent in fiscal year 2007 to 37 percent at the end of fiscal year 2012.
Three accounts contributed significantly to the share of unobligated  balances attributed to commerce and housing credit: the GSE Preferred  Stock Purchase Agreements account (newly created in fiscal year 2008),  the Deposit Insurance Fund account, and the MMI Capital Reserve  account.
The economic downturn and housing crisis and the government’s  response to it was also a major determinant of which agencies accounted  for the majority of unobligated balances in fiscal years 2007 through  2012. As shown in figure 4, the share of unobligated balances held by  Treasury, which manages the GSE Preferred Stock Purchase Agreement  account, grew from 8 percent in fiscal year 2007 to 33 percent in fiscal  year 2012. For most of the period, Treasury held the largest share of  unobligated balances. DOD held the second largest share of unobligated  balances over the period. Together these two (plus six other agencies  that accounted for considerably smaller shares) represented  approximately 80 percent of unobligated balances throughout the period.  If the GSE Preferred Stock Purchase Agreement account was excluded  from the breakdown shown in figure 4, DOD would represent the largest  share of unobligated balances during the period.
section_title: Appendix II: Guide for Evaluating Carryover Balances
paragraphs: We developed four key overarching questions to consider in evaluating  both obligated and unobligated balances. Each of these leads to a set of  second-tier, more specific questions to help frame the analysis of  carryover balances. We developed this list of questions from our analysis  of government-wide guidance on budget preparation, budget execution,  and internal controls. In addition, we met with federal budget specialists,  agency officials responsible for managing the eight accounts selected as  part of our review, and staff within the Office of Management and Budget  (OMB) to obtain their views on the use of these questions to guide the  examination of carryover balances. Our prior work on federal budgeting,  user fees, budget triggers, and managing under continuing resolutions  also informed the development of these key questions.
Answering each of the four overarching questions provides insight into  why the balance exists, what size balance is appropriate, and what  opportunities, if any, for savings exist. In addition, it may provide  opportunities for enhanced oversight of agencies’ management of federal  funds and identify areas where the federal government can improve and  maximize its use of resources. These questions can be applied when  evaluating carryover balances at either the account or program level. A  single account may support a single program or multiple programs.  Conversely a single program may be supported by multiple accounts.  Further, the balance in a single year may reflect events particular to that  year and so present an incomplete or possibly misleading view of what is  happening in a given account or program. Therefore, a longer view is  preferable.
Since the many accounts that make up the federal budget vary greatly  and individual accounts have their own unique characteristics, we do not  suggest that the following set of questions represents all the questions  that could be considered when evaluating carryover balances. As  congressional committees, managers, and other reviewers apply these  evaluative questions, additional questions may arise. In some cases,  however, a few of the questions may provide sufficient information to  understand the nature of the balance.
Key question  What mission and goals is the account or  program supporting?  Understanding the mission activities, goals,  and programs the account supports provides  insight into whether a program needs to  maintain a balance to operate smoothly, what  size balance is appropriate, and whether  opportunities for savings exist. Such context  can inform assessments of whether and how to  reduce carryover balances, and what effect this  would have on the agency’s ability to carry out  its mission. For example, an account  established to provide stability in the financial  or housing market needs a balance to ensure  the agency has sufficient resources to respond  quickly to adverse events.
Subset of questions  What are the primary mission and goals the account or program is intended to  achieve?  What is the nature and purpose of the balance and how does it support the mission  and goals (e.g., counter economic crises, sustain business-like activities, meet  emergency funding needs)?
Have there been changes to the program or mission that may affect balances (e.g.,  additional responsibilities, major reorganization)?
What type of activity (e.g., grants, procurement, direct services) is the account used  for to achieve the agency’s mission and goals? What are the implications of  carryover balances?
What programs are funded by the account and how much does each contribute, if at  all, to the carryover balance (e.g., does a large portion of the balance result from any  particular programs)?
Is it a new account or program or have the program goals and objectives changed?
How has this affected the ability to obligate funds?
What are the sources and fiscal  characteristics of the funding?  The sources and fiscal characteristics of the  funds influence what opportunities may exist  for savings. If funds are primarily mandatory,  opportunities are more limited as programmatic  changes would generally be required to reduce  balances. In such cases, reducing an account’s  balance may have no economic benefit and  instead could impose unnecessary  administrative costs. If funds are discretionary,  balances can be controlled by the annual  appropriations process.  Some accounts or programs may be expected  to have carryover balances if the agency has  multi-year or no-year funds. Supplemental  appropriations enacted late in the fiscal year  (or for long-term projects) may also increase  the likelihood, and perhaps expectation, for a  carryover balance. However, a growing  carryover balance over a number of years may  indicate problems executing a program as  planned.  Accounts that receive funding primarily from  outside sources, such as fees, have their own  unique considerations.
Are the account or program funds mandatory, discretionary or a combination of both?
In accounts or programs that receive both mandatory and discretionary  funds, what portion of each are unobligated each year?
For unobligated funds, what is the expected period over which funds will be obligated  and liquidated (i.e., multiple years versus single year)?
If over multiple years, what drives the timing of the obligation and liquidation  of funds (e.g., contract award period, grant cycle)?
Did the account receive supplemental appropriations?
If so, when were the supplemental appropriations acts enacted? How much  of the balance is attributed to supplemental appropriations?
To what extent is the activity funded by fees or taxes (e.g., fuel taxes) versus general  revenues?
Does the account or program have the authority to use the fees or taxes  without additional congressional action?
Key question  What factors affect the size or composition  of the carryover balance?  It is important to consider which factors were  within the agency’s control and which were not.  Agencies or programs may operate in a way  that contributes to a faster or slower spendout  rate for a particular account. Understanding the  spendout rate can help to identify what drives  the size of the unobligated and obligated  portions of the balance.  In addition, external events beyond agencies’  control—such as natural disasters or economic  crises—can dramatically affect carryover  balances. For example, if an agency receives a  sudden inflow of funds late in the fiscal year  from a supplemental appropriation, the size of  the unobligated balance carried forward to the  next fiscal year may be greater than otherwise  estimated.
