Jan 2026 - Understanding the Federal Budget

In the federal market space “discretionary budget dollars” refers to the portion of the budget that funds agency operations, programs, and acquisitions. This is where priorities are set, programs are executed, and contracts are awarded.

Each year, the President proposes a budget based on agency requirements and policy objectives, but Congress ultimately determines what moves forward. Authorization laws, such as the National Defense Authorization Act (NDAA), are the vehicles for approving the programs that support requirements and policy objectives and establishing funding ceilings.

However, spending can’t begin until appropriations legislation provides the budget authority agencies need to obligate those funds. The appropriations acts, such as the annual Defense Appropriations Act, are the vehicles for providing that authority.

Once appropriated, these funds are categorized and managed according to their use, such as Operations and Maintenance (O&M), Procurement, and Research, Development, Test and Evaluation (RDT&E), which have assigned time limits for execution aligned with the nature of that category.  Hence time limits are commonly referred to as “one-year,” “two-year,” or “three-year” dollars as a result. These constraints govern what agencies can buy, how funds may be used, and the window in which they must be executed.

For Business Developers, understanding this framework helps assess the viability of an opportunity, meaning when funding may arrive, how much may be available, and whether a program is positioned for execution or delayed. Authorization provides insight into where the government is heading, while appropriations show what can actually be executed now. Understanding the budget framework enables developing realistic pipelines and properly allocating resources.