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Thursday, April 1, 2010

FY2011 Budget Proposals and Projections

D. Andrew Austin
Analyst in Economic Policy

This report provides an overview of major budget estimates and projections for the FY2011 federal budget cycle. The report presents and compares budget projections calculated by the Obama Administration's Office of Management and Budget (OMB) and the Congressional Budget Office (CBO). In addition, the report discusses major budgetary issues. 

The congressional budget process, which includes the annual budget resolution and appropriations bills, usually begins once the Administration submits its budget to Congress. As Congress deliberates over the budget, the Administration often revises its proposals as it interacts with Members of Congress and as national and international economic conditions change. The current economic climate poses major challenges to policymakers shaping the FY2011 federal budget. Although the economy has shown some signs of recovery from an economic recession that many economists consider the most severe since the Great Depression, unemployment remains at high levels. The U.S. economy grew at an annual rate of 5.9% in the last quarter of 2009 in inflation-adjusted terms, after having fallen at a 5.4% annual rate in the last quarter of 2008 and 6.4% in the first quarter of 2009. The national unemployment rate, which was 9.7% in February 2010, is projected to decline slowly. Weakness in residential and commercial real estate, high household debt levels, and fiscal challenges facing state and local governments may contribute to a long and slow economic recovery. The recession and the prospect of a slow recovery have strongly affected budget estimates and projections. 

Federal spending tied to means-tested social programs has increased due to rising unemployment, while federal revenues are falling as individuals' incomes drop and corporate profits sink. Federal revenues fell 17% between FY2007 and FY2009. Although some costs of federal interventions in financial markets may be less than expected in late 2008 and early 2009, other interventions may present continuing fiscal challenges. Federal deficits, according to OMB and CBO projections, will likely remain high relative to historic norms over the next few years. Long-run fiscal challenges have received renewed attention as the ratio of federal debt held by the public to GDP, which compares the accumulation of federal debt (excluding intragovernmental debt) to the size of the economy as a whole, reached 53% at the end of FY2009 and, according to OMB and CBO estimates, will exceed 60% at the end of FY2010. 

The Obama Administration released its FY2011 budget proposals on February 1, 2010. The Administration featured policy initiatives targeted at speeding up economic recovery, reducing the unemployment rate, implementing health insurance reform, overhauling financial regulation, and stabilizing housing markets and the automobile industry. The Administration also proposed a three-year freeze in non-security discretionary spending, which currently comprises about 15% of total federal outlays.

Date of Report: March 29, 2010
Number of Pages: 26
Order Number:R41147
Price: $29.95

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