The way it works is as follows:
You have a single budget that is available to you for player contracts. Let's say this budget is 10 million dollars (that's unrealistically low for modern-day MLB, but it's to simplify things). Now let's say that your team consists of 3 players (again, for simplicity's sake).
- One has a flat contract of $2M for the next three years.
- One has a $1M contract this year, that will go up to $2M next year.
- One has a $3M contract this year, and will be a free agent next season.
Your FA money is the difference between your budget and your current payroll. In this example, your player payroll this year is 6 million dollars (2+1+3). Since your budget is 10 million, you therefore have $4M (10-6) available to you for free agents.
Money for extensions is the difference between your current budget and
next year's payroll. In this example, Player 3's $3M will be off the books next season, but Player 2's contract will increase to 2 million. Your budget may change between seasons, but there's no way to predict that, so the equation uses your current budget of 10 million. Next year's contracts will total $4M (2+2, with Player 3 gone to free agency), meaning you will have $6M (10-4) available for extensions.
Put simply, there is no way to move money around, because it's not two separate budgets. It's the same budget over two separate years.