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ECONOMIC AND ACCOUNTING ANALYSES 1 1. ECONOMIC ASSUMPTIONS Recent Developments The economic expansion that began in April 1991 is nearly four years old yet shows no signs of fatigue. Although the recovery was weak by historical standards in the initial two years, its pace subsequently quickened, adding jobs and pushing the economy toward fullemployment. Economic activity was especially strong over the four quarters of 1994 with real GDP growth of almost 4 percent. This was well above last January’s consensus forecast of 2.8 percent, and the 1995 budget forecast of 3.1 percent. 1 Not only did business fixed investment grow at double-digit rates last year, but consumer demand also increased briskly as households were willing to spend the income generated by the rapid employment gains. • More than 3.5 million new jobs were created during 1994, almost all of them in the private sector. The unemployment rate, which stood at 6.7 percent in January 1994, fell to 5.4 percent by December. • A strong economy was also evident in the rate of capacity utilization in manufacturing that climbed to 85 percent in December 1994, the highest level in almost six years. The current rates of unemployment and capacity utilization are near the thresholds at which labor shortages and material bottlenecks have often occurred in previous expansions. To head off potential inflation pressures, the Federal Reserve tightened monetary policy significantly in 1994. The Fed raised its target for the Federal funds rate six times for a cumulative increase of 21⁄2 percentage points. Both short- and longterm rates rose by that amount. The yields on 30-year Treasury bonds, however, eased to under 8 percent late in the year after peaking at 8.3 percent in early November. To date, it is hard to discern much impact of Federal Reserve tightening in the economic data. Although housing starts are down from their peak and sales of motor vehicles and other consumer durables have 1 This estimate is higher than the 3.6 percent shown in Table 1–1. The economic assumptions, which were completed in early December, did not fully reflect the economic strength that became apparent later in December and in early 1995. slowed from their earlier hectic pace, the economy has remained strong judging by the strength of growth in the final quarter of 1994. This should not be surprising because the lags between rising interest rates and their effects on the economy are widely believed to be long. In acting to restrain inflation when it did, the Federal Reserve moved in advance of any evidence that inflation was actually rising. Indeed, a basic feature of last year’s economy was the absence of price pressures, despite strong output growth. Incoming price data have been more favorable than most analysts had expected. Over the 12-month period ending in December 1994, the Consumer Price Index (CPI) rose only 2.7 percent while the Producer Price Index (PPI) advanced 1.7 percent. The increases remain modest after excluding volatile food and energy prices—a rise of 2.6 percent for the ‘‘core’’ CPI and 1.6 percent for the ‘‘core’’ PPI for finished goods. In fact, inflation has not been a problem throughout the current expansion, with the core CPI increasing at an average annual rate of only 3.2 percent. This is its lowest rate of increase over such a sustained period since the 1960s. Economic Projections Key Assumptions: The Administration’s economic projections, summarized in Table 1–1, are based on several key assumptions. • Fiscal policy will continue to uphold the principle embedded in current law that spending reductions must offset any proposed tax cuts so that the Federal budget deficit does not widen. • The 91-day Treasury bill rate is assumed to rise to 6 percent in early 1995, reflecting the current rapid pace of economic activity. The rate is projected to ease to 51⁄2 percent by 1996. • Oil prices are assumed to rise at the rate of inflation, as measured by the GDP implicit price deflator. The spot price for West Texas Intermediate crude oil dropped to around $17 a barrel in late 1994, near its average for the year. Although some price recovery is envisaged by next spring, crude oil prices are not expected to contribute to inflation over the long haul. 3 4 ANALYTICAL PERSPECTIVES TABLE 1–1. ECONOMIC ASSUMPTIONS 1 (Calendar years; dollar amounts in billions) Actual 1993 Projections 1994 1995 1996 1997 1998 1999 2000 6,343 5,135 123.5 6,735 5,337 126.2 7,117 5,488 129.7 7,507 5,622 133.5 7,921 5,762 137.5 8,361 5,906 141.6 8,823 6,053 145.8 9,310 6,203 150.1 5.0 3.1 1.8 6.3 3.6 2.6 5.4 2.4 2.9 5.5 2.5 2.9 5.6 2.5 3.0 5.5 2.5 3.0 5.5 2.5 3.0 5.5 2.5 2.9 5.4 3.1 2.2 6.2 3.9 2.1 5.7 2.8 2.8 5.5 2.5 3.0 5.5 2.5 3.0 5.5 2.5 3.0 5.5 2.5 3.0 5.5 2.5 3.0 Incomes, billions of current dollars: Personal income ......................................................................................................................... Wages and salaries ................................................................................................................... Corporate profits before tax ....................................................................................................... 5,375 3,081 462 5,691 3,273 522 6,026 3,429 544 6,366 3,610 572 6,732 3,801 603 7,130 4,006 629 7,551 4,221 662 7,975 4,438 714 Consumer Price Index (all urban): 2 Level (1982–84 = 100), annual average .................................................................................... Percent change, fourth quarter over fourth quarter .................................................................. Percent change, year over year ................................................................................................ 144.5 2.7 3.0 148.3 2.8 2.6 152.9 3.2 3.1 157.8 3.2 3.2 162.8 3.2 3.2 168.1 3.2 3.2 173.4 3.1 3.1 178.7 3.1 3.1 Gross Domestic Product (GDP): Levels, dollar amounts in billions: Current dollars ............................................................................................................................ Constant (1987) dollars ............................................................................................................. Implicit price deflator (1987 = 100), annual average ................................................................. Percent change, fourth quarter over fourth quarter: Current dollars ............................................................................................................................ Constant (1987) dollars ............................................................................................................. Implicit price deflator (1987 = 100) ............................................................................................ Percent change, year over year: Current dollars ............................................................................................................................ Constant (1987) dollars ............................................................................................................. Implicit price deflator (1987 = 100) ............................................................................................ Unemployment rate, civilian, percent: 3 Fourth quarter level .................................................................................................................... Annual average .......................................................................................................................... Federal pay raises, January, percent: Military ........................................................................................................................................ Civilian 4 ...................................................................................................................................... 6.4 6.7 5.8 6.1 6.0 5.8 5.8 5.9 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 4.2 4.2 2.2 3.7 2.6 2.0 2.4 2.4 3.1 2.1 3.1 2.1 3.1 2.1 2.1 2.1 Interest rates, percent: 91-day Treasury bills 5 ............................................................................................................... 10-year Treasury notes .............................................................................................................. 3.0 5.9 4.2 7.1 5.9 7.9 5.5 7.2 5.5 7.0 5.5 7.0 5.5 7.0 5.5 7.0 1 Based on information available as of December 1994. for all urban consumers. Two versions of the CPI are now published. The index shown here is that currently used, as required by law, in calculating automatic adjustments to individual income tax brackets. of a January 1994 change in survey methodolgy, the 1993 figure is not directly comparable to those for subsequent years. 4 Percentages exclude locality pay adjustments. 5 Average rate (bank discount basis) on new issues within period. 2 CPI 3 Because Economic Outlook for 1995–2000: The current surge in activity should provide some momentum to the economy in early 1995. The pace of activity is projected to slow considerably during the second and third quarters of the year, however, reflecting the lagged effects of the earlier increases in interest rates on private spending. For 1995 as a whole, real GDP growth is expected to average 2.4 percent, well below the 3.6 percent rate assumed for the previous year. The economy is then projected to settle in on the potential rate of real output growth of 21⁄2 percent in 1996 and beyond. As real GDP growth slows during 1995, the unemployment rate is forecast to edge up from its low current level, allowing monetary policy to ease somewhat. The jobless rate is projected to average 5.8 percent during 1996–2000. Inflation is projected to rise slightly, with the CPI increasing 3.2 percent during 1995. This pickup reflects current labor and capacity constraints and the expectation that past and prospective increases in crude materials prices will be passed through more fully into finished goods prices in the coming months. No further acceleration in consumer prices is assumed for 1996 and the outyears as economic growth slows to a more sustainable 21⁄2 percent pace. Three-month Treasury bill rate is assumed to rise to about 6 percent in early 1995, and then ease back to 51⁄2 percent in 1996 as economic growth slows. The yields on ten-year Treasury notes are expected to stay near it’s current level of about 73⁄4 percent in 1995, and then decline gradually to 7.0 percent. These assumptions imply a narrowing of the spread between short- and long-term rates, which is consistent with previous experience for this stage of a business expansion. Adjusting for inflation, both short- and long-term real rates are currently above their historical averages, but are projected to return to the upper end of the historical range. Economy’s Productive Capacity The budget assumes that the rate of growth in potential output of the economy is 2.5 percent a year. This corresponds to a somewhat faster rate of growth in output for the nonfarm business sector, 2.8 percent per year. The long-term growth trend for nonfarm business output can be decomposed into two parts—one reflect- 1. 5 ECONOMIC ASSUMPTIONS TABLE 1–2. AVERAGE ANNUAL GROWTH RATES IN PERCENT (Fiscal years; in billions of dollars) 1959–73 Real GDP ............................................................................................ Nonfarm Business Output .................................................................. Hours Worked ................................................................................ Productivity ..................................................................................... ing the increase in productivity (that is, output per hour worked), and the other the expected growth of total hours worked (Table 1–2). • Productivity is assumed to grow at an annual rate of 1.4 percent over the projection period. This continues the trend of the early 1990s, which has seen a modest pick up in productivity growth relative to the sluggish performance from 1973–1990. Although it is still too early to be certain that the recent productivity gains are more than a cyclical phenomenon, there is reason for optimism in view of the massive business restructurings and the information revolution, and because faster productivity growth has continued well into the current expansion • Hours worked in the nonfarm business sector are projected to increase at an annual rate of 1.4 percent a year. This is slower than during the 1960s and 1970s when the baby-boom generation first entered the labor force, but higher than the rate experienced during the early 1990s when the job market was weak during the 1990–91 recession and the early phase of the current recovery. Omnibus Trade and Competitiveness Act of 1988 As required by the Omnibus Trade and Competitiveness Act of 1988, Table 1–3 shows estimates for economic variables related to saving, investment, and foreign trade consistent with the economic assumptions. The merchandise trade and current account balances deteriorated in fiscal year 1994 as growth in U.S. exports was exceeded by growth in imports. The continued faster rate of growth in the United States than our major trading partners is the major factor behind the larger deficits. As the growth differential narrows over the next several years, the deficits will level off and begin to decline. Net private investment in the United States has expanded rapidly in the past year, and it is expected to continue to increase as the economy expands. The sources of finance for the increased private investment TABLE 1–3. 3.8 4.0 1.6 2.4 1973–90 1990–95 2.4 2.5 1.7 0.7 1995–2000 2.3 2.6 1.2 1.4 2.5 2.8 1.4 1.4 are the decline in the Federal deficit and higher private saving, plus a larger inflow of foreign capital. The Act requires information on the amount of borrowing by the Federal Government in private credit markets. This is presented in Chapter 13, ‘‘Federal Borrowing and Debt.’’ It is difficult to gauge with precision the effect of Federal Government borrowing from the public on interest rates and exchange rates, as required by the Act. Both are influenced by many factors besides Government borrowing in a complicated process involving supply and demand for credit and perceptions of fiscal and monetary policy here and abroad. Impact of Changes in the Economic Assumptions Last year’s budget economic assumptions understated the surge in economic activity and job growth that actually occurred during 1994. They also did not fully anticipate the much larger increases in interest rates resulting from the strength of the economy and the Fed’s monetary tightening actions. This is clearly shown in Table 1–4, which compares this year’s economic assumptions with those of the 1995 budget. The divergences between actual economic performance and the economic assumptions for 1994–1999 have significant effects on the budget deficit. On balance, the deficit narrows by $12.2 billion in 1995 and widens by $25.6 billion in 1999 (Table 1–5). The main reason for the increased deficit in the outyears is higher interest rates, offset in part by higher receipts and lower costs for unemployment-sensitive programs. Increased receipts projections are partly the result of the larger volume of trade stimulated by GATT. Structural vs. Cyclical Deficit When there is excessive slack in the economy, receipts are lower than they would be otherwise, and outlays for unemployment-sensitive programs (such as unemployment compensation and food stamps) are SAVING, INVESTMENT, AND TRADE BALANCE (Fiscal years; in billions of dollars) 1994 actual Current account balance .................................................................... Merchandise trade balance ................................................................ Net foreign investment ....................................................................... Net domestic saving (excluding Federal saving) 1 ............................ Net private domestic investment ........................................................ –142 –156 –131 358 290 1996 estimate –205 –205 –190 360 370 to to to to to –165 –165 –150 400 410 1 Defined for purposes of Public Law 100–418 as the sum of private saving and the surpluses of State and local governments. All series are based on National Income and Product Accounts except for the current account balance. 6 ANALYTICAL PERSPECTIVES TABLE 1–4. COMPARISON OF ECONOMIC ASSUMPTIONS IN THE 1995 AND 1996 BUDGETS (Calendar years; dollar amounts in billions) Nominal GDP: 1995 budget assumptions 1 ........................................................... 1996 budget assumptions .............................................................. Real GDP (percent change): 2 1995 budget assumptions .............................................................. 1996 budget assumptions .............................................................. GDP deflator (percent change): 2 1995 budget assumptions .............................................................. 1996 budget assumptions .............................................................. Civilian unemployment rate (percent): 3 1995 budget assumptions .............................................................. 1996 budget assumptions .............................................................. 91-day Treasury bill rate (percent): 3 1995 budget assumptions .............................................................. 1996 budget assumptions .............................................................. 10-year Treasury note rate (percent): 3 1995 budget assumptions .............................................................. 1996 budget assumptions .............................................................. 1994 1995 1996 1997 1998 1999 6,698 6,735 7,079 7,117 7,481 7,507 7,906 7,921 8,353 8,361 8,821 8,823 3.0 3.6 2.7 2.4 2.7 2.5 2.6 2.5 2.6 2.5 2.5 2.5 2.7 2.6 2.8 2.9 2.9 2.9 3.0 3.0 3.0 3.0 3.0 3.0 7.0 6.1 6.6 5.8 6.4 5.9 6.2 5.8 6.0 5.8 6.0 5.8 3.4 4.2 3.8 5.9 4.1 5.5 4.4 5.5 4.4 5.5 4.4 5.5 5.8 7.1 5.8 7.9 5.8 7.2 5.8 7.0 5.8 7.0 5.8 7.0 1 Adjusted 2 Fourth for July 1994 revisions. quarter-to-fourth quarter. year average. 3 Calendar TABLE 1–5. EFFECTS ON THE BUDGET OF CHANGES IN ECONOMIC ASSUMPTIONS SINCE LAST YEAR (In billions of dollars) 1995 1996 1997 1998 1999 1,327.5 1,532.1 1,398.9 1,586.7 1,459.4 1,657.1 1,539.1 1,712.3 1,613.4 1,785.2 Deficit (–) ............................................................................... Changes due to economic assumptions: Receipts .......................................................................................... Outlays: Inflation ....................................................................................... Unemployment ........................................................................... Interest rates .............................................................................. Interest on changes in borrowing ............................................. –204.7 –187.8 –197.7 –173.2 –171.9 19.0 16.5 12.2 9.7 11.4 –0.6 –8.0 16.5 –1.1 –1.3 –3.7 31.7 –1.2 –2.0 –5.0 35.2 –0.7 –1.8 –2.9 37.4 0.3 –3.7 –2.2 41.4 1.5 Total, outlays ......................................................................... 6.8 25.4 27.6 32.9 36.9 Decrease in deficit (+) ........................................................... Budget totals under 1996 budget economic assumptions and policies: Receipts .......................................................................................... Outlays ............................................................................................ 12.2 –8.9 –15.4 –23.2 –25.6 1,346.4 1,538.9 1,415.5 1,612.1 1,471.6 1,684.7 1,548.8 1,745.2 1,624.7 1,822.2 Deficit (–) ............................................................................... –192.5 –196.7 –213.1 –196.4 –197.4 Budget totals under 1995 budget economic assumptions and 1996 budget policies: Receipts .......................................................................................... Outlays ............................................................................................ higher. As a result, the deficit is also higher than it would be at full employment. The portion of the deficit that can be traced to such factors is called the cyclical deficit. The remainder is called the structural deficit. 2 Changes in the structural deficit give a better picture of the impact of budget policy on the economy than the unadjusted deficit affords. During a recession and in the early stage of a recovery, the structural deficit also gives a clearer picture of the long-run deficit problem that fiscal policy must address, since this part of 2 For purposes of this presentation, an unemployment rate in excess of 5.8 percent is considered excessive slack. the deficit will persist even when the economy has fully recovered, unless policy changes. In the early 1990’s, outlays for deposit insurance added substantially to actual deficits, although they had little current impact on economic performance. It therefore became customary to remove deposit insurance outlays as well as the cyclical component of the deficit from the actual deficit to compute the adjusted structural deficit. This is shown in Table 1–6. Over the current forecast horizon, the cyclical component of the deficit is small. Deposit insurance outlays are relatively small and do not change greatly from year to year. Thus, somewhat atypically, the adjusted 1. 7 ECONOMIC ASSUMPTIONS TABLE 1–6. ADJUSTED STRUCTURAL DEFICIT (In billions of dollars) 1992 1993 1994 1995 1996 1997 1989 1999 2000 Actual deficit (unadjusted) .................................................................. Cyclical component ........................................................................ 290.4 60.2 255.1 47.2 203.2 15.4 192.5 –3.1 196.7 .............. 213.1 .............. 196.4 .............. 197.4 .............. 194.4 .............. Structural deficit .................................................................................. Deposit insurance 1 ....................................................................... 230.2 2.4 207.9 28.0 187.8 7.6 195.6 12.3 196.7 6.3 213.1 1.4 196.4 –1.2 197.4 1.3 194.4 3.5 Adjusted structural deficit ................................................................... 