Subset of questions  How has the account’s balance changed over time? How has the composition of the  carryover balance (i.e., the unobligated and obligated portions) changed over time?
Has the agency’s rate of obligation significantly slowed or increased as a  result of certain factors (e.g., application or review periods, regulatory  issuance)?
What portion of unobligated funds has the agency labeled as committed for specific  uses?
What conditions or external events have occurred outside the agency’s control (e.g.,  events that led to changes in program demand)?
Were there any changes to accounting, regulatory, or statutory  requirements related to the account’s balance (e.g., bid protests, receipt of  supplemental appropriations, continuing resolutions)?
Are there questions about the agency’s ability or capacity to carry out the program  due to previously reported weaknesses (e.g., excessive risks, poor performance,  unmet objectives)?
Are interim milestones being met to ensure projects are carried out on schedule?
Are there known production issues that could lead to delays?
What opportunities exist to deobligate unliquidated balances (e.g., up-front  obligations to contractors, grants to states)?
How does the agency estimate and manage  carryover balances?  Understanding an agency’s processes for  estimating and managing carryover balances  provides information to assess how effective  agencies are in anticipating program needs  and ensuring the most efficient use of  resources. If an agency does not have a robust  strategy in place to manage carryover balances  or is unable to adequately explain or support  the reported carryover balance, then a more in- depth review is warranted with the potential to  identify opportunities for budgetary savings.
What assumptions or factors did the agency incorporate into its estimate of the  account’s carryover balance (e.g., historical experience, demand models)?
To what extent and how often does the agency revisit or adjust estimates of  unobligated balances to reflect historical data or other information?
Does the agency have a routine mechanism for reviewing its obligations and  determining whether there are opportunities to deobligate funds (e.g., written  procedures or ad hoc processes)?
What is the agency’s timeline for obligating and expending funds in the account?
Does the agency or program tend to under-execute its budget?
What is the spendout rate after funds have been obligated?
Has the agency followed its own procedures for ensuring fiscally responsible  management of balances?
section_title: Appendix III: Case Illustrations of Federal Accounts with Carryover Balances
paragraphs: As part of our review, we selected a nongeneralizable sample of eight  accounts and analyzed their end-of-year carryover balances for fiscal  years 2007 through 2012. These eight accounts serve as case  illustrations to better understand why carryover balances existed and the  types of factors that affected the size of the balances. We selected  accounts based on several characteristics including the size of the  average unobligated balance, budget function, type of account, agency,  and whether the account was composed of mandatory or discretionary  funds.
Our analysis is presented in terms of the four overarching key questions  we developed in our evaluative guide outlined in appendix II. Because of  the variation in the size of the accounts, the graphics depicted in each  case illustration are scaled to the size of the individual account; as a  result, the graphics cannot be directly compared to one another. Further,  the second figure in each case illustration includes both actual  unobligated balances as well as two sets of estimates: budget year and  current year. The budget year (BY) is a term used in the budget  formulation process to refer to the fiscal year for which the budget is  being considered. For example, estimates for the fiscal year 2012 budget  year were reported during fiscal year 2011. Current year (CY) is a term  used in the budget formulation process to refer to the fiscal year  immediately preceding the budget year under consideration; such that for  fiscal year 2012, current year estimates were reported part way through  2012.
The eight accounts we reviewed as case illustrations were:
Department of Defense: Army Aircraft Procurement
Department of Defense: U.S. Army Corps of Engineers-Civil Works,
Department of Health and Human Services: Public Health and Social
Department of Housing and Urban Development: Community
Department of Housing and Urban Development: Federal Housing  Administration-Mutual Mortgage Insurance Capital Reserve
Department of Housing and Urban Development: Homeless
Department of the Treasury: Exchange Stabilization Fund
Department of the Treasury: Government Sponsored Enterprise  (GSE) Preferred Stock Purchase Agreements  Account Name:   Agency:   National Priority:   Department of Defense-Military   Aircraft Procurement, Army (APA)  Department of Defense  (Budget Subfunction 051)
What Mission and Goals Is the Account or Program Supporting?
The Army uses the Aircraft Procurement account for construction,  procurement, production, modification, and modernization of aircraft  equipment. The Army purchases and maintains aircraft in order to support  activities such as combat missions and operations. For example, the  Army has a contract to develop an unmanned aircraft system, which will  be able to carry four aircraft as well as other necessary equipment.
What Are the Sources and Fiscal Characteristics of the Funding?
APA receives annual and supplemental appropriations that are available  for obligation for three years. All funds in the account are discretionary.
What Factors Affect the Size or Composition of the Carryover  Balance?
As shown in figure 5, carryover balances increased steadily from  approximately $7 billion in fiscal year 2007 to $13 billion in fiscal year  2011 before then decreasing slightly at the end of fiscal year 2012. The  majority of the carryover balance was composed of unliquidated  obligations.
According to DOD officials, the majority of the carryover balance is  obligated but unliquidated due to the nature of the procurement process  for aircraft, which can take many years. Once the Army identifies a  requirement and receives appropriations to fund that requirement, it  issues a request for proposals to develop a product to meet the  requirement. After the request for proposal is issued, awarding a contract  generally takes three to nine months. Once a contract is in place and  funds are obligated, the agency periodically disburses funds to the  contractor as milestones are reached. The majority of the payment is  made upon delivery.
DOD officials said a portion of unobligated funds are committed  (reserved) for specific projects. However, balances that are considered  “committed” are not officially obligated until a contract is awarded. For  example, in 2011 the subaccount dedicated to modifications of aircraft  had an unobligated balance of about $420,000, of which approximately  $355,000, or about 85 percent, was already “committed” to specific  projects.
