I promised to publish an article on the budget reconciliation passed last month and I will, in two weeks. But first, I thought it might be more helpful to put together an information piece on the federal budgeting process and define a few of the terms flying around in the news to help nonprofits who aren’t accustomed to getting down in the weeds when it comes to legislative updates and the impacts of policy on the availability of grant funding. The federal budget process is complicated and even the terminology can be confusing if it isn’t something you deal with every day. Most of us haven’t had to pay this much attention to it in decades or even at all in our careers.
The federal budget process technically begins each year when the president submits a detailed budget request to Congress, usually in February. This document, prepared by the Office of Management and Budget (OMB), outlines proposed spending levels, revenue projections, and policy priorities for the upcoming fiscal year, which runs from October 1 to September 30. Once the president’s proposal is released, the House and Senate Budget Committees work on their own budget resolutions. These resolutions do not carry the force of law on their own, but they set overall spending and revenue targets that guide the work of the appropriations and authorizing committees. For the process to advance, both chambers must adopt an identical budget resolution.
After the resolution is in place, the appropriations committees in the House and Senate divide spending authority among twelve subcommittees, each responsible for a segment of the government such as defense, agriculture, or health and human services. These subcommittees draft appropriations bills that allocate discretionary spending to agencies and programs. Meanwhile, mandatory programs like Social Security and Medicaid are generally handled through authorizing committees. The goal is to pass all appropriations bills by October 1. In practice, Congress rarely meets this deadline, which is where continuing resolutions come into play.
Operating Under a Continuing Resolution
When Congress fails to pass all appropriations bills by the start of the fiscal year, it often resorts to a continuing resolution (CR) to keep the government funded. A CR temporarily extends funding, typically at the prior year’s levels, sometimes with minor adjustments. This approach prevents an immediate government shutdown but comes with limitations. Agencies cannot easily start new initiatives, grant awards may be delayed, and federal programs have less flexibility to respond to emerging needs.
In March 2025, for example, Congress passed the Full-Year Continuing Appropriations and Extensions Act to keep the government operating for the remainder of the fiscal year. While this averted a shutdown, it effectively froze discretionary spending at 2024 levels and constrained federal agencies from moving forward with new projects. If neither an appropriations bill nor a continuing resolution is passed by the deadline, the government experiences a funding lapse, which triggers the shutdown of nonessential services—a scenario that has occurred 14 times since 1981.
Understanding Budget Reconciliation
Another key part of the budget process is reconciliation, a powerful legislative tool that allows Congress to align laws with the spending and revenue goals set in the budget resolution. Established under the Congressional Budget Act of 1974, reconciliation is designed to address mandatory spending programs, revenue changes, and the debt limit. Its most distinctive feature is that in the Senate, a reconciliation bill cannot be filibustered. Debate is limited to 20 hours, and the bill can pass with a simple majority, making it particularly powerful in periods of partisan division.
The process begins when Congress adopts a budget resolution that includes “reconciliation instructions,” directing specific committees to draft legislation that meets certain fiscal targets. Once committees produce their sections, they are combined into a single reconciliation bill. In the Senate, the bill faces a “vote-a-rama,” where amendments are considered under strict time limits. However, not all provisions qualify. Under the Byrd Rule, any measure considered extraneous—such as one that does not directly affect spending or revenue, or that increases long-term deficits—can be removed. After passing both chambers, the bill goes to the president for signature or veto. Although up to three reconciliation bills could theoretically pass each year, Congress usually consolidates major policy changes into one package.
What Is a Rescission?
In addition to approving funding through appropriations bills and modifying it through reconciliation, Congress also has the power to rescind, or cancel, previously approved spending. A rescission is a formal legislative action that takes back budget authority already provided, often targeting unspent or unobligated funds. This tool allows lawmakers to reduce spending without affecting programs that have already used their funds.
Rescissions can have major implications for grants and agency operations. If an agency has awarded—or is in the process of awarding—discretionary grants, a rescission of the underlying budget authority may halt those awards, delay project starts, or even claw back funding that was expected but not yet disbursed. Rescissions are sometimes included in larger budget or reconciliation bills as a way to offset new spending or reduce the deficit.
The 2025 Context
The 2025 budget cycle demonstrates why understanding continuing resolutions, rescissions, and reconciliation is essential. Congress once again failed to complete the standard appropriations process on time, leading to a full-year continuing resolution that maintained 2024 funding levels. At the same time, Republican leaders adopted a budget resolution with reconciliation instructions, creating a path to pass major fiscal legislation without the threat of a Senate filibuster.
Reconciliation is expected to be the vehicle for sweeping policies later in the year, including tax changes, entitlement reforms, and increased funding for border enforcement. Meanwhile, the continuing resolution has left agencies operating in a holding pattern, with delayed grant awards and restricted flexibility for new initiatives. Future legislation is also expected to include significant rescissions, particularly for unspent funds from pandemic-era programs and climate initiatives, which will have direct impacts on local governments and nonprofit organizations that rely on federal grants.
Key Takeaways
The federal budget process involves multiple stages, from the president’s proposal to congressional resolutions, appropriations bills, and potential use of continuing resolutions. When Congress cannot complete the process on time, CRs keep the government open but lock in prior-year funding and limit agency flexibility. Rescissions allow lawmakers to cancel prior spending authority, often hitting grant programs or delayed projects the hardest. Budget reconciliation, by contrast, is a powerful tool for enacting major fiscal changes affecting taxes, entitlements, and debt with only a simple Senate majority.
For decades, federal funding has been largely steady, stable and reliable. In 2025, the combination of a year-long continuing resolution, rescissions, and a radical reconciliation package coupled with a budget proposal that dramatically changes federal funding priorities has made federal funding extremely unpredictable. This upheaval is certainly unprecedented in my 20+ year career. I hope that this explanation of the process helps nonprofit professionals understand what we’re hearing in the news. If this is all still clear as mud, don’t hesitate to reach out in the comments or contact us. Our next article in two weeks will take a deeper look at the budget reconciliation passed in July and its specific impacts.