232.6 235.9 195.3 207.8 203.0 214.5 195.2 198.7 197.9 1 In 1992, includes $4.9 billion in allied contributions for Desert Storm. structural deficits in this budget display much the same pattern of year-to-year changes as the actual deficits. Sensitivity of the Budget to Economic Assumptions Both receipts and outlays are affected by changes in economic conditions. This sensitivity seriously complicates budget planning, because errors in economic assumptions lead to errors in the budget projections. It is therefore useful to examine the implications of alternative economic assumptions. Many of the budgetary effects of changes in economic assumptions are fairly predictable, and a set of rules of thumb embodying these relationships can aid in estimating how changes in the economic assumptions would alter outlays, receipts, and the deficit. Economic variables that affect the budget do not usually change independently of one another. Output and employment tend to move together in the short run: a higher rate of real GDP growth is generally associated with a declining rate of unemployment, while weak or negative growth is usually accompanied by rising unemployment. In the long run, however, changes in the average rate of growth of real GDP are mainly due to changes in the rates of growth of productivity and labor supply, and are not necessarily associated with changes in the average rate of unemployment. Inflation and interest rates are also closely interrelated: a higher expected rate of inflation increases interest rates, while lower expected inflation reduces rates. Changes in real GDP growth or inflation have a much greater cumulative effect on the budget over time if they are sustained for several years than if they last for only one year. Highlights of the rules of thumb are shown in Table 1–7: If real GDP growth is lower by one percentage point in calendar 1995 only and the unemployment rate rises by one-half percentage point, the 1995 deficit would increase by $8.2 billion; receipts in 1995 would be lower by about $7.0 billion, and outlays would be higher by about $1.2 billion, primarily for unemployment-sensitive programs. In 1996, the receipts shortfall would grow further to about $15.2 billion, and outlays would be increased by about $5.8 billion relative to the base, even though the growth rate in calendar 1996 follow the path originally assumed. This is because the level of real (and nominal) GDP and taxable incomes would be permanently lower and unemployment higher. The budget effects (including growing interest costs associated with the higher deficits) would continue to grow slightly in later years. • The budget effects are much larger if the real growth rate is assumed to be one percentage point less in each year (1995–2000) and the unemployment rate rises one-half percentage point in each year. With these assumptions, the levels of real and nominal GDP would be below the base case by a growing percentage. The deficit would be $153.2 billion higher than under the base case by 2000. • The effects of slower productivity growth are shown in a third example, where real growth is one percentage point lower per year while the unemployment rate is unchanged. In this case, the estimated budget effects mount steadily over the years, but more slowly, reaching a $126.7 billion deficit add-on by 2000. Joint changes in interest rates and inflation have a smaller effect on the deficit than equal percentage point changes in real GDP growth because their effects on receipts and outlays are substantially offsetting. An example is the effect of a one percentage point higher rate of inflation and one percentage point higher interest rates during calendar year 1995 only. In subsequent years, the price level and nominal GDP would be one percent higher than in the base case, but interest rates are assumed to return to their base levels. Outlays for 1995 rise by $5.9 billion 3 and receipts by $7.7 billion, for a decrease of $1.7 billion in the 1995 deficit. In 1996, outlays would be above the base by $13.9 billion, due in part to lagged cost-of-living adjustments; receipts would rise $16.0 billion above the base, however, resulting in a $2.1 billion decrease in the deficit. In subsequent years, the amounts added to receipts would be larger than the additions to outlays. If the rate of inflation and the level of interest rates are higher by one percentage point in all years, the price level and nominal GDP would rise by a cumulatively growing percentage above their base levels. In this case, the effects on receipts and outlays mount steadily in successive years, adding $71.1 billion to outlays and $96.3 billion to receipts in 2000, for a net reduction in the deficit of $25.2 billion. 3 This excludes any adjustment to discretionary programs which are capped in nominal terms. 8 ANALYTICAL PERSPECTIVES The table also shows the interest rate and the inflation effects separately, and rules of thumb for the added interest cost associated with higher or lower deficits (increased or reduced borrowing). The effects of changes in economic assumptions in the opposite direction are approximately symmetric to those shown in the table. The impact of a one percentage point lower rate of inflation or higher real growth TABLE 1–7. would have about the same magnitude as the effects shown in the table, but with the opposite sign. These rules of thumb are computed while holding the income share composition of GDP constant. Because different income components are subject to different taxes and tax rates, estimates of total receipts can be affected significantly by changing income shares. These relationships, however, have proved too complex to be reduced to simple rules. SENSITIVITY OF THE BUDGET TO ECONOMIC ASSUMPTIONS (In billions of dollars) Budget effect 1995 1996 1997 1998 1999 2000 Real Growth and Employment Effects of 1 percent lower real GDP growth in calendar year 1995 only, including higher unemployment: 1 Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. Deficit increase (+) ........................................................................................................................................... Effects of a sustained 1 percent lower annual real GDP growth rate during 1995–2000, including higher unemployment: 1 Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. –7.0 1.2 –15.2 5.8 –17.4 7.7 –17.6 9.6 –18.1 11.6 –18.7 13.8 8.2 21.0 25.1 27.2 29.7 32.5 –7.0 1.2 –22.4 7.0 –40.6 15.1 –59.6 25.0 –79.9 38.3 –101.4 51.8 Deficit increase (+) ........................................................................................................................................... Effects of a sustained 1 percent lower annual real GDP growth rate during 1995–2000, with no change in unemployment: Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. 8.2 29.4 55.6 84.6 118.2 153.2 –7.0 0.3 –22.7 1.3 –41.6 3.5 –61.9 7.1 –83.8 12.3 –107.3 19.4 Deficit increase (+) ........................................................................................................................................... 7.3 24.0 45.1 69.0 96.2 126.7 7.7 5.9 16.0 13.9 16.4 10.9 15.4 9.1 15.8 7.6 16.2 7.1 Deficit increase (+) ........................................................................................................................................... Effects of a sustained 1 percentage point higher rate of inflation and interest rates during 1995–2000: Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. –1.7 –2.1 –5.5 –6.3 –8.1 –9.2 7.7 5.9 24.0 20.4 41.5 33.8 58.7 46.2 77.0 58.8 96.3 71.1 Deficit increase (+) ........................................................................................................................................... Effects of a sustained 1 percentage point higher interest rate during 1995–2000 (no inflation change): Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. –1.7 –3.7 –7.7 –12.6 –18.3 –25.2 0.7 5.5 1.8 16.8 2.4 24.9 2.7 31.7 2.9 38.3 3.3 44.8 Deficit increase (+) ........................................................................................................................................... Effects of a sustained 1 percentage point higher rate of inflation during 1995–2000 (no interest rate change): Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. 4.9 14.9 22.5 28.9 35.3 41.5 7.0 0.4 22.2 3.6 39.1 8.9 56.0 14.5 74.1 20.5 93.0 26.3 Deficit increase (+) ........................................................................................................................................... –6.6 –18.6 –30.2 –41.5 –53.6 –66.7 3.6 7.0 7.3 7.6 8.0 8.5 Inflation and Interest Rates Effects of 1 percentage point higher rate of inflation and interest rates during calendar year 1995 only: Receipts ................................................................................................................................................................. Outlays .................................................................................................................................................................. Interest Cost of Higher Federal Borrowing Effect of $100 billion additional borrowing during 1995 ...................................................................................... 1 The unemployment rate is assumed to be 0.5 percentage point higher per 1.0 percent shortfall in the level of real GDP. 2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET Introduction This chapter presents a framework for describing the financial condition of the Federal Government and its performance as a steward of publicly owned assets. Although the tables presented below are similar in some ways to a business’s balance sheet, they are not the same. The Government’s sovereign powers have no counterparts in the business world, and its resources and responsibilities are broader than the assets and liabilities found on a conventional balance sheet. For this reason, it is not possible to judge how well the Government is discharging its stewardship obligations simply from an examination of its own books. A review of the Government’s contribution to national welfare and security is also needed. Differences between Government and business accounting, and the serious limitations in the available data, argue for caution in interpreting the material presented below. Conclusions based on this presentation are necessarily tentative and subject to future revision as the estimating methods are improved and better data become available. The presentation consists of three components: • The first, summarized in Table 2–1, shows what the Federal Government owns and what it owes. In this table, these assets and liabilities are strictly defined. Assets are limited to the Government’s physical and financial possessions. Liabilities are the result of past Government actions that have resulted in binding commitments to make future payments. • The second component consists of Federal budget projections indicating possible future paths for the balance between Federal resources and responsibilities.1 • The final component is intended to present ways in which Federal activities contribute to social and economic well-being. Table 2–3 shows how Federal investments have contributed to national wealth. Table 2–4 offers a set of economic and social indicators that are affected to a greater or lesser degree by Government actions. In the future other tables showing Government-wide performance measures could be added. The Federal Government does not have a single bottom line that would reveal its financial status in a glance, but the tables and charts shown here can contribute to a balanced view of that condition and the Government’s stewardship of its resources. Currently, the Government’s liabilities arising from its past activities exceed the value of the assets in its possession. 1 In this section, Table 2–2 also shows the actuarial balances for the major social insurance programs and how they have changed in the past year. The gap has widened markedly over the last decade or more. While the Federal Government’s financial position has declined, the Nation’s wealth has continued to rise, and the Government’s net liabilities amount to only about 6 percent of total wealth. Furthermore, according to current budget projections, Federal debt, the main contributor to the rise in net liabilities, will expand less rapidly over the next few years than it has over the past decade or more. The real level of Federal debt is projected to rise at a rate of about 2 percent per year compared with an 8 percent rate of increase from 1980 to 1994. Relationship with FASAB Objectives The framework presented here meets one of the four objectives 2 of Federal financial reporting recommended by the Federal Accounting Standards Advisory Board and adopted for use by the Federal Government in September 1993. This Stewardship objective says: Federal financial reporting should assist report users in assessing the impact on the country of the Government’s operations and investments for the period and how, as a result, the Government’s and the Nation’s financial conditions have changed and may change in the future. Federal financial reporting should provide information that helps the reader to determine: 3a. Whether the Government’s financial position improved or deteriorated over the period. 3b. Whether future budgetary resources will likely be sufficient to sustain public services and to meet obligations as they come due. 3c. Whether Government operations have contributed to the Nation’s current and future well-being. The Board is in the process of developing guidance as to the specific displays that would meet this Objective and the accounting standards for use in such statements and schedules. This experimental presentation explores one possible approach for meeting the Objective at the Government-wide level. What Can Be Learned from a Balance Sheet Approach The budget is an essential tool for allocating resources within the Federal Government, but the standard budget presentation, with its focus on annual outlays, receipts, and the deficit, does not provide sufficient information for a full analysis of the Government’s financial and investment decisions. Additional information about the stocks of Federal assets and liabilities can be useful as well. It is also important to examine the effects of Government financial decisions on the private sector and State and local governments. This is especially true for Federal investments which often 2 Objectives of Federal Financial Reporting, Statement of Federal Financial Accounting Concepts Number 1, Spetember 2, 1993. The other three objectives relate to budgetary integrity, operating performance, and systems and controls. 9 10 ANALYTICAL PERSPECTIVES Chart 2-1. A BALANCE SHEET PRESENTATION FOR THE FEDERAL GOVERNMENT ASSETS / RESOURCES LIABILITIES / RESPONSIBILITIES Federal Assets Federal Liabilities Financial Assets Gold and Foreign Exchange Other Monetary Assets Mortgages and Other Loans Less Expected Loan Losses Other Financial Assets Physical Assets Fixed Reproducible Capital Defense Nondefense Inventories Non-reproducible Capital Land Mineral Rights Federal Governmental Assets and Liabilities (Table 2.1) Net Balance Resources / Receipts Responsibilities / Outlays Projected Receipts Addendum: Real GDP Projections Financial Liabilities Currency and Bank Reserves Debt Held by the Public Miscellaneous Guarantees and Insurance Liabilities Deposit Insurance Pension Benefit Guarantees Loan Guarantees Other Insurance Federal Pension Liabilities Long-Run Federal Budget Projections Discretionary Outlays Mandatory Outlays Social Security Health Programs Other Programs Net Interest Deficit National Needs / Conditions National Assets / Resources Federally Owned Physical Assets State & Local Physical Assets Federal Contribution Privately Owned Physical Assets Education Capital Federal Contribution R & D Capital Federal Contribution National Wealth (Table 2.3) Indicators of economic, social, educational, and environmental conditions to be used as a guide to Government investment and management. 2. 11 STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET generate returns that flow mainly to households, private businesses or other levels of government rather than back to the Federal Treasury. Measurements that correct for inflation are also essential to provide a clear picture of the current value of Government assets and liabilities and to permit meaningful comparisons over time. The framework presented here is a first step toward filling some of these needs. The Government’s sovereign powers to tax, regulate commerce, and set monetary policy give it resources that no private enterprise possesses. Although these resources are not assets in a conventional sense, they need to be considered in any complete review of the Government’s financial condition. On the liabilities side, while there are some Government obligations, such as Treasury notes, that have clear counterparts in the business world, other Government obligations have no obvious analogues in business accounting. For example, the Government’s obligation to promote the general welfare has led in the twentieth century to the establishment of a broad array of social welfare programs. These programs are in the midst of an intense review with the dual objectives of improving effectiveness and considering the need for realigning Federal, State, and local responsibilities. Even so it is reasonable to expect that they will continue in some form in the future, and that they will require future Federal funding. Such obligations, however, are not legally binding liabilities, and they would not be included on a business balance sheet. Furthermore, almost all of the broader Federal resources and responsibilities are subject to change through the political process, and future decisions by Congress and the President are likely to alter their value. In a financial sense, the discounted present value of such obligations is much more uncertain than is the current value of the official Government debt, or even the value of Government-owned assets. This is another reason for keeping such political and moral obligations separate from the Government’s liabilities strictly defined. The best way to see how future resources line up with future responsibilities is to project the Federal budget forward in time. The budget offers a comprehensive picture of Federal receipts and spending, and by projecting it forward one can discover the implications of current and past policy decisions. But the budget does not show whether the public is receiving value for its tax dollars. Knowing that would require performance measures for government programs, and broad statistical information about those conditions in our economy and society for which government is wholly or partly responsible. Some of these data are currently available but much more could to be developed. The presentation that follows consists of a series of tables and charts. No one of these is ‘‘the Government balance sheet,’’ but all of them together can serve some of the functions of a balance sheet. The schematic diagram, Figure 2.1, shows how they fit together. The tables and charts should be viewed as an ensemble, the main elements of which can be grouped together in two broad categories—assets/resources and liabilities/ responsibilities. • Reading down the left-hand side of the diagram shows the range of Federal resources, including assets the Government owns, tax receipts it can expect to collect, and national wealth that provides the base for Government revenues. • Reading down the right-hand side reveals the full range of Federal obligations and responsibilities, beginning with Government’s acknowledged liabilities based on past actions, such as the debt held by the public, and going on to include future budget outlays. This column includes a preliminary set of indicators of the Nation’s well-being. These might indicate areas where Government activity might require adjustment either through new investment or through reductions or reallocations of existing resources. THE FEDERAL GOVERNMENT’S ASSETS AND LIABILITIES Table 2–1 summarizes what the Government owes as a result of its past operations along with the value of what it owns, for a number of years beginning in 1960. The values of assets and liabilities are measured in terms of constant FY 1994 dollars. For all of this period, Government liabilities have exceeded the value of assets, but until the early 1980s the disparity was relatively small, and for many years it deteriorated only gradually. In the late 1970s, a speculative run-up in the prices of oil, gold, and other real assets temporarily boosted Federal asset values, but since then they have declined.3 Currently, the total value of Federal assets is 3 This temporary improvement highlights the importance of the other tables in this presentation. What was good for the Federal Government as an asset holder was not necessarily favorable to the economy. The decline in inflation in the early 1980s reversed the speculative runup in gold and other commodity prices. This reduced the balance of Federal net assets, estimated to be only 14 percent greater in real terms than it was in 1960. Meanwhile, Federal liabilities have increased by 154 percent in real terms. The sharp decline in the Federal net asset position that began in the 1980s was due to the large Federal budget deficits that began at that time along with the drop in asset values. Currently, the net excess of liabilities over assets is about $2,900 billion or $11,000 per capita. Assets The assets in Table 2–1 reflect a complete listing of physical resources owned by the Federal Government. They correspond to items that would appear on a normal balance sheet, but they do not constitute an exhaustive catalogue of Federal resources. The Governbut it was good for the economy. 12 ANALYTICAL PERSPECTIVES TABLE 2–1. GOVERNMENT ASSETS AND LIABILITIES * (As of the end of the fiscal year, in billions of 1994 dollars) 1960 ASSETS Financial assets: Gold and foreign exchange ................................. Other monetary assets ........................................ Mortgages and other loans .................................. Less expected loan losses .............................. Other financial assets .......................................... 1965 1970 1975 1980 1985 1990 1992 1993 1994 103 39 128 –1 61 72 55 161 –3 80 60 32 205 –4 65 132 15 203 –9 65 323 37 274 –16 83 156 23 332 –16 106 197 30 267 –17 161 176 38 250 –21 218 175 38 224 –23 197 175 30 203 –25 185 329 365 358 405 702 603 638 661 611 567 867 154 264 870 181 225 853 192 206 685 217 181 548 207 217 630 234 246 708 235 213 743 237 187 755 238 174 744 239 163 85 307 117 283 147 234 227 325 289 591 310 665 305 443 249 396 234 379 226 351 Subtotal ........................................................ 1,677 1,676 1,631 1,636 1,851 2,086 1,904 1,811 1,780 1,723 Total assets ........................................... 2,006 2,041 1,989 2,041 2,554 2,689 2,541 2,472 2,391 2,290 LIABILITIES Financial liabilities: Currency and bank reserves ............................... Debt held by the public ....................................... Miscellaneous ....................................................... 230 1,001 60 249 972 61 272 813 58 274 790 53 275 1,005 59 289 1,764 67 347 2,407 93 367 2,835 70 394 2,994 69 419 3,076 67 Subtotal ............................................................ Fixed reproducible capital: Defense ............................................................ Nondefense ...................................................... Inventories ............................................................ Nonreproducible capital: Land ................................................................. Mineral rights ................................................... Subtotal ............................................................ Insurance liabilities: Deposit insurance ................................................ Pension benefit guarantees ................................. Loan guarantees .................................................. Other insurance .................................................... 1,292 1,282 1,143 1,117 1,339 2,120 2,847 3,272 3,457 3,562 ................ ................ ................ 31 ................ ................ ................ 28 ................ ................ 2 22 ................ 41 6 19 2 29 12 25 8 40 10 16 64 39 14 18 3 47 25 18 –29 61 28 24 –8 30 30 26 Subtotal ............................................................ Federal pension liabilities ......................................... 31 751 28 938 24 1,096 67 1,226 68 1,683 74 1,651 135 1,575 92 1,574 84 1,523 78 1,532 Total liabilities ............................................ Balance ....................................................... Per capita (in 1994 dollars) ...................... Ratio to GDP (in percent) ........................ 2,075 –68 –379 –2.7 2,249 –208 –1,070 –6.6 2,262 –273 –1,333 –7.5 2,410 –369 –1,710 –9.0 3,091 –537 –2,352 –11.2 3,845 –1,157 –4,837 –21.1 4,557 –2,016 –8,042 –32.5 4,939 –2,467 –9,628 –38.7 5,064 –2,674 –10,323 –40.7 5,172 –2,882 –11,015 –42.1 * This table shows assets and liabilites for the Government as a whole, including the Federal Reserve System. Therefore, it does not break out separately the assets held in certain Government accounts, such as social security, that are the obligation of specific Government agencies. Estimates for 1994 are extrapolated in some cases. ment’s most important financial resource, its ability to tax, is not reflected. Financial Assets: At the end of 1994, the Federal Government’s holdings of financial assets amounted to about $570 billion. Government-held mortgages and other loans (measured in constant dollars) reached a peak in the mid-1980s. Since then, Federal loans have declined. The holdings of mortgages, in particular, have declined sharply as the holdings acquired from failed Savings and Loan institutions have been liquidated. The face value of mortgages and other loans overstates their economic worth. OMB estimates that the discounted present value of future losses on these loans is about $25 billion as of 1994. These estimated losses are subtracted from the face value of outstanding loans to obtain a better estimate of their economic worth. Over time, variations in the price of gold have accounted for major swings in this category. Since 1980, gold prices have fallen by 40 percent and the real value of U.S. gold and foreign exchange holdings have dropped by 46 percent. Fixed Reproducible Capital: The Federal Government is a major investor in physical capital. Governmentowned stocks of fixed reproducible capital amounted to almost $1.0 trillion in 1994. About three-quarters of this capital is in the form of military equipment and structures. From 1960 to 1981, the net stock of defense capital fell as a share of GDP, but since 1981 until the last two years, the ratio held steady at around 12 percent. In the last two years, the reduction in defense purchases following the end of the Cold War has caused a decline in the ratio of these stocks to GDP of about 1 percentage point. Inventories: The effect of the slowdown in defense purchases has been more noticeable for inventories. Data on Federal inventories are maintained by the Bureau of Economic Analysis (BEA), Department of Commerce. Since 1990, Federal inventories have declined 2. 