In 2009, several events contributed to a delay in the contracting cycle that  resulted in higher unobligated balances for 2010 and 2011. A 2009  executive policy memo directed DOD to issue new guidance regarding  sole-source contracting. In anticipation of the guidance, APA officials  chose to wait to award any further contracts. Additionally that year, we  identified issues with the Defense Contract Audit Agency, including with  the independence of their auditors. As a result of these two factors, APA  reviewed and revised its processes, which delayed the contracting  timeline that year from approximately 3 to 9 months to 9 to 18 months.
How Does the Agency Estimate and Manage Carryover Balances?
DOD estimates carryover balances for the Army Aircraft Procurement  account using a formula based on historical data. The agency first  determines the average obligation rate over the previous five years. Using  this weighted average, officials then apply that rate against current  obligated balances in the account to estimate the amount of unobligated  funds and unliquidated obligations that will carry forward to the next fiscal  year.
As shown in figure 6, actual unobligated balances have steadily risen,  while estimates have remained fairly steady. Further, actual unobligated  balances were higher than estimates for all years, with the greatest  differences occurring in 2010 through 2012. This suggests that the  agency’s model for estimating unobligated balances was fairly accurate  for 2007 and 2008, and generally underestimated unobligated balances  for years 2009 through 2012.
Account Name:   Agency:    National Priority:   Water Resources (Budget Subfunction 301)
What Mission and Goals Is the Account or Program Supporting?
The U.S. Army Corps of Engineers’ (Corps) Construction account funds  three main mission areas: flood and storm damage reduction, commercial  navigation, and aquatic ecosystem restoration within the United States.  The Corps engages in projects in waterways throughout the nation, such  as in Ohio, Pennsylvania, Illinois, and Kentucky. While some projects are  short term, others are long term and may involve a series of steps, such  as rehabilitating a dam over time. The account allocates funding by  project based on Congressional direction generally provided in committee  reports accompanying the Corps’ appropriations, as well as various  performance-based guidelines, including projects with very high economic  and environmental returns and those close to completion.
What Are the Sources and Fiscal Characteristics of the Funding?
The Construction account receives funding through both annual and  supplemental appropriations. Annual appropriations are allocated by  projects. All funds in the account are discretionary and are typically  available until expended. In addition, the account receives transfers from  other sources including the Inland Waterways Trust Fund and the Harbor  Maintenance Trust Fund. The account also receives funds from other  federal agencies including the Department of Homeland Security and the  Department of Veterans’ Affairs for specific construction projects.
What Factors Affect the Size or Composition of the Carryover  Balance?
As shown in figure 7, during fiscal years 2007 through 2012 carryover  balances peaked at nearly $10 billion in fiscal year 2009 before gradually  decreasing to $5 billion in fiscal year 2012. The majority of the carryover  balance was unobligated funds.
A portion of the carryover balance is a result of no-year supplemental  appropriations. Corps officials said that, in some cases, supplemental  funds were not intended to be obligated immediately because they fund  long-term projects. For example, between fiscal years 2006 and 2009, the  Construction account received approximately $5 billion to aid in disaster  recovery following Hurricane Katrina, a portion of which had still not been  expended in 2012. In fiscal years 2009 through 2012, the size of the  obligated portion of the balance was larger than in previous years as the  Corps had the opportunity to obligate funds from supplemental  appropriations it received.
Further, officials cited delays in final appropriations execution decisions  as a contributing factor to increased unobligated balances at the end of  each fiscal year. The Corps develops and presents construction plans for  specific projects as part of its annual budget request. In some cases,  committee reports accompanying appropriations acts included language  directing the Corps to carry out additional construction work beyond that  for which the agency had already developed work plans. Consequently,  Corps officials said obligating the funds to support this additional work  was delayed until they developed the necessary work plans.
How Does the Agency Estimate and Manage Carryover Balances?
Corps officials said that carryover on individual projects is influenced by  factors such as real estate and environmental considerations, including  whether a project will affect local water quality. Officials also use ten-year  historical averages of the account’s obligations and outlays to identify  possible trends that may affect balances going forward. To manage  carryover balances, officials said they adjust work plans consistent with  Congressional direction.
As shown in figure 8, the actual unobligated balance was larger than what  the agency initially estimated each year during fiscal years 2007 through  2012. While in some cases, current year estimates were closer to actuals,  the graph of estimated balances below suggests that the agency’s  estimation process generally underestimated the amount of unobligated  funds that would be carried over each year. Agency officials said that in  some cases, this was due to supplemental appropriations that were  received after budget estimates were reported.
Public Health and Social Services   Emergency Fund (PHSSEF)  Department of Health and Human Services  Agency:   National Priority:   Health Care Services (Budget Subfunction 551)
What Mission and Goals Is the Account or Program Supporting?
The Department of Health and Human Services’ (HHS) Public Health and  Social Services Emergency Fund (PHSSEF) provides resources to  support a comprehensive program to prepare for the public health and  medical consequences of bioterrorism or other public health  emergencies. Funds in this account support several offices and programs  tasked with emergency preparedness including the Office of the Assistant  Secretary for Preparedness and Response (ASPR), which receives the  largest share of appropriations in the account. Within ASPR, the largest  programs are the Hospital Preparedness Program and the Biomedical  Advanced Research and Development Authority. Other programs and  offices that PHSSEF supports include HHS’ Cybersecurity program, the  Medical Reserve Corps, and Pandemic Influenza. In addition, the account  includes the balance of the Special Reserve Fund, which supports the  procurement of biodefense countermeasures as part of the Project  BioShield Act.
What Are the Sources and Fiscal Characteristics of the Funding?
The account receives annual appropriations, supplemental  appropriations, and transfers from other accounts outside of HHS. Annual  appropriations primarily support ASPR and consist of a mix of both one- year and multi-year funds. Supplemental appropriations were provided for  preparedness and response to pandemic influenza in 2009 and  emergency relief and reconstruction aid related to the earthquake in Haiti  in 2010. Those funds are available until expended (no-year funds). In  addition, the account received a transfer of funds from the Department of  Homeland Security for Project BioShield activities and reimbursements  from the Federal Emergency Management Agency. All funds in the  account are discretionary.
