U.S. Federal Budget

The U.S. government is required by law to create a federal budget for each fiscal year. This budget shows how the government intends to spend and allocate the money that it takes in from taxes and other revenue measures. The process can be difficult to coordinate between the conflicts between political parties and balancing the interests of society.

Understanding what is included in the federal budget and how it is created can help government contractors to find government contracts to grow their public sector sales.

In This Article:

• What is the Federal Budget? 
• Federal Spending Trends and the FY 2025 Federal Budget 
• FY 2025 Federal Budget Outlook for Professional Services Government Contractors
• FY 2025 Federal Budget Outlook for Architecture, Engineering and Construction (AEC) Government Contractors 
• What does the Government Spend Money on? 
• Federal Budget Breakdown
• Federal Budget Process and Timeline
• Government Shutdown and Continuing Resolutions

The Constitution gives Congress the power to control government spending by creating a federal budget. The federal budget is a plan that describes in detail how the government intends to spend the money it takes in from taxes for each fiscal year, which begins October 1 and runs through September 30. It lists the amount of money each federal agency and department will receive and how these funds will be spent.

The budget also contains a plan that explains how it intends to pay for these programs, which can itself be a topic for intense debate.

What is the main goal in creating the federal budget?

The government uses the budget as a tool to establish priorities and implement its policies, such as how much to spend on defense, education, or other social programs. Spending on various programs and agencies is supposed to reflect the values of society and the will of the voters. As a result, the allocation of government funds can be a highly political and controversial subject — deciding which issues are the most important and which deserve the most funds.

The government also uses the budget to implement fiscal policies intended to affect economic conditions. For example, the government may approve spending programs, such as programs to improve highways and bridges, that improve the nation's infrastructure and, at the same time, inject funds into the economy to stimulate its growth by increasing the money supply.

U.S. federal government spending on contractor-provided goods and services continues to increase. 

Looking ahead, federal government contractors are keeping a close eye on the FY 2025 Federal Budget Request. The $7.3 trillion budget is the largest in U.S. history, including $1.7 trillion in base discretionary spending through 12 FY 2025 appropriations bills. Submitted to Congress on March 11, 2024 by President Joe Biden, the FY 2025 Federal Discretionary Budget Request adheres to limits established in the Fiscal Responsibility Act.

The budget includes a number of proposed big-ticket items to support Defense and Civilian agencies.

FY 2025 Discretionary Budget Defense Priorities

• Integrated Defense:
  • New battle force fleet ships (6)
  • Continued development of hypersonic and subsonic weapons
  • $33.7B for space capabilities
  • $9.9B to boost Indo-Pacific deterrence (ballistic missiles, cyber ops support, autonomous systems)
• Technology Priorities:
  • $14.5B for cyberspace activities
  • Data analytics
  • Artificial intelligence
  • Replicator Initiative
• Research and Development (R&D) / Critical Technology Areas:
  • Emerging: Biotechnology; Quantum Science; Future Generation Wireless Technology; Advanced Materials
  • Adoption: Trusted Al and Autonomy; Integrated Network Systems-of-Systems; Microelectronics; Space Technology; Renewable Energy Generation and Storage; Advanced Computing and Software; Human-Machine Interfaces
  • DOD-Specific: Directed Energy; Hypersonics; Integrated Sensing and Cyber
• Contracting:
  • Replacing military manpower with contractors (combat training; Telemetry, Tracking and Command) (AF)
  • Centralized Contractor Support Portal (DEF)
  • IT Procurement
• Supply Chain Resilience – Focus Areas:
  • Microelectronics ($2.5B)
  • Casting and Forging ($369M)
  • Kinetic Capabilities ($243M)
  • Strategic and Critical Materials stockpile ($193M)
  • Submarine industrial base ($4.0B)
• Infrastructure: 
  • Facilities that improve readiness ($8.7B)
  • Facility climate resilience ($3.6B)
  • Naval infrastructure ($2.0B)
  • New quality of life facilities ($2.3B)
  • Facilities Sustainment, Restoration and Modernization ($19.8B)