13 STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET by more than 20 percent in real terms, accounted for entirely by a drop in military stocks. Non-reproducible Capital: The Government owns significant amounts of land and mineral deposits. There are no official estimates of the market value of these holdings. Researchers in the private sector have estimated what they are worth and these estimates are extrapolated in Table 2–1. Since the late 1980s, private land values have fallen, and it is assumed here that federal lands have shared in this decline. Oil prices have fluctuated but are lower now than four years ago. These shifts have pulled down the value of Federal mineral deposits. Total Assets: The total real value of Government assets has declined somewhat over the last 10 years, principally because of declines in the real prices of gold, land, and minerals. At the end of 1994, the Government’s holdings of all assets were worth about $2.3 trillion. Liabilities The liabilities shown in Table 2–1 are analogous to a business corporation’s liabilities and include public debt, trade credit, and pension obligations owed to Federal workers. Other potential claims on Federal financial resources are not reflected. Financial Liabilities: These amounted to about $3.6 trillion at the end of 1994. The largest component was the Federal debt held by the public, amounting to almost $3.1 trillion. This measure of Federal debt is net of the holdings of the Federal Reserve System, which exceeded $350 billion in 1994. Although an independent agency, the Federal Reserve is part of the Federal Government, and its assets and liabilities are included here in the Federal totals. In addition to debt held by the public, the Government’s financial liabilities include $420 billion in currency and bank reserves, which are mainly obligations of the Federal Reserve System, and about $70 billion in miscellaneous liabilities. Guarantees and Insurance Liabilities: The Federal Government has contingent liabilities arising from loan guarantees and insurance programs. When the Government guarantees a loan or offers insurance, the initial outlays may be small or, if a fee is charged, they may even be negative, but the risk of future outlays associated with such commitments can be huge. The deposit insurance programs, for example, have experienced very large losses recently following many years in which these programs had no budgetary cost in excess of premiums. In the past, the cost of such risks was not recognized until after a loss was realized. In the last few years, however, techniques have been developed which permit estimates to be made of the accruing cost from commitments that risk future outlays. These estimates are reported in Table 2–1. They amounted to about $78 billion in 1994. The resolution of the many failures in the Savings and Loan and banking industries have helped to reduce the accumulated losses in this category. Federal Pension Liabilities: The Federal Government owes pension benefits to its retired workers and to current employees who will eventually retire. The amount of these liabilities is large. As of 1994, the discounted present value of the benefits is estimated to have been around $1.5 trillion.4 The Balance of Net Liabilities The balance between Federal liabilities and Federal assets has deteriorated over the past decade at a rapid rate. In 1980, the negative balance was less than 11 percent of GDP. Currently, it is estimated to be over 40 percent. Although the Government need not maintain a positive balance, because the range of Government resources extends beyond the conventional assets shown in Table 2–1, continuation of this trend would be worrisome. THE BALANCE OF RESOURCES AND RESPONSIBILITIES The data summarized in Table 2–1 are useful in showing some of the consequences of the Government’s past policies, but the Government’s continuing commitments to provide public services are not reflected in this table, nor can the Government’s broader resources be displayed in a table limited to assets that it owns. A better way to examine the balance between future Government obligations and resources is by projecting the budget. The 1993 Omnibus Budget Reconciliation Act reduced the Federal deficit on a cumulative basis by over $500 billion. This is a significant improvement. As a result, the deficit preserves a relatively stable ratio to GDP declining from around 2.7 percent in 1995 to 2.1 percent 4 These pension liabilities are expressed as the acturial present value of benefits accruedto-date based on past and projected salaries. The expected costs of retiree health benefits are not included. The 1994 liability is extrapolated from recent trends. in 2000, and below 2 percent in the following decade. For the period beyond the year 2000, however, the budget outlook is highly uncertain. Demographic trends that will begin to assert themselves early in the next century promise to raise the Federal cost of social security and other benefits for the elderly. Some future claims on budgetary resources deserve special emphasis because of their importance in individual retirement planning. These claims are highlighted in Table 2–2. The Social Security Trustees present an annual report on the balance in the Old Age Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds based on a 75-year projection of future costs and benefits. Table 2–2 shows how these projec- 14 ANALYTICAL PERSPECTIVES TABLE 2–2. CHANGE IN 75–YEAR ACTUARIAL BALANCE FOR OASDI AND HI TRUST FUNDS (INTERMEDIATE ASSUMPTIONS) (As a percent of taxable payroll) OASI DI OASDI HI Actuarial balance in 1993 report ............................................................................... Changes in balance due to changes in: Valuation period ......................................................................................................... Economic and demographic assumptions ................................................................ Disability assumptions ............................................................................................... Legislation .................................................................................................................. Methods ..................................................................................................................... Other .......................................................................................................................... –0.97 –0.49 –1.46 –5.11 –0.05 –0.17 0.00 0.00 –0.27 0.00 –0.00 –0.02 –0.11 0.00 –0.04 0.00 –0.05 –0.18 –0.11 0.00 –0.31 0.00 –0.13 –0.02 0.00 1.31 0.00 –0.19 Total changes ........................................................................................................ Actuarial balance in 1993 report ............................................................................... –0.49 –1.46 –0.17 –0.66 –0.66 –2.13 0.97 –4.14 tions changed between 1993 and 1994. The table also reports similar projections for Medicare’s hospital insurance (HI) trust fund. It is estimated that the balance in the combined OASDI fund worsened by an estimated 0.66 percent of payroll in 1994. These changes were mainly the result of adjustments to the estimating assumptions and technical corrections. The balance in the HI trust fund improved by 0.97 percent of payroll as the result of legislative changes that increased the expected receipts from the HI portion of the payroll tax. Even with this improvement, the HI trust fund is expected to run out of resources within the next decade, and the trust fund remains in deficit on a 75-year basis. Over the past decade, the outlook for both the OASDI and the HI trust funds has deteriorated markedly. At the time of the 1983 social security reforms, the system was temporarily restored to actuarial balance. Since then, downward adjustments in the economic outlook and technical revisions have brought about a deterioration in the projected balances. Currently, the mid-range projections of the actuaries imply that social security will reach a point in the next century after which outgo permanently exceeds income. Medicare reaches a similar point even sooner. NATIONAL WEALTH AND FEDERAL INVESTMENTS Unlike a private corporation, the Federal Government routinely invests in ways that do not add directly to its assets. For example, Federal grants are frequently used to fund capital projects that involve investment at the State or local level of government for highways and other purposes. Such investments can be valuable nationally, but they are not owned by the Federal Government. The Federal Government also invests in education and research and development (R&D). These outlays contribute to future productivity and are in that sense analogous to an investment in physical capital. Indeed, economists have computed stocks of human and knowledge capital to reflect the accumulation of such investments. Nonetheless, these capital stocks are not owned by the Federal Government, nor would they appear on a business balance sheet. Table 2–3 presents a national balance sheet. It includes estimates of total national wealth classified in three categories: physical assets, education capital, and R&D capital. The Federal Government has made contributions to each of these categories, and these contributions are also shown in the table. Data in this table are especially uncertain, because of the assumptions needed to prepare the estimates. Overall, the Federal contribution to the current level of national wealth is about 8 percent. Figure 2.3 illus- trates the relative contribution of different categories of wealth to the national total. Physical Assets These include factories machinery, office buildings, residential structures, land, and government’s physical assets such as military hardware and highways. Automobiles and consumer appliances are also included in this category. The total amount of such capital is vast, amounting to around $24 trillion in 1994. By comparison, GDP was less than $7 trillion. The Federal Government’s contribution to this stock of capital includes its own physical assets plus $0.5 trillion in accumulated grants to State and local governments for capital projects. The Federal Government has financed about one-fifth of the physical capital held by other levels of government. Education Capital Economists have developed the concept of human capital to reflect the notion that individuals and society invest in people as well as in physical assets. Investment in education is a good example of how human capital is accumulated. For this table an estimate has been made of the stock of capital represented by the Nation’s investment in education. The estimate is based on the cost of replacing the years of schooling embodied in the U.S. population aged 16 and over. The idea is to measure 2. 15 STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET TABLE 2–3. NATIONAL WEALTH (As of the end of the fiscal year, in trillions of 1994 dollars) 1960 ASSETS Publicly owned physical assets: Structures and equipment .................................... Federally owned or financed ........................... Federally owned .......................................... Grants to state and local governments ...... Funded by state and local governments ........ Other Federal assets ........................................... 1965 1970 1975 1980 1985 1990 1992 1993 1994 2.1 1.1 1.0 0.1 1.0 0.8 2.4 1.2 1.1 0.2 1.2 0.7 2.9 1.3 1.0 0.2 1.6 0.6 3.4 1.3 0.9 0.4 2.1 0.9 3.7 1.2 0.8 0.4 2.4 1.4 3.6 1.4 0.9 0.5 2.2 1.4 3.8 1.5 0.9 0.5 2.2 1.1 3.8 1.5 1.0 0.5 2.2 1.0 3.9 1.5 1.0 0.5 2.3 0.9 3.9 1.5 1.0 0.5 2.4 0.9 2.8 3.1 3.5 4.3 5.0 4.9 4.8 4.7 4.7 4.8 5.7 2.0 2.0 0.7 0.9 2.0 6.4 2.3 2.3 0.8 1.0 2.4 8.0 2.8 3.0 0.9 1.3 2.7 10.2 3.6 4.0 1.1 1.5 3.4 12.8 4.8 5.0 1.3 1.7 5.1 13.2 4.8 5.4 1.2 1.8 5.7 14.6 5.3 5.8 1.2 2.2 5.7 14.6 5.4 5.8 1.2 2.3 4.7 14.9 5.6 5.9 1.1 2.4 4.4 15.3 5.7 6.0 1.2 2.5 4.3 Subtotal ................................................... Education capital: Federally financed ................................................ Financed from other sources ............................... 7.7 8.8 10.6 13.6 17.9 19.0 20.3 19.3 19.3 19.6 0.1 6.4 0.1 8.2 0.2 10.6 0.3 12.0 0.4 14.7 0.5 17.6 0.7 22.4 0.7 23.8 0.8 24.8 0.8 25.5 Subtotal ................................................... Research and development capital: Federally financed R&D ....................................... R&D Financed from other sources ...................... 6.4 8.3 10.9 12.3 15.2 18.1 23.0 24.6 25.6 26.3 0.2 0.1 0.3 0.2 0.5 0.3 0.5 0.4 0.6 0.4 0.6 0.6 0.7 0.8 0.8 0.9 0.8 0.9 0.8 1.0 Subtotal ................................................... 0.3 0.5 0.8 0.9 1.0 1.2 1.5 1.6 1.7 1.8 Total assets ....................................... 17.3 20.7 25.8 31.1 39.1 43.2 49.6 50.2 51.4 52.4 Subtotal ................................................... Privately owned physical assets: Reproducible assets ............................................. Residential structures ...................................... Nonresidential plant and equipment ............... Inventories ........................................................ Consumer durables .......................................... Land ...................................................................... LIABILITIES: Net claims of foreigners on U.S. ......................... –0.2 –0.2 –0.2 –0.2 –0.5 –0.2 0.3 0.5 0.6 0.8 Balance .............................................. Per capita (thousands of 1994 dollars) ................... 17.5 96.6 20.9 107.7 26.0 127.0 31.3 144.8 39.5 173.1 43.4 181.7 49.4 196.9 49.7 194.0 50.7 195.9 51.6 197.2 ADDENDA: Total Federally funded capital ............................. Percent of national wealth ................................... 2.1 12.2 2.4 11.2 2.6 10.1 3.0 9.5 3.6 9.0 3.9 8.9 4.0 8.1 4.0 8.0 4.0 7.9 4.0 7.7 how much it would cost to reeducate the U.S. workforce at today’s prices. This is a crude measure, but it can provide a rough order of magnitude. According to this measure, the stock of education capital amounted to $26 trillion in 1994, of which about 3 percent was financed by the Federal Government. The total exceeds the Nation’s stock of physical capital. The main investors in education capital have been State and local governments, parents, and the students themselves who forego earning opportunities in order to acquire education. Research and Development Capital Research and development can also be thought of as an investment, because R&D represents a current expenditure for which there is a prospect of future returns. After adjusting for depreciation, the flow of R&D investment can be added up to provide an estimate of the current R&D stock.5 That stock is estimated to have been about $1.8 trillion in 1994. Although this 5 R&D depreciates in the sense that the economic value of applied research tends to decline with the passage of time and movement in the technological frontier. is a large amount of research, it is a relatively small portion of total National wealth. About half of this stock was funded by the Federal Government. Liabilities When considering the debts of the Nation as a whole, the debts that Americans owe to one another cancel out, and the only debts that remain are those owed to foreigners. This point is often overlooked in discussions of debt. While debt is a burden for the borrower, it is a source of income for the lender. In the case of debt owed to foreigners, there is a net obligation and the interest paid on that debt is a net subtraction from our national income. America’s foreign debt has been increasing rapidly in recent years, as a consequence of the U.S. trade deficit, but the size of this debt is small compared with America’s total stock of assets. It amounted to about 11⁄2 percent of the total in 1994. Most of the Federal debt held by the public is owned by Americans, so it does not appear in Table 2–3. Only that portion of the Federal debt held by foreigners is 16 ANALYTICAL PERSPECTIVES included. Even so, it is of interest to compare the imbalance between Federal assets and liabilities with national wealth. The government will have to service the debt or repay it, and its ability to do so without disrupting the economy will depend in part on the wealth of the private sector. Currently, the Federal net asset imbalance, as estimated in Table 2–1, amounts to about 6 percent of total national wealth. in Federal debt since 1980 been avoided, a significant share of these funds would have gone into private investment. National wealth might have been 2 to 4 percent larger in 1994 had fiscal policy avoided the buildup in the debt. Trends in National Wealth Unlike private business, Government typically lacks a direct measure of the value of its services. As a result, the costs of Government are reported while the benefits often are not. For this reason, it can be difficult to evaluate how well Government agencies are performing their functions. With passage of the Government Performance and Results Act of 1993, Federal agencies will be selecting performance measures with which to monitor outputs and outcomes of their activities.6 Examples of performance measures for agency outputs would include: • Numbers of loans extended for Federal credit programs. • The timeliness with which social security checks are issued. • Number of health inspections by the Public Health Service. Measures of outcomes show how such outputs affect people’s lives. Examples might include: • The number of households lifted out of poverty by social security. • Lives saved or losses prevented through inspection and control measures. As appropriate performance measures are developed, it should be possible to integrate them with reports on the cost of Government activities to create a system of financial reporting that would be more analogous to private sector accounting statements. Indicators of Well-Being: There are certain broad objectives for which the Government is partly or fully responsible. Especially important are the Government’s role in fostering healthy economic conditions, promoting health and social welfare, protecting the environment and maintaining national security. Table 2–4 offers a rough idea of information that would be useful in assessing how well the Federal Government has been doing in promoting some of these general objectives. The indicators shown here are only a limited subset drawn from the vast array of data available on economic and social conditions in the United States. In choosing indicators for this table, priority was given to measures that were consistently available over an extended period. Such indicators make it easier to draw valid comparisons and evaluate trends. In some cases, this meant, however, choosing indicators with significant limitations. In the case of national security no indicators were chosen. We expect to improve the selection of indicators and to add to it in future years. The net stock of wealth in the United States at the end of 1994 was about $52 trillion. Since 1980 it has increased in real terms at an annual rate of 1.9 percent per year—about half the 4.2 percent rate it averaged from 1960 to 1980. (All comparisons are in terms of constant 1994 dollars.) Public capital formation slowed down markedly between the two periods. The real value of the net stock of publicly owned physical capital was actually lower in 1994 than in 1980—$4.8 trillion versus $5.0 trillion in the earlier year. Since 1980, Federal grants to State and local governments for capital projects have increased at an average rate of 1.5 percent per year compared with 7.0 percent in the 1960s and 1970s Private capital formation in physical assets has also grown more slowly since 1980. The net stock of nonresidential plant and equipment grew 1.3 percent per year from 1980 to 1994 compared with 4.6 percent in the 1960s and 1970s, and the stock of business inventories actually declined. Overall, the stock of privately owned physical capital grew at an average rate of just 0.7 percent per year between 1980 and 1994. The accumulation of education capital, as measured here, also slowed down in the 1980s, but not nearly as much. It grew at an average rate of 4.4 percent per year in the 1960s and 1970s, about the same as the average rate of growth in private physical capital during the same period. Since 1980, education capital has grown at a 4.0 percent annual rate. This reflects the extra resources devoted to schooling in this period, and the fact that such resources were rising in relative value. R&D stocks grew faster than both physical and education capital in the 1980s, but at a slower rate than in earlier decades. Other Federal Influences on Economic Growth Many Federal policies contributed to the slowdown in capital formation that occurred after 1980. Federal investment policies obviously were important, but the Federal Government also contributes to wealth indirectly. Monetary and fiscal policies affect the rate and direction of capital formation. Regulatory and tax policies affect how capital is invested, as do the Federal Government’s credit assistance policies. One important channel of influence is the Federal budget deficit, which determines the size of the Federal Government’s borrowing requirement. Smaller deficits in the 1980s would have resulted in a smaller gap between Federal liabilities and assets than is shown in Table 2–1. It is also likely that, had the increase Government Performance Measures and Indicators of Well-Being 6 Performance measures for Government agencies were given a strong endorsement in the report of the National Performance Review, Creating a Government that Works Better & Costs Less, (September 1993). 2. 17 STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET TABLE 2–4. ECONOMIC AND SOCIAL INDICATORS (Calendar year) General Categories Economic: Living Standards Economic Security Employment Prospects Wealth Creation Innovation Social: Safe Communities Health and Illness Learning Participation Environment: Air Quality Water Quality 1 The 2 Not Specific Measures 1960 1965 1970 1975 1980 1985 1990 1991 1992 1993 Real GDP per person (1987 dollars) Median Household Income (1993 dollars) All Households Married Couple Households Female Householder, No Husband Present Income Share of Middle Three Quintiles (%) Poverty Rate (%) 1 Misery Index (Inflation + Unemployment) Civilian Unemployment (%) CPI-U (% Change) Increase in Total Payroll Employment (mil) Managerial or Professional Jobs (% of total) Net National Saving Rate (% of NNP) Patents Issued to U.S. Residents (thousands) Multifactor Productivity (1987=100) 10,951 12,766 14,089 14,952 16,620 17,988 19,636 19,306 19,521 19,908 22,698 26,263 12,933 26,455 30,587 14,490 30,558 36,663 17,302 30,340 38,091 17,087 31,095 40,486 17,744 31,717 41,617 17,812 33,105 43,951 18,177 31,962 43,340 17,195 31,553 43,170 17,222 31,241 43,005 17,443 ............ ............ 52.7 52.1 51.6 53.9 49.5 49.7 49.4 48.2 22.2 7.2 17.3 6.1 12.6 10.6 12.3 17.6 13.0 20.6 14.0 10.8 13.5 10.9 14.2 10.9 14.8 10.4 15.1 9.8 5.5 1.7 -0.5 4.5 1.6 2.9 4.9 5.7 -0.5 8.5 9.1 0.4 7.1 13.5 0.2 7.2 3.6 2.5 5.5 5.4 0.3 6.7 4.2 -0.9 7.4 3.0 1.2 6.8 3.0 2.3 ............ ............ ............ ............ ............ 24.1 26.0 26.5 26.5 27.1 8.2 10.4 7.2 5.3 6.3 4.3 2.4 2.4 1.2 2.1 42.0 53.6 50.1 51.4 40.8 43.4 53.0 57.8 58.7 60.9 70.9 83.0 87.4 92.8 96.2 98.9 100.0 98.9 100.8 ............ 160 199 364 482 597 557 732 758 758 746 5.1 5.1 7.8 9.6 10.2 7.9 9.4 9.8 9.3 9.5 26.0 24.7 20.0 16.1 12.6 10.6 9.2 8.9 8.5 ............ 7.7 8.3 7.9 7.4 6.8 6.8 7.0 7.1 ............ ............ 69.7 ............ 70.2 42.4 70.8 39.5 72.6 36.4 73.7 33.2 74.7 30.1 75.4 25.5 75.5 25.6 75.7 ............ ............ ............ 6.0 6.2 6.1 6.6 7.0 6.1 6.2 6.5 6.3 ............ 44.6 49.0 55.2 62.5 68.6 73.9 77.6 78.4 79.4 80.2 8.4 9.4 11.0 13.9 17.0 19.4 21.3 21.4 21.4 21.9 ............ ............ 62.8 ............ ............ ............ ............ 305 ............ 304 296 ............ 298 283 52.6 302 288 ............ 305 290 ............ ............ ............ ............ 