Final answer:
An agency can obligate funds in advance of appropriations through contract authority, which allows agencies to enter into contracts before appropriations are made. This is distinct from authorizing statutes, collection of receipts, and offsetting collections, none of which grant such permission on their own. The 'power of the purse' is reserved for Congress, which must approve spending through an appropriations bill.
Step-by-step explanation:
What permits an agency to obligate funds in advance of appropriations is known as contract authority. Contract authority allows an agency to enter into contracts before an appropriation is made. It is different from an authorizing statute, which simply creates the legal basis for government programs and may or may not include provisions for future spending. Collection of receipts and offsetting collections both pertain to funds collected by the government, which may be used to offset expenditures, but they do not grant the ability to obligate funds in advance of an appropriation.
The power to appropriate federal funds is known as the "power of the purse." Within the federal government, this power is held by Congress, who must approve spending through an appropriations bill before any revenues can be released, according to Section 9 Clause 7 of the Constitution. The federal government's budget provides the funds for many services and programs, with state and local governments also benefiting from these federal expenditures.
State and local governments must operate similarly; they too must have their spending approved by their respective legislative bodies before funds can be used. Additionally, the federal government can influence state and local governments through the use of categorical grants and unfunded mandates. The Commerce Clause gives Congress the authority to regulate commerce and indirectly affect state and local government financing and operations as well.