FY 2025 Discretional Budget Civilian Priorities

• Technology:
  • $13.0B for cybersecurity activities
  • Cyber priorities: zero trust, identity and access management, critical infrastructure security, supply chain risk management
  • Increases CISA budget by $103M to $3.0B
  • Artificial Intelligence development, testing, procurement, integration and hiring
  • $7.8B for new NASA systems for lunar surface science under the Artemis program
• Supply Chain:
  • U.S. industrial base support, including microelectronics, submarine construction, munitions and biomanufacturing supply chains
  • $175M for the Manufacturing Extension Partnership
  • $113M to strengthen domestic clean energy supply chain
• Climate:
  • $23B for climate adaptation and resilience projects across DOC, DOI, DHS, USDA, USACE, EPA and DOD
  • $10.7B across DOE, NASA, NSF and DOD to support industry clean energy
  • DOE high performance computing for climate modeling ($477M)
  • $2.8B for EPA climate-related programs
  • $275M for DOI to study impacts of climate change on land management practices
• Border Security:
  • $2.9B for more agents/officers, including $849M for detection technology
  • $981M to improve immigration courts, including $30M for the USDS digital courtroom capabilities
• Infrastructure:
  • Funding of $78.4B for highway, highway safety and transit formula programs (including the Infrastructure Investment and Jobs Act, IIJA)
  • $9.5B in advance IIJA appropriations for bridge replacement/rehab, EV charging infrastructure
  • $2.0B for VA medical facility infrastructure maintenance
• Public Health:
  • Women’s health research; $13.7B for women veterans’ healthcare
  • Adds $2.0B across NCI, FDA, CDC and ARPA-H for Cancer Moonshot projects
    
    
• Research and Development (R&D):
  • Priorities: Artificial Intelligence; analytics; advanced simulation and computing; QIS; clean energy; advanced communications
  • $606M for DOE to integrate AI, supercomputing and quantum technology

The FY 2025 Federal Budget Request is a comprehensive plan that addresses a wide range of priorities. It is a bold and ambitious plan that will require significant action from Congress.

Here are additional key takeaways from the FY 2025 Federal Budget Request:

• The Biden Administration’s Management Agenda: The FY 2025 Federal Budget Request continues to drive the major priorities of the Biden Administration’s management agenda, such as public health, cybersecurity, climate change and technology advancement.
• Sustaining U.S. Technological Leadership: The FY 2025 Federal Budget Request prioritizes sustaining U.S. technological leadership and will drive significant R&D and technological opportunities in artificial intelligence, high performing computing, quantum information systems, robotics, advanced communications technologies, biotechnology and cybersecurity. 
• Department of Defense (DoD) Priorities: DoD’s FY 2025 budget request prioritizes key programs, technology and R&D that address key national security concerns, particularly those posed by China and Russia.
• Clean Energy: The Biden Administration continues to drive its clean energy vision through investments in R&D, fusion energy and climate resiliency efforts. 
• Supply Chain: The FY 2025 Federal Budget prioritizes a focus on protecting critical material supply chains and boosting domestic manufacturing. 
• Cybersecurity: Government-wide cybersecurity priorities include advancing zero trust principles and practices, addressing the cybersecurity of the software supply chain, improving agency threat detection and response capabilities, increasing use of encryption to protect sensitive data and systems and working to migrate to post-quantum cryptography.

The FY 2025 Federal Budget Request is a bold and ambitious plan that will require significant action from Congress. If passed, this budget will make significant investments in our nation's future.

Get Ahead with Exclusive FY 2025 Federal Budget Request Analysis

Review this free report to better understand the major priorities, programs and spending plans outlined within the President's FY 2025 federal budget request.

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From management advisory services to financial services and legal services, companies offering professional services-related offerings have significant opportunities to do business with the U.S. federal government.

Professional services contract opportunities are growing as the Biden Administration prioritizes investments in areas like workforce development and training to build in-house capabilities and expertise. In fact, the FY 2025 Federal Budget Request contains nearly $136 billion in funding for professional services related work, representing a 7.9% increase from FY 2024 budget estimates.

Learn more about the opportunity for professional services firms to contract with the U.S. federal government with this free report:

Get an Edge in the Federal Professional Services Market

This timely report analyzes and breaks down the proposed program investments and policy directives outlined in the Biden Administration’s fiscal year 2025 discretionary budget request to support professional services firms.

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From the purchase of construction-related materials, to architecture & engineering services and construction services, companies providing AEC-related offerings have tremendous potential to compete for and win U.S. federal government contract awards.

The Biden Administration is requesting $34.8 billion for AEC-related activities for FY 2025. This includes funds authorized by the Infrastructure Investment and Jobs Act and funds to improve Department of Defense (DoD) facilities that support readiness, adapt facilities for climate resilience and improve medical facility infrastructure.

Learn more about the opportunity for AEC firms to contract with the U.S. federal government with this free report:

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This timely report analyzes and breaks down the proposed program investments and policy directives outlined in the Biden Administration’s fiscal year 2025 discretionary budget request as it relates to architecture, engineering and construction (AEC) firms to support their business development strategy.