307 294 55.2 ............ ............ ............ 194 233 280 296 323 340 414 412 422 ............ ............ ............ ............ ............ ............ 76 63 70 43 ............ ............ ............ ............ ............ ............ 134 154 157 159 161 Violent Crime Rate (per 100,000 population) 2 Murder Rate (per 100,000 population Infant Mortality (per 1000 Live Births) Low Birthweight [less than 2,500 gms] Babies (%) Life Expectancy at birth (years) Cigarette Smokers (% of population 18 and older) Bed Disability Days (average per person) High School Graduates (% of population 25 and older) College Graduates (% of population 25 and older) National Assessment of Educational Progress 3 Mathematics Science Voting for President (% eligible population) Individual Charitable Giving per capital (1994 dollars) Population Living in Counties with Ozone Levels Exceeding the Standard (millions) Population Served by Secondary Treatment or Better (millions) poverty rate does not reflect noncash government transfers such as Medicaid or food stamps. all crimes are reported, and the fraction that go unreported may have varied over time. shown in table for national educational attainment are approximate. 3 Dates The individual measures in this table are influenced in varying degrees by many Government policies and programs, as well as by external factors beyond the Government’s control. In general, they are not outcome indicators, because they do not measure the results of Government activities, but they do provide a quantitative measure of the progress or lack of progress 18 ANALYTICAL PERSPECTIVES in reaching some of the ultimate values that government policy is intended to promote. Such a table can serve two functions. First, it highlights areas where the Federal Government might need to modify its current practices or consider new approaches when there are clear signs of deteriorating conditions. Second, the table provides a context for evaluating other data on Government activities. For example, Government actions that weaken its own financial position may be appropriate when they promote a broader social objective. An example of this occurs during economic recessions when reductions in tax collections lead to increased Government borrowing. This deterioration in the Federal balance sheet provides an automatic stabilizer for the private sector. State government, local government and private budgets are strengthened by allowing the Federal budget to go deeper into deficit. More stringent Federal budgetary controls could be used to hold down Federal borrowing during such periods but at the risk of aggravating the downturn. The Government cannot avoid making trade-offs because of its size and the broad ranging effects of its actions. Monitoring these effects and incorporating them in the Government’s policy making is a major challenge. An Interactive Analytical Framework No single framework can encompass all of the factors that affect the financial condition of the Federal Government. Nor can any framework serve as a substitute for actual analysis. Nevertheless, the framework presented above offers a useful way to examine the financial aspects of Federal policies. Increased Federal support for investment, the reduction in Federal absorption of saving through deficit reduction, and other Administration policies to enhance economic growth are expected to promote national wealth and improve the future financial condition of the Federal Government. As that occurs, the efforts will be clearly revealed in these tables. TECHNICAL NOTE: SOURCES OF DATA AND METHOD OF ESTIMATING Federally Owned Assets and Liabilities Assets Financial Assets: The source of data is the Federal Reserve Board’s Flow-of-Funds Accounts. Two adjustments were made to this data. First, U.S. Government holdings of financial assets were consolidated with the holdings of the monetary authority, i.e., the Federal Reserve System. Second, the gold stock, which is valued in the Flow-of-Funds at a constant historical price, is revalued using the market value for gold. Physical Assets Fixed Reproducible Capital: Estimates were developed from the OMB historical data base for physical capital outlays. The data base extends back to 1940 and was supplemented by data from other selected sources for 1915–1939. The source data are in current dollars. To estimate investment flows in constant dollars, it is necessary to deflate the nominal investment series. This was done using BEA price deflators for Federal purchases of durables and structures. These price deflators are available going back as far as 1940. For earlier years, deflators were based on Census Bureau historical statistics for constant price public capital formation. The capital stock series were adjusted for depreciation on a straight-line basis, assuming useful lives of 46 years for water and power projects; 40 years for other direct Federal construction; and 16 years for major nondefense equipment and for defense procurement. Fixed Nonreproducible Capital: Historical estimates for 1960–1985 were based on estimates in Michael J. Boskin, Marc S. Robinson, and Alan M. Huber, ‘‘Government Saving, Capital Formation and Wealth in the United States, 1947–1985,’’ published in The Measurement of Saving, Investment, and Wealth, edited by Robert E. Lipsey and Helen Stone Tice (The University of Chicago Press, 1989). Estimates were updated using changes in the value of private land from the Flowof-Funds Balance Sheets and in the Producer Price Index for Crude Energy Materials. The Bureau of Economic Analysis is in the process of preparing satellite accounts to accompany the National Income and Product Accounts that will report on changes in mineral deposits for the Nation as a whole, but this work is not yet completed. Liabilities Financial Liabilities: The principal source of data is the Federal Reserve’s Flow-of-Funds Accounts. Contingent Liabilities: Sources of data are the OMB Deposit Insurance Model and the OMB Pension Guarantee Model. Historical data on contingent liabilities for deposit insurance were also drawn from the Congressional Budget Office’s study, The Economic Effects of the Savings and Loan Crisis, issued January 1992. Pension Liabilities: For 1979–1993, the estimates are the actuarial accrued liabilities as reported in the annual reports for the Civil Service Retirement System, the Federal Employees Retirement System, and the Military Retirement System (adjusted for inflation). Estimates for the years before 1979 are not actuarial; they are extrapolations. The estimate for 1994 is a projection. National Balance Sheet Data Publicly Owned Physical Assets: Basic sources of data for the federally owned or financed stocks of capital are the investment flows described elsewhere in the budget. Federal grants for State and local government capital were added together with adjustments for inflation and depreciation in the same way as described above for direct Federal investment. Data for total State and local government capital come from the capital stock data prepared by the BEA. 2. STEWARDSHIP: TOWARD A FEDERAL BALANCE SHEET Privately Owned Physical Assets: Data are from the Flow-of-Funds national balance sheet. Preliminary estimates for 1994 were prepared based on net investment from the National Income and Product Accounts. Education Capital: The stock of education capital is computed by valuing the cost of replacing the total years of education embodied in the U.S. population 16 years of age and older at the current cost of providing schooling. The estimated cost includes both direct expenditures in the private and public sectors and an estimate of students’ foregone earnings, i.e., it reflects the opportunity cost of education. For this presentation, Federal investment in education capital is a portion of the Federal outlays included in the conduct of education and training. This portion includes direct Federal outlays and grants for elementary, secondary, and vocational education and for higher education. The data exclude Federal outlays for physical capital at educational institutions and for research and development conducted at colleges and universities because these outlays are classified elsewhere as investment in physical capital and investment in R&D capital. The data also exclude outlays under the GI Bill; outlays for graduate and post-graduate education spending in HHS, Defense and Agriculture; and most outlays for vocational training. Data on investment in education financed from other sources come from educational institution reports on the sources of their funds, published in U.S. Department of Education, Digest of Education Statistics. Nominal expenditures were deflated by the implicit price deflator for GDP to convert them to constant dollar values. Education capital is assumed not to depreciate, but to be retired when a person dies. An education capital stock computed using this method with different source data can be found in Walter McMahon, ‘‘Relative Returns To Human and Physical Capital in the U.S. and Efficient Investment Strategies,’’ Economics of Education Review, Vol. 10, No. 4, 1991. The method is described in detail in Walter McMahon, Investment in Higher Education, 1974. Research and Development Capital: The stock of R&D capital financed by the Federal Government was developed from a data base that measures the conduct of R&D. The data exclude Federal outlays for physical 19 capital used in R&D because such outlays are classified elsewhere as investment in federally financed physical capital. Nominal outlays were deflated using the GDP deflator to convert them to constant dollar values. Federally funded capital stock estimates were prepared using the perpetual inventory method in which annual investment flows are cumulated to arrive at a capital stock. This stock was adjusted for depreciation by assuming an annual rate of depreciation of 10 percent on the outstanding balance for applied research and development. Basic research is assumed not to depreciate. The 1993 Budget contains additional details on the estimates of the total federally financed R&D stock, as well as its national defense and nondefense components (see Budget for Fiscal Year 1993, January 1992, Part Three, pages 39–40). A similar method was used to estimate the stock of R&D capital financed from sources other than the Federal Government. The component financed by universities, colleges, and other nonprofit organizations is based on data from the National Science Foundation, Surveys of Science Resources. The industry-financed R&D stock component is from that source and from the U.S. Department of Labor, The Impact of Research and Development on Productivity Growth, Bulletin 2331, September 1989. Experimental estimates of R&D capital stocks have recently been prepared by BEA. The results are described in ‘‘A Satellite Account for Research and Development,’’ Survey of Current Business, November 1994. These BEA estimates are lower than those presented here primarily because BEA assumes that the stock of basic research depreciates, while the estimates in Table 2–3 assume that basic research does not depreciate. BEA also assumes a slightly higher rate of depreciation for applied research and development, 11 percent, compared with the 10 percent rate used here. Social Indicators The main sources for the data in this table are the Government statistical agencies. The data are publicly available in the President’s annual Economic Report and the Statistical Abstract of the United States. Other sources include: Educational Attainment in the United States March 1993 and 1992, Health United States 1993, and NAEP 1992 Trends in Academic Progress. FEDERAL RECEIPTS AND COLLECTIONS 21 3. FEDERAL RECEIPTS Receipts (budget and off-budget) are taxes and other collections from the public that result from the exercise of the Government’s sovereign or governmental powers. The difference between receipts and outlays determines the surplus or deficit. Growth in receipts.—Total receipts in 1996 are estimated to be $1,415.5 billion, an increase of $69.0 billion or 5.1 percent relative to 1995. This increase is largely due to assumed increases in incomes resulting from TABLE 3–1. both real economic growth and inflation. Receipts are projected to grow at an average annual rate of 4.9 percent between 1996 and 2000, rising to $1,710.9 billion. As a share of GDP, receipts are projected to decline from 19.2 percent in 1995 to 18.6 percent in 2000. The Uruguay Round Agreements Act of 1994 and the Administration’s proposed middle-class tax cut, which are discussed below, are in large part responsible for this decline in the receipts share of GDP. RECEIPTS BY SOURCE—SUMMARY (In billions of dollars) Estimate Source 1994 actual 1995 1996 1997 1998 1999 2000 Individual income taxes ................................................................. Corporation income taxes .............................................................. Social insurance taxes and contributions ...................................... (On-budget) ................................................................................ (Off-budget) ................................................................................ Excise taxes ................................................................................... Estate and gift taxes ...................................................................... Customs duties .............................................................................. Miscellaneous receipts ................................................................... 543.1 140.4 461.5 (126.4) (335.0) 55.2 15.2 20.1 22.3 588.5 150.9 484.4 (133.2) (351.3) 57.6 15.6 20.9 28.6 623.4 157.4 509.3 (139.0) (370.4) 57.2 16.8 22.3 29.0 642.5 166.1 532.7 (144.7) (388.0) 58.4 18.0 24.1 29.8 680.5 173.2 559.2 (151.2) (408.0) 59.3 19.4 26.1 31.2 717.3 179.2 585.9 (157.0) (428.9) 60.7 20.9 28.0 32.7 756.4 190.5 614.3 (163.4) (450.9) 61.8 22.5 31.2 34.3 Total receipts ............................................................................ (On-budget) ............................................................................ (Off-budget) ............................................................................ 1,257.7 (922.7) (335.0) 1,346.4 (995.2) (351.3) 1,415.5 (1,045.1) ( 370.4) 1,471.6 (1,083.6) (388.0) 1,548.8 ( 1,140.8) (408.0) 1,624.7 (1,195.8) (428.9) 1,710.9 (1,260.0) (450.9) TABLE 3–2. CHANGES IN RECEIPTS (In billions of dollars) Estimate 1995 1 1995 1996 1997 1998 1999 2000 Receipts under tax rates and structure in effect January 1, .................................................... Social security (OASDI) taxable earnings base increases:. $61,200 to $63,000 on Jan. 1, 1996 ................................................................................................... $63,000 to $64,800 on Jan. 1, 1997 ................................................................................................... $64,800 to $67,500 on Jan. 1, 1998 ................................................................................................... $67,500 to $70,200 on Jan. 1, 1999 ................................................................................................... $70,200 to $73,200 on Jan. 1, 2000 ................................................................................................... Proposals 2 ................................................................................................................................................... 1,346.4 1,417.8 1,479.4 1,554.4 1,629.3 1,715.7 ................ ................ ................ ................ ................ * 0.7 ................ ................ ................ ................ –3.0 2.0 0.7 ................ ................ ................ –10.4 2.2 2.0 1.1 ................ ................ –10.9 2.4 2.3 3.1 1.1 ................ – 13.6 2.8 2.6 3.5 3.2 1.3 –18.1 Total, receipts under existing and proposed legislation .............................................................. 1,346.4 1,415.5 1,471.6 1,548.8 1,624.7 1,710.9 *$50 million or less. 1 These estimates assume a social security taxable earnings base of $61,200 through 2000. 2 Net of income offsets. 23 24 ANALYTICAL PERSPECTIVES ENACTED LEGISLATION Uruguay Round Agreements Act of 1994.—This Act implements the Uruguay Round of Agreements that were entered into by the United States and members of the General Agreement on Tariffs and Trade (GATT) on April 15, 1994. It also extends for 10 months, through July 1995, the Generalized System of Preferences (GSP) program, which provides preferential duty treatment to U.S. imports of selected products from developing countries. In enacting this legislation, the United States joins 123 nations in the most sweeping trade agreement in history. The tariff reductions provided under the Agreements and the extension of GSP are largely offset by other revenue and outlay provisions. The major provisions of the Act that affect receipts are described below. Reduce tariffs.—Overall, global tariffs on industrial goods are reduced by an average of 34 percent; U.S tariffs are reduced by slightly more than one-third, with matching tariff reductions by U.S. trading partners. Some reductions occur immediately, some over five years, and some, such as textiles, are phased in over ten years. Extend GSP.—This program, which provides dutyfree access to over 4,400 items from about 142 eligible developing countries that meet certain worker rights and other criteria, is extended for ten months through July 31, 1995. Reform Pension Benefit Guaranty Corporation (PBGC).—The Retirement Protection Act of 1994 comprises a comprehensive series of reforms designed to improve the funding of single-employer defined benefit pension plans and reduce the potential exposure of the PBGC. A number of changes are made to the special funding rules applicable to underfunded pension plans that generally require sponsors of underfunded pension plans to increase their plan funding. In addition, the per participant cap on the variable rate premium that underfunded plans pay to the PBGC is phased-out. The phase-out creates additional incentives for employers to fund their plans, while at the same time it more than offsets the decline in receipts that results from the increased contributions. Accelerate collection of certain excise taxes.—The due date for deposit of excise tax liability incurred during the semi-monthly period of September 16th through September 26th is accelerated to September 29th. Under prior law, the payment was due in the subsequent fiscal year. Special rules apply to taxes on ozonedepleting chemicals, communications services, and air transportation. The acceleration is effective generally on January 1, 1995. Modify estimated tax payment rules for certain foreign income.—U.S. shareholders of a controlled foreign corporation must include earnings from the corporation in their own income for estimated tax purposes by annualizing the earnings. Estimated tax payments must also be made throughout the year for yearly income from intangible property includable in taxable in- come under section 936 of the tax code. A safe harbor is provided in determining the estimated tax liability. This provision is effective for tax years beginning in 1995. Modify withholding requirements on certain payments.—Effective for payments made after December 31, 1996, taxpayers who receive Federal payments and unemployment compensation will be given the option of requesting that the agency making the payment withhold Federal income taxes from the payments. Effective for payments made after December 31, 1994, withholding of Federal income taxes is required on distributions of revenues from certain gaming activities by an Indian tribe to its members. Effective for benefits paid after December 31, 1994, the amount of social security or railroad retirement tier 1 benefits included in the gross income of a nonresident alien that is subject to withholding increases from 50 to 85 percent. Modify earned income tax credit (EITC) eligibility rules.—Effective for taxable years beginning after December 31, 1994, the following changes are made in EITC eligibility rules: (1) members of the Armed Forces stationed outside the United States on extended active duty are allowed to claim the earned income tax credit; and (2) individuals who are nonresident aliens for any portion of the taxable year generally are ineligible to claim the earned income tax credit. Effective for taxable years beginning after December 31, 1993, income received for services provided while an individual is an inmate in a penal institution is removed from the definition of earned income for purposes of computing the EITC. Require taxpayer identification numbers (TINs) at birth.—Taxpayers claiming dependents will be required to provide a TIN for each dependent, regardless of the dependent’s age. This requirement is phased-in for tax years 1995 and 1996 and is fully effective in 1997. Extend Internal Revenue Service (IRS) user fees.— The IRS provides written responses to questions of individuals, corporations, and organizations relating to their tax status or the effects of particular transactions for tax purposes. The IRS responds to these inquiries through the issuance of letter rulings, determination letters, and opinion letters. The fees charged for these requests, which were scheduled to expire effective with requests made after September 30, 1995, are extended through September 30, 2000. Modify substantial understatement penalty for corporations participating in tax shelters.—Under prior law, corporations could avoid a substantial understatement penalty regarding a tax shelter if the taxpayer reasonably believed that its position would ‘‘more likely than not’’ be considered the proper tax treatment. Effective for transactions after December 8, 1994, the ‘‘more likely than not’’ standard is repealed and the corporation is subject to the substantial understatement penalty unless the general exception for reasonable cause applies. 3. 25 FEDERAL RECEIPTS Modify treatment of partnership distributions of marketable securities.—For purposes of measuring gain, the distribution by a partnership of marketable securities generally will be treated like a distribution of cash. A partner will recognize gain to the extent the fair market value of the marketable securities exceeds his adjusted basis in the partnership interest. Exceptions are provided, but in general, the change applies to partnership distributions of marketable securities after December 8, 1994. Modify treatment of excess pension assets used for retiree health benefits.—The prior law provision permitting excess defined benefit pension plan assets to be used to provide retiree health benefits is extended, with modification, for five years through December 31, 2000. Modify rounding rules for pension cost of living adjustments.—Effective for years beginning after December 31, 1994, the dollar limits on contributions and benefits under qualified pension plans are indexed in $5,000 increments, the dollar limit on elective deferrals is indexed in $500 increments, and the dollar limit on compensation taken into account for simplified employee pensions is indexed in $50 increments. Social Security Independence and Program Improvements Act.—This Act establishes the Social Security Administration as an independent agency from the Department of Health and Human Services and makes several changes to the Social Security (OASDI) and Supplemental Security Income (SSI) programs. The pro- visions of the Act that affect receipts expand the exemption from OASDI taxes to certain immigrants and workers, including election workers, ministers, and police and firefighters. Social Security Domestic Employment Reform Act of 1994.—The provisions of this Act make several changes to the OASDI and SSI programs. The major changes affecting receipts are described below. Simplify payment of employment taxes on domestic workers and revise withholding threshold.—The threshold for withholding and paying Social Security taxes on domestic workers is raised from $50 per quarter under prior law to $1,000 per year. This new threshold, which will be indexed annually for inflation, is effective retroactive to January 1, 1994. For 1995 through 1997, employers are allowed to pay domestic employment taxes in a lump sum when they file their own tax returns. Beginning in 1998, employers will be required to satisfy their tax obligation quarterly through estimated payments or by increasing the tax withheld from their own wages. Household workers under age 18 are exempt from social security taxation and coverage unless household employment is their principal occupation. Reallocate old age and survivors (OASI) and disability (DI) insurance tax rates.