What Factors Affect the Size or Composition of Carryover  Balances?
As shown in figure 9, the actual carryover balance dramatically increased  in fiscal year 2009, to approximately $11 billion, and subsequently  declined through 2012. In most years, the obligated portion of the balance  was greater than the unobligated portion. However, in fiscal year 2010,  with the receipt of supplemental appropriations, the unobligated balance  was almost twice as large as the obligated portion of the balance.
Agency officials said that carryover balances in the account were  primarily the result of no-year supplemental appropriations. For example,  in fiscal years 2009 and 2010, balances reflect supplemental  appropriations to address the H1N1 pandemic influenza outbreak and  emergency relief after the 2010 earthquake in Haiti. In addition, funds  transferred from DHS for Project BioShield activities contributed to the  carryover balance.
In addition, some of the multiple programs that PHSSEF supports have  slower spendout rates than others. For example, agency officials  explained that funds supporting Project BioShield activities were available  for obligation at intervals over a ten-year period during fiscal years 2004  to 2013. They said the intent of the funding method was to provide  procurement funds with availability over a long period of time to  encourage industry to engage in the advanced development of  countermeasures. As a result, some portion of unobligated funds would  be carried forward each year. Once HHS has entered into a contract for  the procurement of a specific countermeasure, agency officials said it  may take years to progress through contractual milestones, thereby  contributing to the size of the obligated portion of the carryover balance in  any given year.
In contrast, agency officials said the spendout rate of PHSSEF funds  supporting National Special Security Events (NSSE) is relatively shorter.   Planned events which require HHS support include the Presidential  Inauguration and July 4th celebrations on the National Mall. An example  of an unplanned event is when HHS used PHSSEF funds to provide  mental health response teams to Sandy Hook Elementary students,  families, and staff after the school shooting in December 2012. HHS  officials said the obligation of these funds for NSSE purposes is  somewhat sporadic, but once obligated, funds are quickly disbursed.
How Does the Agency Estimate and Manage Carryover Balances?
Agency officials said the Office of Budget works with program and budget  offices to obtain information to incorporate into budget year estimates of  carryover balances. These balances are informed by prior year actuals  and take into account any planned procurement, other contract actions,  and grant awards.
As shown in figure 10, during fiscal years 2007 through 2012, actual  unobligated balances in the account were higher than budget-year  estimates in most years with the largest differences occurring in fiscal  years 2009 and 2010. Agency officials said emergency supplemental  appropriations contributed to higher than expected unobligated balances  in 2009 and 2010. Specifically, supplemental appropriations were  provided to address the influenza pandemic in 2009 and to respond to the  earthquake in Haiti in 2010. Both events were unexpected and  accordingly, were not included in the agency’s initial estimates of the  unobligated balance. In addition, HHS officials said obligations slowed in  fiscal year 2010 when the influenza pandemic proved to be less severe  than originally anticipated. In both 2011 and 2012 unobligated balances  were lower than budget-year estimates.
Community Development Fund (CDF)  Department of Housing and Urban Development  (Budget Subunction 451)
What Mission and Goals Is the Account or Program Supporting?
The Community Development Fund (CDF) primarily supports programs  targeted for low to moderate income individuals and families that include  activities such as job creation. The Department of Housing and Urban  Development (HUD) uses the funds in this account to distribute grant  assistance through several programs, the largest of which is the  Community Development Block Grant (CDBG). CDBG provides formula  grants to units of general local government and states to support activities  such as public infrastructure improvements, housing, rehabilitation, and  public service activities including child care.
CDF also supports other programs such as Section 108 loan  guarantees, the Neighborhood Stabilization Program (NSP) and  disaster recovery programs. CDF has received large supplemental  appropriations for various disaster recovery efforts such as those  following Hurricane Katrina and Hurricane Wilma.
What Are the Sources and Fiscal Characteristics of the Funding?
CDF receives annual CDBG appropriations for grants to state and local  governments which are available for obligation for three years. HUD  officials said that CDBG funds are distributed through formulas, with  approximately 70 percent allocated to entitlement communities and 30  percent to non-entitlement communities. According to HUD, entitlement  communities are defined by statute, as cities with populations greater  than 50,000 people or urban counties with populations of 200,000 or  more.
CDF also receives supplemental appropriations for its disaster recovery  programs, which have varying periods of availability depending on the  legislation. In addition, HUD officials said funds supporting NSP1 and  NSP3 are mandatory and all CDBG funds are discretionary.
What Factors Affect the Size or Composition of the Carryover  Balance?
During fiscal years 2007 through 2012, the size of the carryover balance  in the CDF account ranged from approximately $16 billion to about $29  billion. As shown in figure 11, the obligated but unexpended portion of the  balance remained fairly steady over the six year period. The unobligated  portion peaked in 2008 and subsequently decreased for the remainder of  the period.
Supplemental appropriations contributed to larger than anticipated  unobligated balances in fiscal years 2008 and 2009. Although officials  said they make an effort to obligate supplemental appropriations quickly,  if funds are received late in the fiscal year, it is more likely that a portion  of the unobligated funds will carry over into the next fiscal year. For  example, in 2008, HUD received a supplemental appropriation on  September 30th to provide disaster relief to areas affected by hurricanes,  floods, and other natural disasters. The timing of the appropriation led to  a large increase in the unobligated balance carried over into the next  fiscal year. In 2009, additional supplemental appropriations were enacted.
HUD officials said they typically obligate funds quickly; however, the rate  of expenditure may be slow, resulting in a large obligated, unexpended  balance from year to year. This is because once funds are obligated, the  time it takes to expend funds depends on the rate at which grantees are  drawing down their grant money. In the case of supplemental funds, the  increased amount of grants may be a challenge for grantees to disburse.  For example, HUD officials said that in one instance, a grantee that  typically received a couple hundred thousand dollars per year received  approximately $18 million in grant funds. Such a dramatic increase in the  amount of grant funding posed administrative challenges for the grantee,  which contributed to a slower spendout rate.