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Spending in the federal budget is broken down into three categories.

Mandatory Spending

Mandatory spending typically makes up most of the budget and is dictated by laws passed by Congress for entitlement programs such as Social Security, Medicare, and Medicaid. These mandatory expenditures cannot be changed unless Congress passes different legislation. 

Discretionary Spending

Discretionary spending typically comprises about a third of the budget, with the largest portion supporting the military and driving the aerospace and defense industry forward. The rest of the funds go toward other government agencies, such as Health and Human Services, the Department of Justice, the Department of Education and the U.S. Treasury. 

Congress passes laws that authorize discretionary spending each year for various federal departments but does not set the amounts. Funding for discretionary programs is set with the passage of individual appropriations bills, which are under the jurisdiction of the House and Senate Appropriations Committees. 

Interest on the National Debt

Interest on the national debt comprises a growing percentage of the budget and is not part of the mandatory budget. However, not paying this interest would be considered a default on its debt, which would create serious consequences by downgrading the credit rating in the market for U.S. Treasury bonds. Therefore, not paying the interest is not a viable option. 

Download your free guide to understand the different types of government contracts, how to register to do business with the federal government, and ways to capture new federal sales opportunities.

The largest single expenditure in the federal budget is for Social Security, typically representing about a quarter of the government's total budget. Medicare and Medicaid also represent sizeable portions of the budget, along with the other remaining other mandatory programs. 

The government collects around a third of its annual revenues from payroll taxes and over half from individual income taxes. Corporate and other taxes are also sizable contributors to the government’s coffers.  

Like mandatory spending, taxes are governed by laws passed by Congress and remain in effect until they are changed. However, some taxes are put in effect on a temporary basis and expire if they are not extended. Laws governing the collection of revenues are under the jurisdiction of the Senate Finance Committee and the House Ways and Means Committee. 

The process of creating and finding agreement on a federal budget involves seven steps.

1. President’s Budget Request

The budget process starts with the President preparing a proposed budget each fiscal year. Each federal agency submits its own budget requests, which are compiled by the Office of Management and Budget (OMB). The President is required to submit a budget to Congress between the first Monday of January and the first Monday of February. This is not a hard-and-fast rule and has often been relaxed when a new president from a different party comes into office. The President's budget request makes detailed predictions for expected U.S. tax revenues and makes projections for budget requirements for the next four years. This budget from the White House does not include mandatory spending items. The House and the Senate use the President's budget as a guideline and may make additional budget resolutions for other items to include in the budget.

2. Budget Resolution

Budget resolutions are non-binding resolutions passed by the House and the Senate that serve as guidelines for making budget decisions. It establishes a total spending limit but does not go into detail about spending for specific programs.

3. Appropriations Bills

Appropriations bills set the amount of money the federal government can spend each year on a program. After receiving these overall appropriations and any supplemental spending appropriations, federal agencies and departments can begin to make spending commitments for their various programs.

4. Authorization Bills

Authorization bills are passed by Congress to create a program with its own unique purpose and guidelines. Authorizations give government agencies the legal authority to operate the program and pay for the expenses.

5. Revenue Measures

Revenue measures are legislative actions taken by Congress to increase tax revenues from certain segments of society or create tax breaks for others. It isn't necessary for Congress to pass revenue measure legislation each year, but while some tax laws are permanent, others are temporary with expiration dates and have to be examined and either renewed or allowed to expire.

6. Budget Reconciliation

Budget reconciliation Involves resolutions to committees with instructions on arriving at reconciliation legislation to meet spending and revenue targets by a particular deadline. Reconciliation could also require reporting the effects of spending on debt ceiling legislation.

7. Debt Limit Legislation

Debt limit legislation imposes a cap on how much debt the federal government can take on to finance budget deficits. Congress has the option to either increase the debt ceiling by passing a law or by suspending the debt limit for a certain amount of time to allow the government to take the necessary actions to finance the difference created by the budget deficit.

While the federal budget process has specific procedures and steps to follow, the process doesn't always work as planned. Quite often, the political parties and the President can't come to an agreement by the federal budget timeline for the start of the fiscal year on October 1. In these situations, government agencies and departments are faced with the possibility of running out of money and having to shut down operations.

To avoid a government shutdown, Congress is forced into the position of having to pass a continuing resolution (CR) to provide funds to keep the government operating. Generally, CRs provide funding at the same appropriations levels as the previous year or a previously approved CR.