—To prevent the projected insolvency of the DI trust fund, a reallocation of OASI and DI payroll tax rates is provided. This provision has no net effect on receipts or the deficit. ADMINISTRATION PROPOSALS Provide tax relief to middle-income families.— Tax relief for middle-income families has always been a goal of this Administration. In 1993, however, the Administration faced a deficit crisis; bringing the deficit under control and concentrating tax relief on the working poor were the first priorities. The deficit reduction program has been even more of a success than planned. Now is the time to move beyond the working poor and provide middle-income Americans with a dividend from the successes the Administration has achieved in cutting the deficit and in reinventing government. The Administration is proposing the following middle-class tax cuts that are designed not only to provide tax relief, but also to provide incentives to save and invest in our future and so boost American productivity. Provide tax credit for dependent children.—A $500 non-refundable credit will be allowed for each dependent child under the age of 13. The credit will equal $300 for 1996, 1997 and 1998, and will rise to $500 for 1999 and subsequent years. The credit will be phased-out for taxpayers with adjusted gross income (AGI) between $60,000 and $75,000. Both the credit amount and the phase-out range will be indexed for inflation. The credit must be applied after the earned income tax credit and cannot be used to offset alternative minimum tax liability. Provide tax incentive for education and training.— Effective January 1, 1996, a deduction will be permitted for up to $5,000 in expenditures on post-secondary school education and training for the taxpayer, the taxpayer’s spouse and dependents. The maximum allowable deduction will increase to $10,000 effective January 1, 1999. The maximum allowable deduction will be phased-out for taxpayers filing a joint return with AGI (before the proposed deduction) between $100,000 and $120,000. For taxpayers filing a head-of-household or single return, the maximum allowable deduction will be phased out for those with AGI between $70,000 and $90,000. Qualifying education expenses are those related to post-secondary education paid to institutions and programs eligible for Federal assistance. Deductible expenses will include tuition and fees, but will not include meals, lodging, books or transportation. Expand Individual Retirement Accounts (IRAs).— Under present law, eligibility for deductible IRAs is phased-out for single taxpayers with AGI between $25,000 and $35,000 and for couples filing a joint return with AGI between $40,000 and $50,000. Effective January 1, 1996, the AGI thresholds and phase-out ranges will be doubled; therefore, eligibility will be phased-out for single taxpayers with AGI between $50,000 and $70,000 and for couples filing a joint return with AGI between $80,000 and $100,000. These 26 thresholds and the present law annual contribution limit of $2,000 will be indexed for inflation. Penaltyfree withdrawals from IRAs will be allowed if the proceeds are used to pay post-secondary education costs, to buy or build a first home, to cover living costs if unemployed for at least 12 consecutive weeks, or to pay catastrophic medical expenses (including nursing home or other costs associated with caring for an incapacitated parent or grandparent). In addition, each individual eligible for a deductible IRA will have the option of contributing an amount up to the contribution limit to a traditional deductible IRA or to a new backloaded special IRA. Contributions to this special IRA will not be tax deductible, but if the assets remain in the account for at least five years, all earnings from the account will be tax-free when withdrawn. Withdrawals of account balances from special IRAs during the five-year period will be subject to ordinary income tax and a 10 percent penalty. Penalty-free withdrawals from special IRAs will be allowed during the five year period for the purposes described above. As with current-law IRAs, penalty-free withdrawals will be allowed for any purpose after the taxpayer reaches the age of 591⁄2, or upon disability or death of the taxpayer. Individuals whose AGI for a year falls below the eligibility thresholds will be allowed to convert an existing IRA into a special IRA. Modify earned income tax credit (EITC) eligibility rules.—The Administration is proposing a package of modifications designed to target the EITC to intended recipients. Individuals who are living in the U.S. illegally or who do not have proper documentation for employment purposes will not be eligible to claim the EITC. Similarly, taxpayers with combined dividend and interest income in excess of $2,500 per year will not be eligible for the EITC. In addition, related compliance measures will be implemented. All of these modifications will be effective for taxable years beginning after December 31, 1995. Deter expatriation tax avoidance.—The United States requires U.S. citizens and residents to pay tax on their worldwide income. However, some U.S. taxpayers relinquish their U.S. citizenship or residence and thereby avoid future U.S. tax on unrealized gains. To ensure that these individuals pay their fair share of U.S. tax, when a U.S. citizen renounces U.S. citizenship or when a noncitizen who has been a tax resident of the United States for at least 10 years becomes a nonresident of the United States, the Administration is proposing that such individual’s assets be deemed to be disposed of and reacquired at their fair market value in a transaction in which gain or loss is recognized. There will be an exemption for up to $600,000 of gain and for U.S. real property interests. The provision will apply to any expatriation after February 5, 1995. Tighten rules for taxing foreign trusts.—Some U.S. taxpayers avoid paying applicable U.S. tax on their ANALYTICAL PERSPECTIVES share of income earned by foreign trusts. To ensure that U.S. tax is collected on this income, the Administration is proposing enhanced information reporting requirements for assets transferred to foreign trusts. In addition, under current law, distributions received by U.S. taxpayers from certain foreign trusts may be treated as nontaxable gifts. The Administration is proposing that U.S. taxpayers who receive such distributions pay U.S. tax on the distributions that represent trust income, unless U.S. law treats a U.S taxpayer as owning the trust assets. Increase the number of empowerment zones.— Under the Omnibus Budget Reconciliation Act of 1993, certain tax incentives were provided for nine empowerment zones and 95 enterprise communities, to be designated during 1994 and 1995. The Act specified that six empowerment zones and 65 enterprise communities were to be located in eligible urban areas and three empowerment zones and 30 enterprise communities were to be located in rural areas. The six urban empowerment zones were subject to a total population cap of 750,000. The original nine empowerment zones and 95 enterprise communities were designated in December 1994; tax incentives will be available during the period that the designation remains in effect, which generally will be 10 years. The Administration proposes to provide tax incentives for two additional urban empowerment zones, increasing the total number to 11. In addition, the population cap for urban empowerment zones will be increased to 1,000,000. Reduce excise taxes on certain vaccines.—A manufacturer’s tax is levied on vaccines used to prevent diphtheria, pertussis, tetanus, measles, mumps, rubella or polio. These taxes are deposited in the Vaccine Injury Compensation Trust Fund and provide a source of revenue to compensate individuals who sustain certain injuries or die following administration of these vaccines. Because of large balances in the trust fund, a 50 percent reduction in revenues from these taxes is proposed. The decrease will allow continued program compensation while lowering the costs of vaccines to both public and private purchasers. Expand fees collected under the securities laws.—The Administration proposes to expand certain fees collected under the securites laws as part of a legislative package to provide the Securities and Exchange Commission with a sound and stable long term funding structure. The Administration intends to work with Congress to secure early enactment of such a legislative proposal. Assess fees for examination of FDIC-insured banks and bank holding companies (receipt effect).—The Administration proposes to require the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve to assess fees for examination of FDICinsured banks and bank holding companies. The Federal Reserve currently funds the costs of such examina- 3. FEDERAL RECEIPTS tions from earnings; therefore, deposits of earnings by the Federal Reserve, which are classified as governmental receipts, will increase by the amount of the fees. Modify Federal pay raise (receipt effect).—National and locality pay increases for Federal employees would sum to 2.4 percent in 1996, 3.1 percent in 1997, and 2.1 percent each year in 1998-2000. These proposed pay adjustments affect Federal employee contributions to the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). Extend the environmental tax on corporate taxable income.—A tax equal to 0.12 percent of alternative minimum taxable income in excess of $2 million is levied on all corporations and deposited in the Hazardous Substance Superfund Trust Fund. Extension of this tax, which expires on December 31, 1995, is supported by the Administration. The Administration also supports extension of the excise taxes deposited in the Superfund, which are extended in the baseline estimates, but are scheduled to expire December 31, 1995. Improve tax administration and compliance.— The Administration continues to support revenue-neutral initiatives designed to promote sensible and equitable administration of the internal revenue laws. These include simplification, technical corrections, and taxpayer compliance measures. In addition, the Administration supports and wants to work with Congress on the following proposals: • intermediate sanctions and disclosure requirements to improve public charities’ compliance with the requirements for tax-exempt status; • a package of compliance initiatives that will support the Internal Revenue Service’s efforts to modernize and streamline its operations, to alleviate taxpayer burdens by facilitating the payment of taxes and filing of tax returns, and to rationalize existing rules to treat taxpayers more fairly; and • modifications to improve compliance with diesel dyeing requirements and facilitate refunds of the excise tax on the sale of certain fuels not used for taxable purposes. The Administration will also continue to monitor and consider ways to ease the impact of the reduction of the deductible portion of otherwise allowable business meals and entertainment expenses. Expiring provisions.—A number of tax provisions have expired or are scheduled to expire before January 1, 1996. The Administration supports the revenue-neutral extension of these provisions as discussed below and looks forward to working with the Congress to achieve that goal. These provisions include the following: 27 Exclusion for employer-provided educational assistance.—Certain amounts paid by an employer for educational assistance provided to an employee are excluded from the employee’s gross income for income and payroll tax purposes. This exclusion expired with respect to amounts paid after December 31, 1994. The Administration has previously proposed permanent extension of this provision. Targeted jobs tax credit.—A tax credit, generally equal to 40 percent of up to $6,000 of qualified first year wages, is provided to employers who hire individuals from several targeted groups. The credit expired with respect to individuals hired after December 31, 1994. The Administration strongly supports the goals of this program but has serious concerns over the costeffectiveness of its current design. The Administration would support extension if the problems undermining the credit’s effectiveness are addressed. Research and experimentation (R&E) tax credit.—The 20 percent tax credit provided for certain research and experimentation expenditures expires with respect to expenditures made after June 30, 1995. The Administration has previously proposed permanent extension of this provision. Research and experimentation (R&E) allocation rules.—Companies with foreign operations are allowed to allocate 50 percent of domestic R&E expenditures to their domestic operations and 50 percent of foreign R&E expenditures to their foreign operations. The remaining expenses are to be allocated on the basis of gross sales or gross income. This provision expires with respect to R&E expenses incurred after July 31, 1995. Oil spill liability tax.—Under prior law, a five cents per barrel tax was levied on each barrel of domestic and imported crude oil entering a U.S. port. This tax, which was deposited in the Oil Spill Liability Trust Fund, was to expire on the earlier of December 31, 1994 or the date on which the unobligated balance in the fund reached $1 billion. This tax expired on December 31, 1994. Tax credit for orphan drug clinical testing expenses.— A 50 percent non-refundable tax credit is allowed for a taxpayer’s qualified clinical testing expenses paid or incurred in the testing of certain drugs, generally referred to as orphan drugs, for rare diseases or conditions. This credit expired with respect to expenses incurred after December 31, 1994. Deduction for health insurance costs of self-employed individuals.—Up to 25 percent of the amount paid by a self-employed individual for health insurance expenses was deductible under prior law. This deduction expired effective with respect to expenses incurred after December 31, 1993. The Administration has previously proposed permanent extension of this provision. 28 ANALYTICAL PERSPECTIVES Generalized System of Preferences (GSP).—Under GSP duty-free access is provided to over 4,000 items from about 142 eligible developing countries that meet certain worker rights and other criteria. This program, which was extended for 10 months under the Uruguay Round Agreements Act of 1994, is scheduled to expire after July 31, 1995. TABLE 3–3. Tax deduction for contributions to private foundations.—The deduction for a contribution to a private foundation is generally limited to the adjusted basis of the contributed property. However, a taxpayer who contributed qualified appreciated stock to a private foundation before January 1, 1995 is allowed to deduct the full fair market value of the stock, rather than the adjusted basis of the contributed stock. EFFECT OF PROPOSALS ON RECEIPTS (In billions of dollars) Estimate 1995 1996 1997 1998 1999 2000 1995–2000 Provide tax relief to middle-income families: Provide tax credit for dependent children ...................................................................... Provide tax incentive for education and training ........................................................... Expand Individual Retirement Accounts (IRAs) ............................................................. ................ ................ ................ –3.5 –0.7 0.4 –6.8 –4.7 –0.3 –6.6 –4.9 –0.8 –8.3 –5.7 –1.0 –10.1 –7.5 –2.0 –35.4 –23.5 –3.8 Subtotal, Middle-income tax relief .......................................................................... ................ –3.8 –11.8 –12.4 –15.1 –19.6 –62.7 Modify earned income tax credit (EITC) eligibility rules: Deny EITC to undocumented workers/related compliance measures .......................... Impose interest and dividend test on EITC recipients .................................................. ................ ................ ................ * 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.4 0.3 Subtotal, Modify EITC eligibility rules .................................................................... ................ * 0.2 0.2 0.2 0.2 0.7 Deter expatriation tax avoidance ............................................................................................. Tighten rules for taxing foreign trusts ..................................................................................... Increase the number of empowerment zones ........................................................................ Reduce excise taxes on certain vaccines 1 ............................................................................ Expand fees collected under the securities laws ................................................................... Assess fees for examination of FDIC-insured banks and bank holding companies (receipt effect) ...................................................................................................................... Modify Federal pay raise (receipt effect) ................................................................................ Extend environmental tax on corporate taxable income 2 ...................................................... ................ ................ –0.1 ................ 0.1 0.1 0.3 –0.1 –0.1 0.3 0.2 0.4 –0.1 –0.1 0.3 0.3 0.4 –0.1 –0.1 0.3 0.4 0.5 –0.1 –0.1 0.4 0.5 0.5 –0.1 –0.1 0.4 1.5 2.0 –0.7 –0.3 1.8 ................ ................ ................ 0.1 –0.1 0.3 0.1 –0.2 0.5 0.1 –0.3 0.5 0.1 –0.4 0.5 0.1 –0.5 0.5 0.4 –1.3 2.4 Total effect of proposals 1 .......................................................................... * –3.0 –10.4 –10.9 –13.6 –18.1 –56.0 * $50 million or less. 1 Net of income offsets. 2 Net of deductibility for income tax purposes. 3. 29 FEDERAL RECEIPTS TABLE 3–4. RECEIPTS BY SOURCE (In millions of dollars) Source 1994 actual Individual income taxes (federal funds): Withheld ............................................................... 459,699 Proposed legislation (PAYGO) ....................... .................. Other .................................................................... 160,433 Refunds ................................................................ ¥77,077 1995 estimate 1996 estimate Total Federal fund excise taxes ......................... 487,636 ¥38 183,595 ¥82,733 513,404 ¥3,529 199,985 ¥86,488 543,055 588,460 623,372 Corporation income taxes: Federal funds: Gross collections ............................................. 153,552 Proposed legislation (PAYGO) ................... .................. Refunds ........................................................... ¥13,820 165,174 ¥15 ¥14,910 172,489 ¥102 ¥15,571 150,249 156,816 Total net individual income taxes ....................... Total Federal funds net corporation income taxes ................................................................ 139,732 Source Trust funds: Gross collections (Hazardous substance superfund) ................................................... 653 615 Proposed legislation (PAYGO) ................... .................. .................. 1994 actual 31,226 1995 estimate 1996 estimate 28,992 Trust funds: Highway ........................................................... 16,668 20,665 22,894 Airport and airway ........................................... 5,189 5,562 5,877 Aquatic resources ........................................... 301 301 311 Black lung disability insurance ....................... 567 636 645 Inland waterway .............................................. 88 103 110 Hazardous substance superfund .................... 807 842 850 Oil spill liability ................................................ 48 204 .................. Vaccine injury compensation .......................... 179 140 140 Proposed legislation (PAYGO) ................... .................. .................. ¥70 Leaking underground storage tank ................ 152 155 157 Total trust funds excise taxes ............................. 23,999 28,608 30,914 Total excise taxes .................................................. 55,225 57,600 57,194 249 384 Estate and gift taxes ............................................. 15,225 15,587 16,760 Customs duties: Federal funds ....................................................... Trust funds ........................................................... 19,422 677 20,226 687 21,600 732 Total customs duties ............................................. 20,099 20,913 22,332 Total net corporation income taxes .................... 140,385 150,864 157,449 Social insurance taxes and contributions (trust funds): Employment taxes and contributions: Old-age and survivors insurance (Off-budget) Disability insurance (Off-budget) .................... Hospital insurance ........................................... Railroad retirement: Social Security equivalent account ............ Rail pension and supplemental annuity ..... 302,607 32,419 90,062 284,189 67,067 96,657 314,205 56,156 102,402 1,399 2,323 1,495 2,386 1,503 2,401 Total employment taxes and contributions ......... On-budget ........................................................ Off-budget ........................................................ 428,810 93,784 335,026 451,794 100,538 351,256 476,667 106,306 370,361 Unemployment insurance: State taxes deposited in Treasury 1 .............. Federal unemployment tax receipts 1 ............ Railroad unemployment tax receipts 1 ........... Railroad debt repayment 1 ............................. 22,484 22,340 22,419 5,460 5,694 5,756 27 23 23 33 .................. .................. MISCELLANEOUS RECEIPTS: 3 Miscellaneous taxes ............................................ 163 179 United Mine Workers of America combined benefit fund ..................................................... 286 351 Deposit of earnings, Federal Reserve System .. 18,023 24,559 REGO proposal (PAYGO) .............................. .................. .................. Fees for permits and regulatory and judicial services ........................................................... 1,845 1,867 Proposed legislation (PAYGO) ....................... .................. 81 Fines, penalties, and forfeitures ......................... 1,824 1,830 Restitutions, reparations, and recoveries under military occupation .......................................... 7 6 Gifts and contributions ........................................ 141 113 Refunds and recoveries ...................................... ¥6 ¥406 Total unemployment insurance ........................... 28,004 Total miscellaneous receipts ............................... 28,057 28,198 Other retirement contributions: Federal employees’ retirement—employee contributions ................................................ 4,563 4,462 Proposed legislation (non-PAYGO) ............ .................. .................. 98 96 Contributions for non-Federal employees 2 ... 4,430 ¥75 96 Total other retirement contributions .................... 4,661 4,558 4,451 Total social insurance taxes and contributions On-budget ............................................................ Off-budget ............................................................ 461,475 126,450 335,026 484,409 133,153 351,256 509,315 138,954 370,361 Excise taxes: Federal funds: Alcohol ............................................................. 7,539 7,551 Tobacco ........................................................... 5,691 5,657 Transportation fuels ........................................ 9,402 8,132 Telephone and teletype services .................... 3,526 3,720 Ozone depleting chemicals and products ...... 761 717 Other Federal funds ........................................ 4,307 3,215 Proposed legislation (PAYGO) ................... .................. .................. 26,280 7,514 5,633 6,607 3,921 214 2,415 ¥24 Total budget receipts ............................................ On-budget ............................................................ Off-budget ............................................................ 22,282 28,581 188 274 24,695 79 1,938 310 1,820 6 128 ¥405 29,034 1,257,745 1,346,414 1,415,456 922,719 995,158 1,045,095 335,026 351,256 370,361 MEMORANDUM Federal funds ....................................................... 774,145 835,428 878,135 Trust funds ........................................................... 312,073 322,785 359,068 Interfund transactions .......................................... ¥163,499 ¥163,055 ¥192,107 Total on-budget ...................................................... 