How Does the Agency Estimate and Manage Carryover Balances?
Estimates of carryover balances are determined through a review of prior  year balances in the account. For example, when estimating the portion  of the balance attributed to the traditional CDBG program, officials said  they look at the composition of carryover balances from recent years,  including whether the balances are composed of funds in their first year,  second year, or third year of availability. They also consider historical  rates of obligations and outlays. For the portion of the balance attributed  to disaster recovery grants, it is more difficult to estimate carryover  because estimating the timing and size of supplemental appropriations for  disaster recovery are beyond the agency’s control.
As shown in figure 12, actual unobligated balances were larger than  estimated during fiscal years 2007 through 2012, with the largest  difference occurring in 2008. Although the budget-year estimate of the  unobligated balance for fiscal year 2007 was fairly close to the actual, the  agency generally underestimated the amount of unobligated funds that  would be carried over each year. For example, in 2008 and 2009, as  discussed above, the agency unexpectedly received supplemental  appropriations that caused the actual balance to be considerably higher  than the previous estimates.
Federal Housing Administration   Mutual Mortgage Insurance (MMI) Capital   Reserve Account  Department of Housing and Urban Development  Agency:  National Priority:   Mortgage Credit (Budget Subfunction 371)
What Mission and Goals Is the Account or Program Supporting?
The MMI Capital Reserve account supports the Federal Housing  Administration’s (FHA) Mutual Mortgage Insurance Fund (MMI Fund).  Under the MMI Fund, FHA insures a variety of mortgages for home  purchases and refinancing to meet the housing needs of traditionally  underserved borrowers. FHA has played a prominent role in the single- family mortgage market and accounted for more than 25 percent of the  home purchase mortgages originated in fiscal year 2012.
Like other federal credit agencies, FHA estimates and re-estimates the  net lifetime costs—known as credit subsidy costs—of the mortgages it  insures. When the present value of estimated cash inflows (such as  borrower insurance premiums) exceed the present value of expected  cash outflows (such as insurance claims), negative subsidies are  generated. These negative subsidies are held in the MMI Capital Reserve  account as an unobligated balance. When FHA experiences  unanticipated increases in estimated credit subsidy costs (upward re- estimates), balances in the MMI Capital Reserve account help to cover  these increases.
What Are the Sources and Fiscal Characteristics of the Funding?
The MMI Capital Reserve account accumulates negative subsidies  resulting from FHA’s single-family mortgage insurance activities. It also  earns interest and realizes gains on investment in nonmarketable  Treasury securities. In the event the MMI Capital Reserve account is  depleted, FHA is authorized to draw on permanent and indefinite budget  authority to cover additional increases in estimated credit subsidy costs.
The MMI Capital Reserve account contains only mandatory funds, and  those funds are available until expended.
What Factors Affect the Size or Composition of the Carryover  Balance?
As shown in figure 13, carryover balances declined during the 6 years we  reviewed, with a steep decline in 2009 and 2010. Because the spendout  rate in this account is very quick, and in effect obligations are equivalent  to outlays, nearly all of the carryover balances are unobligated.
The MMI Capital Reserve account maintains balances to cover  unexpected insurance claim expenses, so when FHA experiences  financial stress, the account balance decreases. For example, when the  MMI Fund experiences higher-than-expected mortgage defaults (resulting  in higher claims), there will be an upward re-estimate of credit subsidy  costs. When there is an upward re-estimate, the MMI Capital Reserve  account is the first source of funds used to cover the higher costs, thus  lowering balances in the account. During the housing crisis that began in  2007, more pessimistic forecasts of economic conditions—house prices,  in particular—resulted in higher projected insurance claims. As a result,  balances in the MMI Capital Reserve account fell dramatically. From 2009  through 2012, FHA has submitted upward credit subsidy re-estimates  ranging from about $6.8 to $10.5 billion annually. If upward re-estimates  were to deplete the balance in the MMI Capital Reserve Account, FHA  would need to draw on permanent, indefinite budget authority to have  sufficient reserves for all future insurance claims on its existing portfolio.
How Does the Agency Estimate and Manage Carryover Balances?
The MMI Fund is reviewed from actuarial, financial and budgetary  perspectives each year, which helps officials estimate carryover  balances. From the actuarial perspective, FHA is statutorily required to  ensure that the MMI Fund maintains a 2-percent capital ratio (discussed  in more detail below). For its financial statements, FHA calculates the  liability for loan guarantees, which represents the net present value of  future cash flows on FHA’s existing portfolio. From a budgetary  perspective, FHA must follow the Federal Credit Reform Act of 1990,  which requires the agency to estimate and re-estimate the net lifetime  costs of the mortgages it insures.
The MMI Capital Reserve account holds funds to help FHA meet the  statutory 2-percent capital ratio requirement for the MMI Fund and, as  previously noted, maintains balances for unexpected claim expenses.  The capital ratio is defined as the MMI Fund’s economic value divided by  the total insurance-in-force. The balance in the MMI Capital Reserve  account is one component of the economic value, along with the balance  in the MMI Financing Account (which maintains balances to cover  estimated credit subsidy costs) and the net present value of future cash  flows. However, as a result of the economic downturn and housing crisis,  the fund did not meet this requirement from 2009 through 2012. To help  increase balances in the MMI Capital Reserve account and bring the MMI  Fund back into compliance, FHA has implemented policy changes,  including increases in borrower insurance premiums and enhanced  underwriting requirements.
As shown in figure 14, actual unobligated balances were lower than  originally estimated for all years. Current year estimates were very close  for almost all years during the period. This shows that the agency’s  process for estimating unobligated balances assumed an accurate trend  in most years, but tended to overestimate future balances, especially in  fiscal year 2012.
