Government expenditures are made in a variety of ways.

Direct Purchase - Government purchases goods and services.

Transfer Payments - Given by government, raised by taxes, to assist individuals who give the government nothing in return. ex. Farmers being paid for not growing food (also called an incentive. See below.), Social Security, unemployment compensation, Supplemental Security Income (SSI) for persons with disabilities.

Grants in Aid - Fed and State Governments make payments to lower levels of government.

Subsidies and Incentives - Payments to individuals or industries to encourage or discourage certain activities.

The two stages in establishing the federal budget are for the President to prepare and submit a budget to Congress, and for Congress to approve the budget. The federal budget is prepared in multiyear periods, but the primary focus is for the upcoming fiscal year. It sets forth the President's financial plan and indicates the government's priorities. The government's fiscal year starts on October 1 of every calendar year and expires on September 30 of the following year. Normally, the budget is required to be given to Congress on or before the first Monday following January 3. As the budget is prepared, the President confers with various government agencies, other Executive Office unites, and the Office of Management and Budget (OMB)- the office specifically designed to deal with the budget. Congress is bestowed the power to approve, modify, or disapprove the President's proposed budget. As with a bill, the budget initially goes to the House of Representatives, which must set initial budget targets by May 15. In the four months between this date and September 15, when the budget targets are to be finalized, the House assigns appropriations bills to various House appropriation subcommittees. These subcommittees hold hearings on each bill and debate the measure. If the bill is approved, it is sent to the full House Appropriations Committee. If it passes there, the bill is sent to the entire House for all representatives to vote on it. After the House approves the final bill, it goes to the Senate. The Senate may approve the bill as sent by the House, or it may create its own version. If there is any disparity between the House and the Senate versions, a joint House-Senate conference committee tries to work out a compromise bill. During this process, the House and the Senate often seek advice from several government bureau and offices, including the Congressional Budget Office (CBO). The CBO is a congressional agency that evaluates the impact of legislation and projects future revenues or expenditures that will result from the legislation. After the House and Senate both approve the compromise bill, it is sent to the President for ratification. If the budget was altered too much, the President can veto the bill and force Congress to create a bill closer to the original version.

There are many areas that our government attempts to allot money. In listing them, there are:

a) National defense- the largest category that includes military spending, and defense related atomic energy activities.

b) Social Security- payments to senior citizens and the disabled. Retired persons receive benefits from the Old Age and Survivors Insurance (OASI). Those unable to work get their payments from disability insurance (DI) programs.

c) Interest on the Federal Debt- when the government has to borrow money to make up the difference between money spent and taxes collected. The amount of interest paid varies with changes in interest rates and the amount of money borrowed.

d) Income security- includes expenditures for retirement benefits to railroad workers, disabled coal miners, civil service retirement and disability programs. Subsidized housing, child nutrition, and good programs for low-income families also fall under this category.

e) Medicare- a health-care program available to all senior citizens regardless of income. Provides an insurance plan that covers major hospital costs. It also offers optional insurance that provides additional coverage for doctor and laboratory fees, outpatient services, and certain equipment costs.

f) Health- health-care services for low-income people, disease prevention, and consumer safety. Medicaid, a joint federal-state medical insurance program for low-income persons- makes up the largest part of health spending.

g) Education, Training, Employment, and Social Services- include block grants for elementary, secondary, vocational, and adult education. Other services are student loans, youth summer employment programs, daycare, foster care, legal services, and care of neglected and homeless children.

h) Veterans' Benefits- veterans receive education and training, guaranteed home loans, pensions, and hospital and medical care from these funds.

i) Transportation- includes federal expenditures on highways, highway safety, mass transit, railroads, airports, and air traffic regulation.

j) Natural Resources and Environment- money is spent on water resources, conservation, and land management. Pollution control and federal land acquisition for recreational parks are also included.

k) General Science, Space, and Technology- include expenditures for National Science Foundation programs and other general science programs for the Department of Energy.

l) Agriculture- most money goes to farmers in the form of price supports, crop insurance, and guaranteed loans.

In most states, the process in approving the spending process is loosely modeled after that of the federal government. Some states have enacted a balance budget amendment to their state constitution, which requires them to hold spending in line with revenues. Under these conditions, states are forced to cut spending when state revenues drop. Such occurs when sales tax or state income taxes fall because of a decline in the general level of economic activity. At the local level, the mayor, the city council, or the county judge often approves the spending process.

The six major categories of state spending are:

a) public welfare- takes the form of cash assistance, payments for medical care, expenditures to maintain welfare institutions, and other miscellaneous welfare expenditures

b) Higher education- used to supports community colleges and universities.

c) Insurance trust funds- retirement funds and insurance funds for state employees. They are invested until such time as people retire, become unemployed, or are injured on the job.

d) Highways- constitutes highway construction and road improvement expenditures. The federal government builds and maintains much of the interstate highway system, but states maintain roads and other highways that generally link smaller communities with larger ones.

e) Hospitals- because most hospitals don't charge enough in fees to fully recover their costs, they often turn to state and local governments for help.

f) Interest on debt- generally in the form of bonds. The size of this component can increase significantly fi interest rates rise.

Counties, municipalities, townships, school districts, and other special districts are all local governments. The largest categories of spending by local governments make up approximately 67% of their total expenditures. These include:

a) Elementary and Secondary Education- expenditures in this category include teachers' and administrators' salaries, textbooks, and construction and maintenance of school buildings.

b) Public utilities- because fewer utilities serve people on a statewide basis, state governments spend a much smaller percentage of their budgets on public utilities.

c) Hospitals- many are city or municipal owned.

d) Interest on Debt- State and local governments sometimes borrow money to cover operating costs or capital spending.

e) Police protection- most localities have a full-time, paid police force to protect their community.

f) Public welfare- local governments spend much less in this category than the state governments do.

g) Highways- local governments spend almost as much on highways, roads, and street repairs as they do on police protection. Includes the repair of potholes, street signs, and other street-related items.

You might be interested in the the following budget related sites:

The White House Office of Management and Budget or OMB: http://www.whitehouse.gov/OMB/

The Budget of the United States Government: http://www.access.gpo.gov/usbudget/fy2000/amndsup.html