922,719 995,158 1,045,095 Off-budget (trust funds) ........................................ 335,026 351,256 Total ......................................................................... 1 Deposits 370,361 1,257,745 1,346,414 1,415,456 by States are State payroll taxes that cover benefit part of the program. Federal unemployment tax receipts cover administrative costs at both the Federal and State level. Railroad unemployment tax receipts cover both the benefits and adminstrative costs of the program for the railroads. 2 Represents employer and employee contributions to the civil service retirement and disability fund for covered employees of Government-sponsored enterprises and the District of Columbia municipal government. 3 Includes both Federal and trust funds. Trust fund amounts in miscellaneous receipts are 1994: $578 million, 1995: $650 million, and 1996: $596 million. 4. USER FEES AND OTHER COLLECTIONS USER FEES The Federal Government earns income from its business-type activities as well as obtaining taxes and other governmental receipts by the exercise of its sovereign powers. It sells postage stamps and electricity, charges fees for admittance to national parks, collects premiums for deposit insurance, and obtains rents and royalties for the right to extract oil from the Outer Continental shelf. These collections are subtracted from gross outlays rather than added to the taxes and other governmental receipts discussed in the previous chapter. Because they reduce outlays, they are called ‘‘offsetting collections.’’ The purpose of this treatment is to produce budget totals for receipts, outlays, and budget authority in terms of the amount of resources allocated governmentally, through collective political choice rather than through the market. Offsetting collections are classified into two major categories: offsetting receipts, which are deposited in receipt accounts; and offsetting collections credited to appropriations (expenditure) accounts, which are deposited directly in these accounts and usually can be spent without further action by the Congress. Both categories include collections from other accounts within the Government as well as the public. Chapter 25, ‘‘Budget System and Concepts,’’ explains the budgetary treatment of these collections more fully. The term ‘‘user charge’’ is not a budgetary category. It is a general term that refers to amounts assessed TABLE 4–1. against identifiable recipients for special benefits derived from Federal activities beyond those received by the general public. Depending on whether the user charge is based on the Government’s sovereign power or business-type activity, and on other considerations, it may be classified as a governmental receipt or an offsetting collection. As shown in Table 4–1, total offsetting collections from the public (including those proposed in this budget) are estimated to be $203.4 billion in 1996. This is only 14 percent as large as the governmental receipts discussed in the previous chapter. Table 4–1 divides this total between offsetting receipts and offsetting collections credited to appropriations accounts and shows major subcategories of each. Table 4–3 provides more detail for offsetting receipts collected from the public together with detail for offsetting receipts collected from other accounts within the Government. The budget contains a variety of user fee and other collections proposals that would yield $1.6 billion in 1996 and $12.9 billion over the years 1996 through 2000. These proposals establish or increase fees in order to recover more of the costs of providing Government services. Table 4–2 splits the proposals between discretionary and mandatory categories for the appropriate scoring under the Budget Enforcement Act of 1990 (BEA). It includes both offsetting collections and user charges classified as governmental receipts. OFFSETTING COLLECTIONS FROM THE PUBLIC (In millions of dollars) Estimate Type Collections deposited in receipt accounts: Medicare premiums ........................................................................................................................................................................................................ Military assistance trust fund property sales ................................................................................................................................................................. Outer Continental Shelf payments, naval petroleum reserve lease and other undistributed offsetting receipts ........................................................ Spectrum auction proceeds, undistributed .................................................................................................................................................................... Sale of property and services, interest income and all other collections deposited in receipt accounts ................................................................... 1994 actual 1995 1996 17,747 13,036 3,002 .............. 17,352 20,122 13,350 2,692 4,375 17,481 20,197 13,370 6,014 4,575 19,044 Subtotal, collections from the public deposited in receipt accounts ........................................................................................................................ Collections credited to appropriations accounts: Postal Service Stamp sales and other collections ........................................................................................................................................................ Deposit insurance funds ................................................................................................................................................................................................. Tennessee Valley Authority and Power Administration collections .............................................................................................................................. Commodity Credit Corporation loan repayments and other collections ....................................................................................................................... Other loan repayments ................................................................................................................................................................................................... Loan guaranty and other insurance premiums, interest income and all other collections credited to appropriations accounts ............................... 51,137 58,020 63,200 48,412 31,577 8,903 7,560 9,139 48,832 52,636 22,653 8,940 10,660 8,755 43,807 54,805 14,939 9,249 9,930 7,308 43,992 Subtotal, collections from the public credited to appropriation accounts ................................................................................................................ Offsetting collections from the public ............................................................................................................................................................................. Offsetting collections from the public excluding off-budget Postal Service collections ............................................................................................... 154,424 205,561 157,149 147,449 205,469 152,833 140,223 203,423 148,618 31 32 ANALYTICAL PERSPECTIVES TABLE 4–2. PROPOSED USER FEES AND OTHER COLLECTIONS (In millions of dollars) 1996 User fees Discretionary: Department of Agriculture: Animal and Plant Health Inspection Service—inspection, licensing, and permit fees—Collections and spending authority .... Grain Inspection—Packers and Stockyards Administration—standardization and licensing activities—Collections and spending authority ..................................................................................................................................................................... Food Safety and Inspection Service—meat and poultry/eggs overtime inspection fees—Collections and spending authority Department of Energy: Decontamination and decommissioning fee extended to foreign purchasers of U.S. enrichment services—Collections ............................................................................................................................................................................ Department of Health and Human Services—Food and Drug Administration: Import user fee to cover inspection/regulatory compliance program—Collections and spending authority .............................. Medical device review and approval—Collections and spending authority ................................................................................. Department of the Interior: Expand authority for Park Service fees:. Collections ...................................................................................................................................................................................... Spending authority ......................................................................................................................................................................... Army Corps of Engineers: Wetlands dredging permit application fees—Collections .................................................................. Environmental Protection Agency: Registration fee for pesticide manufacturers—Collections .................................................. Small Business Administration: Loan servicing fees for Small Business Investment Company and Certified Development Company programs—Collections and spending authority ........................................................................................................... Commodity Futures Trading Commission: Transaction fee to cover cost of regulatory activities—Collections and spending authority .......................................................................................................................................................................................... Federal Maritime Commission: Tariff filing and other administrative fees—Collections and spending authority ....................... Federal Emergency Management Agency: Fee to cover 100% of radiological emergency preparedness program—Collections ................................................................................................................................................................................................ Nuclear Regulatory Commission: Extend fee to cover costs of regulation—Collections and spending authority ..................... Securities and Exchange Commission: Tier 3 fees credited to appropriation—Collections and spending authority ................ Subtotal, discretionary user fees:. Collections ...................................................................................................................................................................................... Spending authority ......................................................................................................................................................................... 1997 1998 1999 2000 8 8 8 8 8 16 107 16 107 16 107 16 107 16 107 45 46 47 48 49 15 24 15 24 16 25 16 26 17 27 32 ............ 6 15 36 36 12 15 42 41 12 ............ 46 48 12 ............ 52 52 12 ............ 3 3 3 3 3 60 2 60 2 60 2 60 2 60 2 12 ............ 92 12 ............ 80 12 ............ 67 12 312 54 12 306 40 437 327 437 353 418 346 723 653 711 638 10 10 10 10 10 10 10 10 10 10 200 45 9 9 426 47 8 9 438 49 15 9 452 51 15 8 466 53 ............ 8 45 45 45 45 45 Mandatory: Department of Agriculture: Recover costs for oversight of marketing agreements and orders—Collections and spending authority .............................................................................................................................................................................................. Department of Commerce: Fisheries management program fees—Collections and spending authority .................................... Departments of Justice and the Treasury: Immigration and Naturalization Service/Customs Service border services fee— Collections and spending authority ............................................................................................................................................... Department of Transportation: Railroad safety inspection fees—Collections .............................................................................. Environmental Protection Agency: Pesticide re-registration fee—Collections and spending authority ...................................... Small Business Administration: Loan servicing fees for 7(a) program—Collections and spending authority ........................... General Services Administration: Allow agencies to charge a commercial equivalent fee for parking provided to employees—Collections and spending authority ...................................................................................................................................... Federal Deposit Insurance Corporation/Federal Reserve Banks: Examination fees for FDIC-insured banks and bank holding companies—Collections 1 ................................................................................................................................................. Securities and Exchange Commission: Tier 1 fees—increases in existing fees—Collections 2 ................................................................................................................. Tier 2 fees—new permanent fees deposited in special fund—Collections and spending authority 2 ........................................ 184 193 201 208 216 59 251 62 263 66 276 69 289 73 303 Subtotal, mandatory user fees:. Collections ...................................................................................................................................................................................... Spending authority ......................................................................................................................................................................... 821 533 1,073 771 1,118 802 1,157 829 1,184 842 Total, user fees: Collections .......................................................................................................................................................................................... Spending authority ............................................................................................................................................................................. 1,259 860 1,510 1,123 1,536 1,148 1,880 1,482 1,894 1,480 Federal Communications Commission: New auction authority and/or user fees ........................................................................... 300 600 1,000 1,400 1,500 Total, user fees and other collections ................................................................................................................................................... Total, spending authority ........................................................................................................................................................................ 1,559 860 2,110 1,123 2,536 1,148 3,280 1,482 3,394 1,480 Other collections 1A portion of this total will be counted as governmental receipts. receipts. 2 Governmental 4. 33 USER FEES AND OTHER COLLECTIONS Discretionary.—The following discretionary user fees are proposed as offsets to discretionary spending. Department of Agriculture Animal and Plant Health Inspection Service (APHIS) fees.—The budget proposes to establish three fees for certain APHIS activities: • To cover APHIS’ costs for providing animal welfare inspections, which would be charged to recipients of APHIS services such as animal research centers, humane societies and kennels. • To cover APHIS’ costs of issuance of biotechnology permits, which would be charged to firms that manufacture genetically engineered fruit and vegetable commodities, parasitic insects, and animals. • To cover APHIS’ costs of veterinary biologics licensing, inspection, and testing activities, which would be paid by veterinary biologics companies that specialize in the production and distribution of animal sperm. Grain inspection standardization and packers and stockyards licensing fees.—The budget proposes to establish a fee for standardization activities of the Grain Inspection—Packers and Stockyards Administration, including maintaining uniform standards for grain quality, determining criteria and recommending specifications for grain inspection instrumentation and developing an agency-wide quality assurance program. Legislation will also be proposed to establish a licensing fee to fully cover the costs of administering meat packing and stockyard activities. The fee would be applied to livestock market agencies, livestock dealers, meat packers and live poultry dealers. Meat, poultry, and egg overtime inspection fee.—Legislation will be proposed to charge fees for all overtime inspections of meat, poultry, and egg products at all establishments inspected by the Food Safety and Inspection Service (FSIS). Currently, fees to reimburse the cost of overtime inspection are required at some FSIS inspected establishments, but not at others. The Federal government would continue to pay the full cost for a primary, eight-hour inspection shift. Department of Energy Decontamination and decommissioning fee.—The budget includes a proposal to assess a fee on foreign customers of Government enrichment services, similar to the fee currently paid by domestic purchasers. The fee would be set at a comparable rate and would be used to offset the costs of environmental cleanup of the Government’s three enrichment plants. Department of Health and Human Services, Food and Drug Administration (FDA) Import inspection fees.—Legislation will be proposed to assess food importers a fee for import entry inspections. FDA is responsible for inspection of imported food products at the port of entry. Fee proceeds would be used to improve the effectiveness of FDA’s regulatory compliance program. Medical device user fee.—Legislation will be proposed to assess fees on medical device manufacturers who present medical devices for pre-market review. The proceeds would be dedicated to expediting the device review and approval process. Department of the Interior National Park System fees.—Legislation will be proposed to expand authority for the Secretary of the Interior to charge entrance and use fees for the National Park System. The proceeds would be made available for expenditure by the National Park Service in the following year. Allowable expenditures include the costs of collection, park maintenance and rehabilitation, and some aspects of park operations. Army Corps of Engineers Wetlands permit fee.—Legislation will be proposed to increase fees for the issuance of wetlands regulatory permits for commercial activities. Authorizing legislation will be drafted in such a way as to have no PAYGO effect and will allow appropriations committees to establish annually the level of fees to be charged. The fees would be deposited in a special Treasury account and would be available to be used by the Regulatory Program to the extent provided in advance in appropriations acts. Environmental Protection Agency (EPA) Pesticide registration fee.—Legislation will be proposed to impose user fees on manufacturers of pesticides to recover the costs of the Pesticide Registration Program. Congressional action is required to activate a user fee rule promulgated by EPA that was subsequently suspended by Congress. After enactment of the authorization, appropriations language will be transmitted to set the level of the fees. Small Business Administration (SBA) Loan servicing fees.—The budget includes loan servicing fees for SBA’s three major business loan programs. The fees would be paid by the lenders and used to supplement SBA’s administrative costs for running the loan programs. For the Small Business Investment Company (SBIC) and Certified Development Company (CDC) programs, SBA proposes to continue its servicing fees authorized in appropriations language last year. These fees will be requested in appropriations language again this year, and if enacted, will be automatically available. Fees for the 7(a) loan program are discussed below under mandatory proposals. Commodity Futures Trading Commission Futures transaction fee.—Authorizing legislation will be proposed to establish a transaction fee on commodity futures and option contracts traded on futures exchanges to cover the cost of the Commodity Futures Trading Commission’s regulatory activities. The collection and use of this fee, once authorized, will be contingent on appropriation action. For 1996, the fee would 34 ANALYTICAL PERSPECTIVES be set at 10 cents per round turn transaction. Additional information on this fee can be found in the Appendix. These activities help stabilize market prices for milk, fruit, vegetables, and certain specialty crops, and they are presently funded from the Section 32 appropriation. Federal Maritime Commission (FMC) Department of Commerce Tariff filing fee.—The Federal Maritime Commission proposes to collect new and increased fees to offset FMC’s cost of providing services, including tariff filing and other administrative services. The fees collected are to be available to augment FMC’s appropriation. Fisheries management program fees.—The Administration’s Magnuson Act reauthorization proposal will include a provision to raise fees to finance marine fisheries stewardship. Fees will be used for the development and implementation of fishery programs, including social and economic studies. Fees would be paid by commercial fisherman and would provide for fisheries management. Federal Emergency Management Agency (FEMA) Radiological emergency preparedness fee.—The budget includes appropriations language that would permit FEMA to assess fees on NRC licensees to cover 100 percent of the cost of providing site-specific services that directly contribute to the fulfillment of emergency preparedness requirements needed for NRC licensing. This proposal would extend the authority to collect these fees, which currently expires at the end of 1995. The proceeds would be deposited as offsetting receipts in the general fund of the Treasury and would not be available for expenditure by FEMA. Nuclear Regulatory Commission (NRC) Nuclear Regulatory Commission fees.—The budget includes a proposal to extend fees collected from nuclear facility license holders from 1998 through 2000. The collections would be used to offset NRC’s costs. Securities and Exchange Commission Securities-related fees.—Legislation will be proposed to expand certain fees collected under the securities laws as part of a legislative package to provide the Securities and Exchange Commission (SEC) with a sound and stable long-term funding structure. Such legislation would stipulate three tiers of new fee income. Tier 1 would be composed of permanent increases in existing base receipts collected under the securities laws. This group of fees would be used for deficit reduction. Tier 2 would establish a set of new permanent fees in the securities laws. These fees would be deposited in a special fund of the U.S. Treasury and the SEC would have the authority to spend such sums as may be deposited in this fund. Tier 3 would provide the SEC’s appropriators with authority to increase certain specified receipts collected under the securities laws and deposit such increments as offsetting collections to the SEC’s appropriation. The collection and use of the Tier 3 fees would be contingent on appropriation action. Mandatory.—The following mandatory user fee proposals would be scored as ‘‘pay-as-you-go’’ savings under the BEA’s scoring rules. Department of Agriculture Agricultural Marketing Service fees.—The Administration proposes to recover USDA costs of oversight and support of marketing agreements and orders by increasing assessments on producers and handlers. Department of Justice/Department of the Treasury Immigration and Naturalization Service (INS)/Customs Service border services user fee.—Legislation will be proposed to collect $3.00 per vehicle and $1.50 per pedestrian crosser, with discounts to frequent crossers. These resources would be used to improve overall border management, increase facilitation of traffic, stem illegal immigration and stop cross-border drug smuggling. The Administration will consult with the governments of Mexico and Canada and other affected parties during the development and implementation of this fee. Department of Transportation Railroad safety inspection fee.