Account Name:   Agency:    National Priority:   Housing Assistance (Budget Subfunction 604)
What Mission and Goals Is the Account or Program Supporting?
The Homeless Assistance Grants (HAG) account funds two primary grant  programs: the Continuum of Care program and the Emergency Solutions  Grant program. The Continuum of Care program is HUD’s largest and  broadest targeted program to provide funds to address homelessness  and the Emergency Solutions Grant Program includes funds for a variety  of activities such as rapid re-housing. Grants through the Continuum of  Care program are awarded through a national competition. An average of  87 percent of those funds per year goes to renew existing projects. The  process to register, compete, and award grants is done on a calendar  year basis and generally takes about seven months. The grant  competition cycle begins after the agency receives a final annual  appropriation. Once grants are awarded, funds are obligated and  disbursed to grantees.
What are the Sources and Fiscal Characteristics of the Funding?
Funds in the HAG account are discretionary, provided through annual  appropriations, and available for obligation for three years. In addition, in  June 2008, the account received one multi-year supplemental  appropriation of $50 million for aid to the State of Louisiana for the  provision of 3,000 units of permanent supportive housing.
What Factors Affect the Size or Composition of the Carryover  Balance?
The carryover balance in the HAG account ranged from $4 billion to $5.6  billion during fiscal years 2007 through 2012. As shown in figure 15,  unobligated balances remained steady over the six year period. In 2009,  there was an increase in the obligated balance that subsequently  decreased in later years.
A portion of the unobligated balance results from the timing of the grant  competition and award process, which is done by calendar year rather  than fiscal year. For HAG, the typical grant competition cycle involves  several phases. First, once the agency has received its annual  appropriations, it then opens a program registration period. After the  agency reviews registrations, it opens the grant application process.  Following the final application review, grants are awarded at a later date  during the current or next calendar year (likely during a new fiscal year).
At that point the available multi-year funds will be obligated. Because  grant awards are typically made after the end of the fiscal year,  unobligated balances are carried over from one fiscal year to the next.
Officials said the increase in the obligated, unexpended balance that  occurred in 2009 and 2010 was the result of two events. In 2009, the  account received $1.5 billion for HUD’s Homelessness Prevention and  Rapid Re-housing Program, which contributed to the increase in the  obligated balance. In addition, the agency implemented a change in its  process to review renewal grants. This change in process, which started  in 2008, involved transitioning from a paper-based system to an  electronic-based system. Officials said launching the new system caused  a delay in awarding and disbursing grants, which resulted in an increased  carryover balance.
How Does the Agency Estimate and Manage Carryover Balances?
Renewal grants account for the largest share of grant funding in the  account and are typically funded before new grant applications are  considered. Accordingly, HUD officials develop estimates of the account’s  carryover balance based on the historical rate of grant renewal from  previous years. This helps the agency project the number of grants that  will likely be renewed in the future, thereby informing HUD’s estimate of  the amount of funds that will be carried forward from one fiscal year to the  next.
As shown in figure 16, from 2007 through 2010 actual unobligated  balances were slightly higher than initial estimates. From 2009 through  2012, the actual unobligated balance remained fairly steady while agency  estimates predicted more fluctuation. The largest difference between the  estimated and actual unobligated balance was in 2012. Generally  speaking, it appears that the agency’s process for estimating unobligated  balances was fairly accurate during the time period.
Exchange Stabilization Fund (ESF)  Department of the Treasury  International Financial Programs   (Budget Subfunction 155)
What Mission and Goals Is the Account or Program Supporting?
The Exchange Stabilization Fund (ESF) account was established by the  Gold Reserve Act of 1934, to be operated under the exclusive control of  the Secretary of the Treasury with approval of the President. The primary  purpose of the fund is to stabilize international financial markets,  consistent with U.S. obligations in the International Monetary Fund (IMF).  To carry out this purpose, the Secretary is authorized to purchase, sell, or  deal in gold, foreign currencies, and other instruments of credit and  securities. The ESF holds international reserve assets of the United  States, including U.S. dollars, foreign exchange, and Special Drawing  Rights (SDR). If the maturity on an ESF loan or credit to a foreign entity  or government will extend beyond six months, the President must give  Congress a written statement that unique or emergency circumstances  exist.
What Are the Sources and Fiscal Characteristics of the Funding?
The account received a $2 billion appropriation in 1934 when the fund  was created. The Bretton Woods Agreements Act of 1945 directed the  Treasury Secretary to pay $1.8 billion from the ESF to the IMF for the  initial U.S. quota subscription in the IMF, thereby reducing ESF’s  appropriated amount to $200 million. Since that time, the major sources  of the fund’s income have been (1) gains (or losses) due to changes in  exchange rates, (2) SDR allocations, and (3) earnings on investments  held by the fund including interest earned on fund holdings of U.S.  Government securities or interest on loans or credits to foreign  governments. Amounts in the ESF, which is a public enterprise revolving  fund,administrative expenses.
What Factors Affect the Size or Composition of the Carryover  Balance?
As shown in figure 17, the actual total carryover balance increased  dramatically in fiscal year 2009 and remained at that level through fiscal  year 2012. The obligated portion of the balance held steady in fiscal years  2007 through 2009. By the end of fiscal year 2010, the obligated portion  of the total carryover balance had grown significantly. The unobligated  balance stayed fairly steady throughout fiscal years 2007 to 2012 with the  exception of a dramatic spike in fiscal year 2009.
Treasury officials said the largest single factor affecting the obligated  balance is attributed to changes made to ESF’s budgetary reporting in  fiscal year 2010. According to Treasury officials, prior to fiscal year 2010,  the U.S. Standard General Ledger (USSGL) did not support the  budgetary transactions of the ESF, thereby making it impossible to do  ESF reporting using government-wide automated standards. The USSGL  Board established a standard ledger account specifically for the ESF as a  step toward correcting the budgetary reporting. Treasury’s  implementation of this reporting change resulted in significant  adjustments to ESF account balances and caused the size of the  obligated balance to grow as a share of the total carryover balance in  fiscal years 2010 through 2012.