CRs are temporary measures that fund government activities for a specific amount of time. The purpose is to give lawmakers more time to pass complete appropriations bills for the entire fiscal year.

As your organization develops its experience in the public sector, you may come across additional government contract types, in addition to the four primary types. These additional types of government contracts include GWACs, BPAs and OTAs:

• Governmentwide Acquisition Contracts (GWACs): A GWAC is a type of contract that allows multiple government agencies to purchase goods or services from a single contract vehicle. U.S. federal government agencies are increasingly leveraging GWACs intended to reduce procurement lead time and administrative costs and provide economies of scale. GWACs are similar to IDIQs in that they are pre-competed contracts that have been awarded to multiple vendors and are available for use by all government agencies.
• Blanket Purchase Agreements (BPAs): A Blanket Purchase Agreement (BPA) is a type of contract that allows government agencies to fill anticipated repetitive needs for commodities, supplies or services. BPAs make it easier for the contractor and buyer to fill recurring needs with the customer’s specific requirements in mind while using the buyer’s full buying power by taking advantage of quantity discounts, saving administrative time and reducing paperwork. BPAs are most commonly used for supplies or services that are frequently ordered like office supplies, janitorial supplies and cleaning supplies, but in quantities that are not pre-determined in advance.
• Other Transaction Authority (OTA): An Other Transaction Authority (OTA) contract is a type of contract that allows the government to carry out certain prototypes, research and production projects. OTA’s intention is to give the government flexibility to adopt and incorporate business practices that reflect commercial industry standards and best practices into its award instruments. An important point of distinction is that OTAs are not procurement contracts, grants or cooperative agreements. Instead, they are a legal instrument leveraged by the federal government. OTAs are most commonly used for information technology (IT) products and services and provide access to cost-effective innovative solutions.

Developing experience and establishing your organization’s success as a government contractor more often than not means pursuing indirect opportunities rather than bidding directly on a government contract in an attempt to be awarded a prime position. In fact, most companies pursuing work in the public sector get their foot in the door by joining teaming agreements and through subcontracting opportunities. While these are not traditional types of government contracts, they are common methods of earning the opportunity to fulfil the requirements of an awarded government contract and are important tools to understand:

• Teaming Agreements: A teaming agreement is an agreement between companies to pool resources to enhance their competitiveness to obtain and perform a government contract. They are generally formed between a company competing for a prime contract and a prospective subcontractor or joint venture. Teaming agreements generally focus on proposal preparation responsibilities, division of work upon award, the exclusivity of the teaming agreement and subcontract terms should a subcontract be awarded.
• Subcontractor Opportunities: A subcontract generally refers to the practice of a prime contractor assigning or outsourcing components of a government contract’s obligations under a separate contract with a third party, who is known as the subcontractor. A subcontract is a legally binding agreement setting forth the work to be performed, pricing, delivery requirements, flow-down clauses and procedures for resolving subcontractor disputes.

Established government contractors know that there are incredible opportunities to serve the public sector outside of the U.S., especially with the Canadian government. Canada has three primary levels of government: federal, provincial and territorial and municipal. Public sector procurement spending in Canada is estimated to be worth at least $200 billion Canadian Dollars (CAD) annually, or approximately $150 billion U.S. Dollars (USD) with the current exchange rate.

Contracting in the Canadian public sector shares many similarities and a common language with contracting in the U.S. Still, there are several types of government contract bid and tender notices to be aware of when pursuing work with Canadian governments including:

• Advance Contract Award Notice (ACAN): A public notice indicating to the supplier community that a department or agency intends to award a good, service, or construction contract to a pre-identified supplier.
• Invitation to Tender (ITT): Used where selection is based on the lowest price.
• Notice of Proposed Procurement (NPP): A summary of an upcoming solicitation that briefly describes the requirement and provides pertinent information that will assist suppliers in determining their interest in fulfilling the requirement and their ability to successfully meet any key conditions for participating.
• Price and Availability (P&A): A request sent to suppliers for information concerning approximate prices and availability of specific goods or services. Used for program planning or budgetary purposes.
• Request for Information (RFI) or Letter of Interest (LOI): Used when detailed information and feedback are required from suppliers. Such requests may be used to inform future bid solicitations.
• Request for Proposal (RFP): Used when bidder selection is based on best value rather than on price alone.
• Request for Quotation (RFQ): Used to solicit bids for low-dollar value commercial goods and/or services.
• Request for Standing Offer (RFSO): Used to solicit offers for standing offer methods of supply.
• Request for Supply Arrangement (RFSA): Used to solicit arrangements from suppliers for the establishment of supply arrangements.

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