—Legislation will be proposed to permanently extend the railroad safety inspection fees that were enacted in the Omnibus Budget Reconciliation Act of 1990. These fees cover the costs of the Federal rail safety program. Railroads are assessed fees according to a formula based on three criteria: road miles, as a measure of system size; train miles, as a measure of volume; and employee hours, as a measure of employee activity. Environmental Protection Agency Pesticide re-registration fee.—Legislation will be proposed to increase fees collected from pesticide manufacturers in support of re-registration of pesticides currently in use. The fees would also be extended beyond the current expiration date in order to fund timely completion of the re-registration program. Fees are paid by industry to offset costs incurred by the accelerated re-registration and expedited processing of pesticides. Small Business Administration Loan servicing fees.— For the 7(a) Guaranteed Loan program, the budget proposes an up-front 1⁄8 percent servicing fee on the guaranteed portion of loans made. This fee will be proposed in authorizing language. If enacted, the funds would be automatically available. Fees for the Certified Development Company (CDC) and Small Business Investment Company (SBIC) programs are discussed above under discretionary user fee proposals. 4. 35 USER FEES AND OTHER COLLECTIONS General Services Administration OTHER COLLECTIONS Parking fees.—Legislation will be proposed to authorize Federal agencies to charge employees up to the commercial equivalent rate for parking and related services and retain these proceeds, in excess of actual management and maintenance costs, to finance employee transit benefit programs. Federal Communications Commission (FCC) New auction authority and/or user fees.—Legislation will be proposed to expand FCC authority to auction additional spectrum and other valuable public resources for private use. Alternatively, legislation will be proposed to grant the FCC authority to charge user fees for public resources that the Commission gives away for free. Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Banks (Fed) State bank examination fee.—Legislation will be proposed to require the FDIC and the Federal Reserve to assess fees for examinations of FDIC-insured banks and bank-holding companies. The costs of such examinations are currently funded from deposit insurance premiums and Fed earnings from monetary policy activities. The FDIC fee proceeds would be used to finance the examinations operation. The Fed proceeds would be transferred to Treasury annually in the form of surplus earnings. OFFSETTING RECEIPTS Table 4–3 itemizes all offsetting collections deposited in receipt accounts. These include payments from one part of the government to another, called intragovernmental transactions, and collections from the public. These receipts are offset (deducted) from outlays in the Federal budget. In total, offsetting receipts are estimated at $328.5 billion in 1996. TABLE 4–3. OFFSETTING RECEIPTS BY TYPE (In millions of dollars) Source 1994 actual 1995 estimate 1996 estimate INTRAGOVERNMENTAL TRANSACTIONS On-budget receipts: Federal intrafund transactions: Distributed by agency: Interest from the Federal Financing Bank .... Interest on Government capital in enterprises .......................................................... Other ............................................................... 9,049 8,415 7,234 1,983 1,182 1,906 879 1,795 1,013 Total Federal intrafunds ................................. 12,214 11,200 10,042 Trust intrafund transactions: Distributed by agency: Payments to railroad retirement .................... Other ............................................................... 3,526 1 3,716 1 3,807 1 Total trust intrafunds ...................................... 3,527 3,717 3,808 Total intrafund transactions ................................ 15,741 14,917 13,850 Interfund transactions: Distributed by agency: Federal fund payments to trust funds: Contributions to insurance programs: Military retirement fund ......................... Supplementary medical insurance ........ Hospital insurance ................................. Railroad social security equivalent fund Rail industry pension fund .................... Civilian supplementary retirement contributions ............................................ Unemployment insurance ..................... National separation liability ................... Other ...................................................... Miscellaneous payments: Other ...................................................... Subtotal ...................................................... 1994 actual 1995 estimate 1996 estimate Interest received by on-budget trust funds 56,494 57,889 60,031 Total interfund transactions undistributed by agency ........................................................ 84,855 85,773 87,094 Total interfund transactions ................................ 169,127 169,110 199,729 Total on-budget receipts ......................................... 184,868 184,027 213,579 Off-budget receipts: Interfund transactions: Distributed by agency: Federal fund payments to trust funds: Old-age, survivors, and disability insurance ....................................................... Undistributed by agency: Employer share, employee retirement (off-budget) ............................................ Interest received by off-budget trust funds 5,678 4,858 6,706 6,409 29,203 6,441 33,576 6,864 38,102 Total off-budget receipts: ........................................ 41,290 44,875 51,672 Total intragovernmental transactions .................... 226,158 228,902 265,251 PROPRIETARY RECEIPTS FROM THE PUBLIC Distributed by agency: Interest: Interest on loans, Foreign Assistance Act ........ Other interest on foreign loans and deferred foreign collections .......................................... Interest on deposits in tax and loan accounts .. Other interest (domestic—civil) 3 ........................ 328 275 264 639 634 1,132 634 960 1,706 610 1,000 2,968 Total interest ....................................................... 2,734 3,575 4,842 Rents: Rent and bonuses from land leases, etc .......... Rent of land and other real property ................ Rent of equipment and other personal property 132 ¥12 3 11 80 8 11 88 8 Total rents .......................................................... 123 100 107 1,062 1,126 1,151 1,514 18 703 Royalties ............................................................. Sale of products: Sale of timber and other natural land products Sale of minerals and mineral products ............. Sale of power and other utilities ....................... Sale of other products 3 ..................................... Recovery of mint manufacturing expense ......... 2,017 11,908 38,355 2,247 3,075 384 11,470 36,955 4,508 3,153 178 12,102 62,122 5,461 3,223 200 20,029 3,321 104 520 20,494 1,311 91 582 20,797 736 87 941 546 611 564 80,489 79,352 106,233 Trust fund payments to Federal funds: Repayment of loans or advances to trust funds ...................................................... 2,921 3,024 Charges for services to trust funds .......... 241 327 Quinquennial adjustment for military service credits .............................................. ................ ................ Interest payments to Treasury .................. ................ ................ Other .......................................................... 620 634 36 Source 3,846 320 Subtotal ...................................................... 3,782 3,984 6,401 Total sale of products ........................................ Total interfunds distributed by agency .......... 84,272 83,337 112,634 Fees and other charges for services and special benefits: Medicare premiums and other charges (trust funds) .............................................................. Revenues for enrichment of uranium ................ Nuclear waste disposal revenues ...................... Veterans life insurance (trust funds) ................. Other 3 ................................................................. Undistributed by agency: Employer share, employee retirement (onbudget): 2 Civil service retirement and disability insurance .................................................. CSRDI from Postal Service ...................... Hospital insurance (contribution as employer) 1 ................................................. Postal employer contributions to FHI ....... Military retirement fund .............................. Other Federal employees retirement ........ 7,892 5,114 7,693 5,493 7,770 5,499 1,926 514 12,808 107 1,890 562 12,130 118 1,955 590 11,123 125 Total employer share, employee retirement (on-budget) ................................... 28,361 27,885 27,063 Total fees and other charges ............................ Sale of Government property: Sale of land and other real property 3 .............. Sale of equipment and other personal property: Military assistance program sales (trust funds) ......................................................... 771 412 758 22 53 743 755 459 571 829 828 54 44 62 ................ 2,147 2,199 17,747 20,122 20,197 9 ................ ................ 396 555 591 335 296 287 1,714 2,008 2,316 20,202 22,981 23,390 23 15 15 13,036 13,350 13,370 4. 37 USER FEES AND OTHER COLLECTIONS TABLE 4–3. OFFSETTING RECEIPTS BY TYPE—Continued (In millions of dollars) Source Sale of scrap and salvage material .................. Total sale of Government property .................... 1994 actual 1995 estimate 1996 estimate 2 ................ ................ 13,060 13,365 13,385 Realization upon loans and investments: Dollar repayments of loans, Agency for International Development .................................... Foreign military credit sales ............................... Negative loan subsidies ..................................... Downward reestimates of subsidies .................. Dollar conversion of foreign currency ................ Repayment of loans to United Kingdom ........... Other ................................................................... 540 545 926 428 23 102 220 Total realization upon loans and investments .. 2,783 2,061 2,359 Recoveries and ....................................... Miscellaneous receipt accounts 3 ........................... 1,545 2,477 1,698 1,493 2,058 1,454 Total proprietary receipts from the public distributed by agency ................................................... 46,004 48,546 50,945 * ................ 993 refunds 3 Undistributed by agency: Other interest: Interest received from Outer Continental Shelf escrow account ............................ Rents and royalties on the Outer Continental Shelf: Rents and bonuses ............................................ Royalties ............................................................. 547 532 566 655 567 872 78 ................ 23 23 104 106 176 171 Source Sale of major assets .............................................. ................ ................ 212 2,480 636 2,400 1996 estimate 885 Total proprietary receipts from the public undistributed by agency .............................................. 3,002 2,692 4,914 Total proprietary receipts from the public undistributed by agency 4 ............................................. 49,006 51,238 55,859 OFFSETTING GOVERNMENTAL RECEIPTS Distributed by agency: Defense cooperation ............................................... * ................ ................ Other ....................................................................... 2,131 2,407 2,766 Undistributed by agency: Spectrum auction proceeds .................................... ................ 4,375 4,575 Total offsetting governmental receipts ................... 2,131 6,782 7,341 Total offsetting receipts ........................................... 277,296 286,921 328,451 * $500 thousand or less. 1 Interchange receipts between the social security and railroad retirement funds place the social security funds in the same position they would have been if there were no separate railroad retirement system. 2 Includes provision for covered Federal civilian employees and military personnel. 3 Includes both Federal funds and trust funds. 4 Consists of: 1994 actual 509 2,493 1995 estimate 1994 actual On-budget: Federal funds .............................. Trust funds .................................. Off-budget: Trust funds .................................. 1995 estimate 1996 estimate 16,720 32,274 16,225 35,000 20,708 35,139 11 12 12 ASSET SALES The budget proposes the sale of a number of real assets. As shown in Table 4–4, the estimated gross proceeds from these sales is $9.1 billion. A provision in the Balanced Budget and Emergency Deficit Control Act of 1985 generally prohibits counting the proceeds of asset sales as offsets to spending. However, the budget proposes an exemption to the prohibition for these proposals. The legislation to implement each of these proposals will include a provision to allow the proceeds to be counted as offsets to spending if the President and Congress designate that they should be so counted. Table 4–4 itemizes each asset sale proposal. It details gross proceeds, changes in offsetting collections as a TABLE 4–4. result of selling the asset, administrative savings after the asset is sold, and the resulting net proceeds. The Administration plans to privatize four Power Marketing Administrations (PMAs), the Naval Petroleum Reserves (NPR), the United States Enrichment Corporation (USEC), and the Helium Fund. In addition, it plans to sell excess uranium and a portion of the Strategic Petroleum Reserve (SPR). Proceeds from the sale of USEC will be earmarked for the Nuclear Waste Disposal Fund. SPR proceeds will be earmarked for the decommissioning of the Strategic Petroleum Reserve Weeks Island, Louisiana, site. PROCEEDS FROM PROPOSED ASSET SALES 1 (in millions of dollars) 1996 Helium Fund: Gross proceeds from asset sale, mandatory ................................................................................................................... Loss of offsetting collections, mandatory ......................................................................................................................... 1997 1998 1999 5-year total 2000 –4 ............ –4 9 –4 9 –4 9 –4 9 –20 36 Net proceeds 2 .................................................................................................................................................................. Excess uranium: Gross proceeds from asset sale, mandatory ................................................................................................................... –4 5 5 5 5 16 –400 ............ ............ ............ ............ –400 Naval Petroleum Reserves (NPR): Gross proceeds, mandatory ............................................................................................................................................. Loss of offsetting collections, mandatory ......................................................................................................................... Administrative savings, discretionary ............................................................................................................................... ............ ............ ............ –2,600 448 –145 ............ 439 –185 ............ 417 –179 ............ 395 –166 –2,600 1,699 –675 Net proceeds ..................................................................................................................................................................... ............ –2,297 254 238 229 –1,576 Power Marketing Administrations (PMAs): Gross proceeds from asset sale, mandatory ................................................................................................................... Loss of offsetting collections, mandatory ......................................................................................................................... Administrative savings, discretionary ............................................................................................................................... –85 ............ ............ –909 11 –4 –3,475 182 –32 ............ 672 –359 ............ 679 –360 –4,469 1,543 –755 Net proceeds ..................................................................................................................................................................... –85 –902 –3,325 313 319 –3,681 Strategic Petroleum Reserve (SPR): Gross proceeds from asset sale, discretionary ............................................................................................................... –100 ............ ............ ............ ............ –100 United States Enrichment Corporation (USEC): Gross proceeds from asset sale, mandatory ................................................................................................................... Loss of offsetting collections and mandatory costs ........................................................................................................ Administrative savings, discretionary ............................................................................................................................... –400 150 ............ –1,100 8 ............ ............ –10 ............ ............ –88 ............ ............ –159 ............ –1,500 –99 ............ Net proceeds ..................................................................................................................................................................... –250 –1,092 –10 –88 –159 –1,599 Total gross proceeds from asset sales: Discretionary ...................................................................................................................................................................... Mandatory .......................................................................................................................................................................... –100 –889 ............ –4,604 ............ –3,470 ............ 5 ............ 5 –100 –8,953 Grand total of gross proceeds ..................................................................................................................................... Total loss of offsetting collections and mandatory costs ..................................................................................................... Total administrative savings, discretionary ........................................................................................................................... –989 146 ............ –4,604 472 –149 –3,470 616 –217 5 1,006 –538 5 920 –526 –9,053 3,159 –1,430 Total net proceeds: Discretionary ...................................................................................................................................................................... Mandatory .......................................................................................................................................................................... –100 –743 –149 –4,132 –217 –2,854 –538 1,011 –526 925 –1,530 –5,794 Grand total ....................................................................................................................................................................... –843 –4,281 –3,071 473 399 –7,324 1 All sales are part of Reinventing Government except USEC. 2 Amounts do not include estimates of discretionary savings resulting from Federal agencies being authorized to purchase refined helium in the private market. 38 5. TAX EXPENDITURES Tax expenditures are revenue losses due to preferential provisions of the Federal tax laws, such as special exclusions, exemptions, deductions, credits, deferrals, or tax rates. Tax expenditures are an alternative to other Government policy instruments, such as direct expenditures and regulations. The Congressional Budget Act of 1974 (Public Law 93–344) requires that a list of tax expenditures be included in the budget. Tax expenditures relating to the individual and corporate income taxes are considered first in this chapter, followed by those relating to the unified transfer tax. The supplement at the end of the chapter presents major tax expenditures in the income tax ranked by revenue loss. Tax expenditures are estimated for fiscal years 1994–2000 using three methods of accounting: revenue loss, outlay equivalent, and present value. The present value approach provides estimates of the revenue losses for tax expenditures that involve deferrals of tax payments into the future or have similar long-term effects. TAX EXPENDITURES IN THE INCOME TAX Tax Expenditure Estimates The Treasury Department prepared all tax expenditure estimates presented here based upon income tax law enacted as of December 31, 1994. Expired or repealed provisions are not listed if their revenue effects result only from taxpayer activity in years before 1994. The total revenue loss estimates for tax expenditures for fiscal years 1994–2000 are displayed by the budget’s functional categories in table 5–1. Descriptions of the specific tax expenditure provisions follow the tables of estimates and discussion of general features of the tax expenditure concept. As in prior years, two baseline concepts—the normal tax baseline and the reference tax law baseline—are used to identify tax expenditures. For the most part, the two concepts coincide. However, items treated as tax expenditures under the normal tax baseline, but not the reference tax law baseline, are indicated by the designation ‘‘normal tax method’’ in the tables. The revenue losses for these items are zero using the ref- erence tax rules. The alternative baseline concepts are discussed in detail following the estimates. Table 5–2 reports the respective portions of the total revenue losses that arise under the individual and corporate income taxes. Listing revenue loss estimates under the individual and corporate headings does not imply that these categories of filers benefit from the special tax provisions in proportion to the respective tax expenditure amounts shown. Rather, these breakdowns show the specific tax accounts through which the various provisions are cleared. The ultimate beneficiaries of corporate tax expenditures, for example, could be stockholders, employees, customers, or others, depending on the circumstances. Table 5–6 at the end of this chapter ranks the major tax expenditures by fiscal year 1996 revenue loss. This table merges several individual entries provided in table 5–1; for example, table 5–6 contains one merged entry for charitable contributions instead of the three separate entries found in table 5–1. 39 40 ANALYTICAL PERSPECTIVES TABLE 5–1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX (In millions of dollars) Total Revenue Loss Provision 1994 1995 1996 1997 1998 1999 2000 National defense: Exclusion of benefits and allowances to armed forces personnel ........................................... 2,000 2,005 2,020 2,030 2,045 2,065 2,085 10,245 International affairs: Exclusion of income earned abroad by United States citizens ............................................... Exclusion of income of foreign sales corporations ................................................................... Inventory property sales source rules exception ...................................................................... Interest allocation rules exception for certain financial operations .......................................... Deferral of income from controlled foreign corporations (normal tax method) ........................ 1,900 1,300 1,200 95 1,600 2,010 1,400 1,300 95 1,700 2,125 1,500 1,400 95 1,800 2,250 1,600 1,500 95 2,000 2,385 1,700 1,600 95 2,200 2,525 1,800 1,700 95 2,400 2,670 1,900 1,800 95 2,600 11,955 8,500 8,000 475 11,000 General science, space, and technology: Expensing of research and experimentation expenditures (normal tax method) .................... Credit for increasing research activities .................................................................................... Suspension of the allocation of research and experimentation expenditures ......................... 2,235 1,370 325 2,390 1,185 325 2,560 675 ............ 2,735 285 ............ 2,930 120 ............ 3,135 40 ............ 3,355 5 ............ 