The stage for the introduction of the Clinton Administration's fiscal year 1995 budget was largely set by the passage of the budget reconciliation bill signed into law in August 1993. In developing the budget, the Administration had to come up with enough spending cuts to meet the spending caps--as well as billions of dollars in additional cuts to pay for the increases it wishes to propose. This document explains how the Clinton Administration's fiscal year (FY) 1995 budget was developed. The introduction describes the budget cuts needed to comply with the FY 1995 spending ceiling. Following the introduction, section 2 explains the structure of the federal budget: (1) nonentitlement spending, which is subject to annual spending ceilings; and (2) pay-as-you-go entitlements and spending. To meet the cap on discretionary spending for FY 1995, the Administration chose to reduce nondefense year 1995, the Administration chose to reduce nondefense discretionary spending. The section offers reasons for tightening the squeeze on domestic programs: austere budget caps; a larger defense request; and a larger crime request. Section 4 describes funding for low-income programs (for health, child immunization, food assistance, and housing) and compares it to pre-Reagan funding levels. Overall, funding for these programs has remained steady. The concluding section notes future challenges, such as proposals for entitlement caps, and suggests that budgetary constraints could become still more severe. Two tables are included. The appendix provides data on proposed changes in low-income program (education, nutrition, health, employment, housing, and general assistance) funding for FY 1995. (LMI)