The spike in the unobligated balance in 2009 is almost entirely attributed  to approximately $50 billion of new SDR allocations and one transaction  that occurred over a one-month period. Pursuant to decisions made by  the IMF membership, the IMF provided general and special SDR  allocations to its members, including approximately $47.3 billion to the  United States. As noted earlier, SDRs are held in the ESF. Treasury  officials said the general allocation was an important element of the  response to the global economic crisis. Further, they said the IMF general  allocation provided an additional reserve buffer for IMF member countries  that was critical to stopping the capital drain from emerging market  countries and restoring global market confidence. In addition, Treasury  monetized $3 billion of its ESF SDRs in a transaction authorized under  the Special Drawing Rights Act.
How Does the Agency Estimate and Manage Carryover Balances?
Treasury officials said they do not estimate carryover or unobligated  balances for the ESF as they do in other accounts (e.g., salaries and  expenses). The balances represent investments and the unobligated  balance is calculated from ESF’s balance sheet: assets minus liabilities.
Account estimates reported in the President’s Budget each fiscal year are  based on projected net interest earnings on ESF assets. The estimates  are subject to considerable variance, depending on changes in the  amount and composition of assets and the interest rates applied to  investments. The estimates make no attempt to forecast gains or losses  on SDR valuation or foreign currency valuation.
As shown in figure 18, the nearly $50 billion of SDR-related transactions  in fiscal year 2009 led to an actual unobligated balance in the ESF that  was much larger than was estimated in fiscal year 2007 when the  President’s fiscal year 2009 budget was developed. Moreover, these  transactions had a direct impact on Treasury’s estimates of the  unobligated balance in subsequent years. Treasury officials said the  general timing of those transactions was concurrent with the agency’s  development of its fiscal year 2010 mid-year estimate and fiscal year  2011 budget-year estimate for the account. Generally, in proportion to the  size of the account, Treasury’s process for estimating the unobligated  balance was relatively accurate.
Government Sponsored Enterprise (GSE)   Preferred Stock Purchase Agreements  Department of the Treasury  Agency:  National Priority:  Mortgage Credit (Budget Subfunction 371)
What Mission and Goals Is the Account or Program Supporting?
In 2008, the Housing and Economic Recovery Act (HERA) established  the Federal Housing Finance Agency (FHFA). FHFA placed two  Government Sponsored Enterprises (GSE)—the Federal National  Mortgage Association (Fannie Mae) and the Federal Home Loan  Mortgage Corporation (Freddie Mac)—into conservatorship. Treasury  then entered into agreements with Fannie Mae and Freddie Mac to  provide capital through investments in senior preferred stock to ensure  that each company maintained a positive net worth. Treasury disburses  funds to the GSEs if, at the end of any quarter, the liabilities of either GSE  exceed its assets.
Amendments to the agreements in 2009 changed the maximum allowable  funding commitment, which is reflected in the unobligated balances.  Initially in 2008, Treasury was authorized to purchase up to $100 billion of  securities and investments in each GSE for a total of $200 billion. The  first amendment in May 2009 increased the allowable investment level to  $200 billion for each GSE. In December 2009, the second amendment  changed the investment level so it was based on a formulaic cap that  would automatically adjust upwards quarterly by the cumulative amount of  any losses realized by either GSE and downward by the cumulative  amount of any gains, but not below $200 billion.
What Are the Sources and Fiscal Characteristics of the Funding?
HERA established temporary authority for the GSE Purchase Agreements  account and granted the Treasury Secretary temporary authority to  purchase obligations and securities. The Secretary has complete  discretion over the terms, conditions, and amounts of the purchases,  provided that he or she (1) designates the actions as necessary, (2) takes  specific considerations into account, and (3) reports on these matters to  Congress. Any funds expended under this authority are deemed as  appropriated in such sums as needed.
What Factors Affect the Size or Composition of the Carryover  Balance?
As shown in figure 19, the actual total carryover balance in the account  grew significantly from fiscal years 2007 through 2009 and subsequently  declined through fiscal year 2012.
The spendout rate in this account is very quick, which results in the  agency reporting no obligated balance in the account by year-end. In  effect, the actual payments to the GSEs are equal to the amount of  obligations incurred and outlays reported in the President’s Budget  Appendix. Treasury officials said the unobligated portion of the balance  represents the cash balance in the account.
The carryover balance is generally driven by the size of the  apportionment to the account and the amount of purchases made by the  account. For example, the account started with a $200 billion balance in  budget authority when it was created under HERA in 2008. In 2009, the  maximum allowable funding commitment was increased by an additional  $200 billion for the account. Treasury also made its first payments to the  GSEs equal to $95.6 billion. As shown in figure 19, this translated into an  unobligated balance of $304.4 billion at the end of fiscal year 2009. Prior  to making payments to the GSEs, Treasury received an apportionment of  its budget authority from OMB at the beginning of the fiscal year for the  unobligated balance brought forward in the account.
The gradual decline in the unobligated balance reflects Treasury’s  subsequent payments to the GSEs in fiscal years 2010 through 2012,  bringing the balance down to $212.5 billion by the close of fiscal year  2012.
How Does the Agency Estimate and Manage Carryover Balances?
Budget year estimates of the unobligated balance are derived from the  estimated draws on the account from year to year. To do this, Treasury  annually prepares a series of long-range forecasts to determine the  estimated amount of contingent liability to the GSEs under the purchase  agreements. These projections inform the agency’s estimation of  payments to the GSEs for a given year. Based on the size of the  estimated payments, Treasury estimates the amount of budget authority  that will be carried over into the next year. By the time the agency  develops current year estimates, agency officials said they typically know  what the size of the payment request will be, thereby contributing to a  more accurate estimate of the unobligated balance that is carried forward.  This informs apportionment decisions to ensure there are sufficient funds  to cover the payments to the GSEs.
