Budget Function Classifications

Budget functions have long been used as supplementary presentations within budget and financial summaries of the federal government. This report discusses the origins and evolution of the current structure and recent spending trends by function. GAO also describes possible challenges in using these classifications as a framework for other governmentwide applications, such as the Federal Government Performance Plan required by the Government Performance and Results Act and the Statement of Net Cost in the federal government's Consolidated Financial Statements.

GAO noted that: (1) while the desire to categorize federal spending according to the purpose or mission of government can be traced back nearly 200 years, modern budget function classifications have evolved from a structure first used in 1948; (2) over the last 50 years, budget functions have been generally stable, with only a few changes overall and none in the last decade; (3) however, this period also saw significant change in the use of budget functions from a purely retrospective summary of federal spending, to a supplemental but subsidiary presentation summarizing the President's budget submission, to the basic prospective framework for the modern congressional budget resolution; (4) over the last 20 years, federal spending has become increasingly concentrated in just a few budget functions, with about one-third of the functions accounting for about 90 percent of the growth; (5) functions with the highest average annual real growth included Medicare, Net Interest, and Health; (6) an alternative trend analysis using a mission area structure based directly on budget subfunction classifications shows that spending related to human resources missions and interest payments increased from 55 percent to nearly 70 percent of total federal spending since 1977; (7) in fact, nearly all of the growth in federal spending since 1977 can be traced to these two areas; (8) a more discrete analysis of federal spending based on subfunctions affirms the prominence of interest and health-related spending compared to other areas but also shows the rapid growth in spending for federal law enforcement activities since 1977; (9) in recent years, the use of budget functions for other than simple historical summaries of federal spending--in effect, the desire to address a variety of governmentwide needs through a convenient and familar structure--has continued; (10) but as budget functions become the framework for assessments of the performance and cost of government operations, questions about the structure's appropriateness for these emerging uses will likely increase; (11) these questions will stem from two basic concerns: (a) how agencies report specific spending; and (b) how this information is aggregated into various function and subfunction categories; and (12) newly available mission and strategic goal information arising from the Results Act and new perspectives on the full cost of government operations arising from improvements in federal financial reporting will present an excellent opportunity and an appropriate environment to begin such an examination.