As shown in figure 20, there were no estimated unobligated balances in  fiscal years 2007 through 2009. This is attributed to the timing of the  President’s budget preparation for each of those years, and to the  creation of the Purchase Agreement account. The account was  established after the enactment of HERA in 2008, which meant that the  account’s estimates were issued for the first time in the President’s fiscal  year 2010 budget. Similarly, there were no actual unobligated balances to  report prior to 2008. During fiscal years 2010 through 2012, Treasury’s  estimates of the unobligated balance in the account were slightly lower  than, but fairly close to, the actual balance at year-end. In proportion to  the size of this account, this suggests that the agency’s estimation  process for this account was relatively accurate in those years.
section_title: Appendix IV: Comments from the Department of Health and Human Services
section_title: Appendix V: Glossary of Budget Terms
paragraphs: Appropriation: Budget authority to incur obligations and to make  payments from the Treasury for specified purposes. An appropriation act  is the most common means of providing appropriations; however,  authorizing and other legislation itself may provide appropriations.
Annual appropriation: An act appropriating funds enacted  annually by Congress to provide budget authority to incur  obligations and make payments from the Treasury for specified  purposes.
Supplemental appropriation: An act appropriating funds in  addition to those already enacted in an annual appropriation act.  Supplemental appropriations provide additional budget authority  usually in cases where the need for funds is too urgent to be  postponed until enactment of the regular appropriation bill.  Supplemental appropriations may sometimes include items not  appropriated in the regular bills due to a lack of timely  authorizations.
Availability: Budget authority that is available for incurring new  obligations.
Budget authority: Authority provided by federal law to enter into financial  obligations that will result in immediate or future outlays involving federal  government funds.
Budget function: The functional classification system is a way of  grouping budgetary resources so that all budget authority and outlays of  on-budget and off-budget federal entities and tax expenditures can be  presented according to the national needs being addressed. National  needs are grouped in 17 broad areas to provide a coherent and  comprehensive basis for analyzing and understanding the budget.
Budget year: A term used in the budget formulation process to refer to  the fiscal year for which the budget is being considered, that is, with  respect to a session of Congress, the fiscal year of the government that  starts on October 1 of the calendar year in which that session of  Congress begins.
Carryover balance (unexpended balance): The sum of the obligated  and unobligated balances.
Commitment: An administrative reservation of allotted funds, or of other  funds, in anticipation of their obligation.
Continuing resolution: An appropriation act that provides budget  authority for federal agencies, specific activities (or both) to continue in  operation when Congress and the President have not completed action  on the regular appropriation acts by the beginning of the fiscal year.
Current year: A term used in the budget formulation process to refer to  the fiscal year immediately preceding the budget year under  consideration.
Deobligate: A cancellation or downward adjustment of previously  incurred obligations made by an agency. Deobligated funds may be  reobligated within the period of availability of the appropriation.
Discretionary spending: Outlays from budget authority that is provided  in, and controlled by, appropriations acts.
Expended funds: Funds that have actually been disbursed or outlaid.
Mandatory spending: Budget authority that is provided in laws other  than appropriation acts and the outlays that result from such budget  authority. Mandatory spending includes entitlement authority (for  example, Food Stamp, Medicare and veterans’ pension programs),  payment of interest on the public debt, and nonentitlements such as  payments to states from Forest Service receipts.
Obligated balance (obligated funds): The amount of obligations already  incurred for which payment has not yet been made. Technically, the  obligated balance is the unliquidated obligations. Budget authority that is  available for a fixed period expires at the end of its period of availability,  but the obligated balance of the budget authority remains available to  liquidate obligations for five additional fiscal years. At the end of the fiscal  year, the account is closed and any remaining balance is canceled.  Budget authority available for an indefinite period may be canceled, and  its account closed if (1) it is specifically rescinded by law or (2) the head  of the agency concerned (or the President) determines that the purposes  for which the appropriation was made have been carried out and  disbursements have not been made from the appropriation for 2  consecutive years.
Obligation:  An obligation is a definite commitment that creates a legal  liability of the government for the payment of goods and services ordered  or received, or a legal duty on the part of the United States that could  mature into a legal liability by virtue of actions of another party.
Spendout rate: The rate at which budget authority becomes outlays in a  fiscal year. It is usually presented as an annual percentage.
Unexpended balance: The sum of the obligated and unobligated  balances.
Unobligated balance (unobligated funds): The portion of obligational  authority that has not yet been obligated. For an appropriation account  that is available for a fixed period, the budget authority expires after the  period of availability ends but its unobligated balance remains available  for 5 additional fiscal years for recording and adjusting obligations  properly chargeable to the appropriations period of availability. For  example, an expired, unobligated balance remains available until the  account is closed to record previously unrecorded obligations or to make  upward adjustments in previously under recorded obligations (such as  contract modifications properly within scope of the original contract). At  the end of the fifth fiscal year, the account is closed and any remaining  balance is canceled. For a no-year account, the unobligated balance is  carried forward indefinitely until (1) specifically rescinded by law or (2) the  head of the agency concerned (or the President) determines that the  purposes for which the appropriation was made have been carried out  and disbursements have not been made from the appropriation for 2  consecutive years.
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Susan J. Irving, (202) 512-6806 or irvings@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Carol M. Henn, Assistant  Director, Leah Q. Nash and Mary C. Diop made major contributions to  this report. Also contributing to this report were Rob Gebhart,Tara Jayant,  Kate Lenane, Felicia Lopez, John Mingus Jr., Robert Robinson, and  Cindy Saunders. In addition, the following individuals provided  programmatic expertise: Marcia Crosse, Shana R. Deitch, Cheryl  Goodman, Marshall Hamlett, Vondalee R. Hunt, Thomas Melito, Paul  Schmidt, Mathew J. Scire, William B. Shear, Andrea P. Smith, Bruce  Thomas, and Steve Westley.