14,715 1,125 ............... –85 15 –70 15 –20 20 –50 20 85 20 165 20 215 20 395 100 785 90 900 90 10 175 85 60 15 50 100 920 90 970 100 15 175 85 95 35 65 145 955 95 1,000 110 15 175 80 115 45 65 175 1,005 105 990 120 15 175 80 125 50 65 190 1,060 110 940 130 15 175 80 135 50 75 190 1,115 120 880 145 15 165 75 140 50 80 200 1,170 125 820 160 15 165 75 150 50 85 200 5,305 555 4,630 665 75 855 390 665 245 370 955 Energy: Expensing of exploration and development costs: Oil and gas ............................................................................................................................ Other fuels ............................................................................................................................. Excess of percentage over cost depletion: Oil and gas ............................................................................................................................ Other fuels ............................................................................................................................. Alternative fuel production credit ............................................................................................... Exception from passive loss limitation for working interests in oil and gas properties .......... Capital gains treatment of royalties on coal ............................................................................. Exclusion of interest on State and local IDBs for energy facilities .......................................... Enhanced oil recovery credit ..................................................................................................... New technology credit ................................................................................................................ Alcohol fuel credit 1 .................................................................................................................... Tax credit and deduction for clean-fuel burning vehicles and properties ................................ Exclusion from income of conservation subsidies provided by public utilities ........................ 1996–2000 Natural resources and environment: Expensing of exploration and development costs, nonfuel minerals ....................................... Excess of percentage over cost depletion, nonfuel minerals .................................................. Capital gains treatment of iron ore ........................................................................................... Special rules for mining reclamation reserves .......................................................................... Exclusion of interest on State and local IDBs for pollution control and sewage and waste disposal facilities .................................................................................................................... Capital gains treatment of certain timber income ..................................................................... Expensing of multiperiod timber growing costs ........................................................................ Investment credit and seven-year amortization for reforestation expenditures ....................... Tax incentives for preservation of historic structures ............................................................... 45 185 * 50 45 185 * 50 45 190 * 50 45 195 * 50 50 200 * 50 50 205 * 50 50 210 * 50 240 1,000 * 250 610 10 350 40 130 625 15 370 40 125 615 15 395 40 125 600 15 415 45 120 585 15 440 45 115 565 15 460 50 115 550 15 485 50 110 2,915 75 2,195 230 585 Agriculture: Expensing of certain capital outlays .......................................................................................... Expensing of certain multiperiod production costs ................................................................... Treatment of loans forgiven solvent farmers as if insolvent .................................................... Capital gains treatment of certain income ................................................................................ 70 85 10 120 70 85 10 125 65 80 10 125 65 80 10 160 65 80 10 135 70 85 10 140 70 85 10 140 335 410 50 700 765 50 9,410 5 225 110 855 55 10,365 5 235 110 940 60 11,160 5 240 115 1,035 65 12,000 5 245 120 1,140 70 12,900 5 255 130 1,255 75 13,870 5 260 135 1,380 80 14,910 5 280 140 5,750 350 64,840 25 1,280 640 1,760 970 48,430 14,020 915 16,640 4,690 4,765 1,145 1,785 920 51,270 14,845 935 17,140 4,820 4,255 1,290 1,775 870 54,165 15,680 950 17,850 4,920 4,170 1,425 1,715 810 57,240 16,570 965 18,180 5,010 4,120 1,580 1,640 750 60,490 17,515 980 18,725 5,070 4,085 1,735 1,575 685 63,960 18,520 995 19,290 5,125 4,065 1,895 1,510 635 67,495 19,540 1,010 19,870 5,120 4,055 2,055 8,215 3,750 303,350 87,825 4,900 93,915 25,245 20,495 8,690 125 150 115 150 75 150 40 155 15 155 * 160 –10 160 120 780 Commerce and housing: Financial institutions and insurance: Exemption of credit union income ........................................................................................ Excess bad debt reserves of financial institutions ............................................................... Exclusion of interest on life insurance savings .................................................................... Special alternative tax on small property and casualty insurance companies ................... Tax exemption of certain insurance companies ................................................................... Small life insurance company deduction .............................................................................. Housing: Exclusion of interest on owner-occupied mortgage subsidy bonds ..................................... Exclusion of interest on State and local debt for rental housing ........................................ Deductibility of mortgage interest on owner-occupied homes ............................................. Deductibility of State and local property tax on owner-occupied homes ............................ Deferral of income from post 1987 installment sales .......................................................... Deferral of capital gains on home sales ............................................................................... Exclusion of capital gains on home sales for persons age 55 and over ........................... Exception from passive loss rules for $25,000 of rental loss ............................................. Accelerated depreciation on rental housing (normal tax method) ....................................... Commerce: Cancellation of indebtedness ................................................................................................ Permanent exceptions from imputed interest rules .............................................................. 41 5. TAX EXPENDITURES TABLE 5–1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX—Continued (In millions of dollars) Total Revenue Loss Provision 1994 1995 1996 1997 1998 1999 2000 1996–2000 Capital gains (other than agriculture, timber, iron ore, and coal) (normal tax method) ..... Capital gains exclusion of small corporation stock .............................................................. Step-up basis of capital gains at death ................................................................................ Carryover basis of capital gains on gifts .............................................................................. Ordinary income treatment of loss from small business corporation stock sale ................ Accelerated depreciation of buildings other than rental housing (normal tax method) ...... Accelerated depreciation of machinery and equipment (normal tax method) ..................... Expensing of certain small investments (normal tax method) ............................................. Amortization of start-up costs (normal tax method) ............................................................. Graduated corporation income tax rate (normal tax method) .............................................. Exclusion of interest on small issue IDBs ............................................................................ Deferral of gains from sale of broadcasting facilities to minority owned business ............. Treatment of Alaska Native Corporations ............................................................................. 5,745 * 26,850 125 30 5,145 17,620 1,690 185 3,775 690 285 45 6,135 * 28,305 130 30 4,920 19,400 1,335 185 3,960 545 300 30 6,205 * 29,480 135 35 4,385 20,850 1,070 190 4,120 420 315 20 6,335 * 30,285 140 35 3,580 21,885 815 195 4,240 325 330 15 6,545 * 30,710 145 35 2,675 23,215 585 200 4,360 280 345 10 6,710 30 31,160 150 35 1,745 25,815 425 200 4,510 255 360 5 6,865 250 31,615 155 40 1,080 28,295 295 200 4,760 230 380 5 32,660 280 153,250 725 180 13,465 120,060 3,190 985 21,990 1,510 1,730 55 Transportation: Deferral of tax on shipping companies ..................................................................................... Exclusion of reimbursed employee parking expenses ............................................................. Exclusion for employer-provided transit passes ....................................................................... 15 1,845 30 15 1,930 40 15 2,015 50 15 2,100 65 15 2,190 80 15 2,275 95 15 2,365 110 75 10,945 400 Community and regional development: Credit for low-income housing investments .............................................................................. Investment credit for rehabilitation of structures (other than historic) ..................................... Exclusion of interest on IDBs for airports, docks, and sports and convention facilities ......... Exemption of certain mutuals’ and cooperatives’ income ........................................................ Empowerment zones .................................................................................................................. 1,925 90 785 25 * 2,260 80 830 30 330 2,600 80 870 30 440 2,945 80 915 30 510 3,270 70 960 35 565 3,500 70 1,005 35 595 3,560 70 1,050 40 630 15,875 370 4,800 170 2,740 Education, training, employment, and social services: Education: Exclusion of scholarship and fellowship income (normal tax method) ................................ Exclusion of interest on State and local student loan bonds .............................................. Exclusion of interest on State and local debt for private nonprofit educational facilities ... Exclusion of interest on savings bonds transferred to educational institutions .................. Parental personal exemption for students age 19 or over .................................................. Deductibility of charitable contributions (education) ............................................................. Exclusion of employer provided educational assistance ...................................................... Training, employment, and social services: Targeted jobs credit ............................................................................................................... Exclusion of employer provided child care ........................................................................... Exclusion of employee meals and lodging (other than military) .......................................... Credit for child and dependent care expenses .................................................................... Credit for disabled access expenditures ............................................................................... Expensing of costs of removing certain architectural barriers to the handicapped ............ Deductibility of charitable contributions, other than education and health .......................... Exclusion of certain foster care payments ........................................................................... Exclusion of parsonage allowances ...................................................................................... 795 310 735 5 800 1,610 235 825 305 750 5 815 1,705 85 835 295 770 5 825 1,810 ............ 845 275 785 10 855 1,915 ............ 850 255 810 10 895 2,025 ............ 860 240 845 15 930 2,140 ............ 870 225 885 15 965 2,265 ............ 4,260 1,290 4,095 55 4,470 10,155 ............... 305 675 515 2,820 160 20 17,805 30 250 395 725 545 2,900 160 20 18,910 30 265 325 775 575 2,995 160 20 19,995 35 285 60 830 605 3,060 165 20 21,135 35 300 40 890 640 3,135 165 20 22,325 40 320 10 955 675 3,195 165 20 23,515 40 345 5 1,025 710 3,245 170 20 24,945 40 365 440 4,475 3,205 15,630 825 100 111,915 190 1,615 Health: Exclusion of employer contributions for medical insurance premiums and medical care ...... Deductibility of medical expenses ............................................................................................. Exclusion of interest on State and local debt for private nonprofit health facilities ................ Deductibility of charitable contributions (health) ....................................................................... Tax credit for orphan drug research ......................................................................................... Special Blue Cross/Blue Shield deduction ................................................................................ 56,000 3,380 1,455 2,085 * 115 60,670 3,660 1,495 2,210 15 125 66,620 3,965 1,535 2,340 ............ 140 72,300 4,295 1,585 2,490 ............ 100 78,815 4,650 1,640 2,630 ............ 170 86,245 5,035 1,700 2,750 ............ 185 94,110 5,455 1,750 2,900 ............ 190 398,090 23,400 8,210 13,110 ............... 785 425 4,240 530 100 130 425 4,475 570 95 130 425 4,860 590 90 130 430 5,120 635 85 130 435 5,380 695 85 130 440 5,645 740 80 130 440 5,950 795 75 130 2,170 26,955 3,455 415 650 48,750 5,185 3,915 30 55,540 6,245 4,435 30 59,010 6,375 4,825 35 59,490 6,120 5,195 35 59,950 5,675 5,595 35 60,400 4,970 6,025 40 60,850 3,950 6,485 40 299,700 27,090 28,125 185 2,750 140 35 2,155 30 2,880 150 35 1,830 35 3,020 155 35 1,680 35 3,170 165 35 1,575 35 3,325 175 35 1,440 35 3,485 185 35 1,310 40 3,660 195 35 1,190 40 16,660 875 175 7,195 185 Income security: Exclusion of railroad retirement system benefits ...................................................................... Exclusion of workmen’s compensation benefits ....................................................................... Exclusion of public assistance benefits (normal tax method) .................................................. Exclusion of special benefits for disabled coal miners ............................................................. Exclusion of military disability pensions .................................................................................... Net exclusion of pension contributions and earnings: Employer plans ...................................................................................................................... Individual Retirement Accounts ............................................................................................. Keogh plans ........................................................................................................................... Exclusion of employer provided death benefits ........................................................................ Exclusion of other employee benefits: Premiums on group term life insurance ............................................................................... Premiums on accident and disability insurance ................................................................... Income of trusts to finance supplementary unemployment benefits ................................... Special ESOP rules (other than investment credit) .................................................................. Additional deduction for the blind .............................................................................................. 42 ANALYTICAL PERSPECTIVES TABLE 5–1. TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX—Continued (In millions of dollars) Total Revenue Loss Provision 1994 1995 1996 1997 1998 1999 2000 Additional deduction for the elderly ........................................................................................... Tax credit for the elderly and disabled ..................................................................................... Deductibility of casualty losses .................................................................................................. Earned income credit 2 .............................................................................................................. 1,470 55 715 4,020 1,490 55 450 5,110 1,510 60 315 5,740 1,520 60 315 6,440 1,535 65 315 6,715 1,540 65 315 7,025 1,550 70 315 7,325 7,655 320 1,575 33,245 Social Security: Exclusion of social security benefits: OASI benefits for retired workers ......................................................................................... Disability insurance benefits .................................................................................................. Benefits for dependents and survivors ................................................................................. 18,295 1,815 3,620 16,875 1,895 3,610 17,395 2,100 3,730 18,110 2,300 3,940 18,935 2,520 4,150 19,840 2,750 4,365 20,605 2,980 4,590 94,885 12,650 20,775 Veterans benefits and services: Exclusion of veterans disability compensation .......................................................................... Exclusion of veterans pensions ................................................................................................. Exclusion of GI bill benefits ....................................................................................................... Exclusion of interest on State and local debt for veterans housing ........................................ 1,910 80 55 90 1,985 75 70 85 1,930 70 75 80 1,975 70 80 75 2,115 75 85 75 2,180 80 90 75 2,245 90 95 75 10,445 385 425 380 General purpose fiscal assistance: Exclusion of interest on public purpose State and local debt ................................................. Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ... Tax credit for corporations receiving income from doing business in U.S. possessions ....... 11,970 25,745 2,890 12,350 27,250 2,630 12,690 28,795 2,680 13,085 30,425 2,735 13,535 32,155 2,815 14,040 34,000 2,960 14,590 35,880 3,110 67,940 161,255 14,300 Interest: Deferral of interest on savings bonds ....................................................................................... 1,250 1,360 1,470 1,600 1,730 1,880 2,040 8,720 14,020 25,745 14,845 27,250 15,680 28,795 16,570 30,425 17,515 32,155 18,520 34,000 19,540 35,880 87,825 161,255 11,970 175 610 690 1,760 970 785 310 735 1,455 90 12,350 175 625 545 1,785 920 830 305 750 1,495 85 12,690 175 615 420 1,775 870 870 295 770 1,535 80 13,085 175 600 325 1,715 810 915 275 785 1,585 75 13,535 175 585 280 1,640 750 960 255 810 1,640 75 14,040 165 565 255 1,575 685 1,005 240 845 1,700 75 14,590 165 550 230 1,510 635 1,050 225 885 1,750 75 67,940 855 2,915 1,510 8,215 3,750 4,800 1,290 4,095 8,210 380 Addendum—Aid to State and local governments: Deductibility of: Property taxes on owner-occupied homes ........................................................................... Nonbusiness State and local taxes other than on owner-occupied homes ........................ Exclusion of interest on: Public purpose State and local debt ..................................................................................... IDBs for certain energy facilities ........................................................................................... IDBs for pollution control and sewage and waste disposal facilities .................................. Small-issue IDBs .................................................................................................................... Owner-occupied mortgage revenue bonds ........................................................................... State and local debt for rental housing ................................................................................ IDBs for airports, docks, and sports and convention facilities ............................................ State and local student loan bonds ...................................................................................... State and local debt for private nonprofit educational facilities ........................................... State and local debt for private nonprofit health facilities ................................................... State and local debt for veterans housing ........................................................................... * $2.5 million or less. 1 In addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts for fiscal year 1996 of $725 million. 2 The effect on outlays (in millions of dollars) is as follows: $10,990 in 1994; $16,845 in 1995; $20,230 in 1996; $22,755 in 1997; $23,850 in 1998; $25,000 in 1999; amd $26,035 in 2000. Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method. All estimates have been rounded to the nearest $5 million. Totals for fiscal years 1996–2000 are computed after rounding for these years. Figures in Table 5–1 are the arithmetic sums of corporate and individual income tax revenue loss estimates from table 5–2, and do not reflect possible interactions across these two taxes. 1996–2000 43 5. TAX EXPENDITURES TABLE 5–2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES (In millions of dollars) Revenue Loss Provision Corporations 1994 1995 1996 1997 Individuals 1998 1999 2000 National defense: Exclusion of benefits and allowances to armed forces personnel .......... ............ ............ ............ ............ ............ ............ ............ 1994 2,000 1995 2,005 1996 1997 2,020 1998 2,030 International affairs: Exclusion of income earned abroad by United States citizens ............... ............ ............ ............ ............ ............ ............ ............ 1,900 2,010 2,125 2,250 Exclusion of income of foreign sales corporations .................................. 1,300 1,400 1,500 1,600 1,700 1,800 1,900 ............ ............ ............ ............ Inventory property sales source rules exception ...................................... 1,200 1,300 1,400 1,500 1,600 1,700 1,800 ............ ............ ............ ............ Interest allocation rules exception for certain financial operations .......... 95 95 95 95 95 95 95 ............ ............ ............ ............ Deferral of income from controlled foreign corporations (normal tax method) .................................................................................................. 1,600 1,700 1,800 2,000 2,200 2,400 2,600 ............ ............ ............ ............ General science, space, and technology: Expensing of research and experimentation expenditures (normal tax method) .................................................................................................. Credit for increasing research activities ................................................... Suspension of the allocation of research and experimentation expenditures ....................................................................................................... 2,195 1,340 325 2,345 1,155 2,510 665 2,685 285 2,875 120 3,075 40 3,290 5 40 30 45 30 2,045 1999 2,065 2000 2,085 2,385 2,525 2,670 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 50 50 55 60 65 10 ............ ............ ............ ............ 325 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ Energy: Expensing of exploration and development costs: Oil and gas ............................................................................................ –80 –60 –25 –50 70 135 175 Other fuels ............................................................................................. 10 10 15 15 15 15 15 Excess of percentage over cost depletion: Oil and gas ............................................................................................ 500 620 645 680 715 755 790 Other fuels ............................................................................................. 85 85 90 100 105 115 120 Alternative fuel production credit .............................................................. 760 820 850 840 800 750 700 Exception from passive loss limitation for working interests in oil and gas properties ....................................................................................... ............ ............ ............ ............ ............ ............ ............ Capital gains treatment of royalties on coal ............................................ ............ ............ ............ ............ ............ ............ ............ Exclusion of interest on State and local IDBs for energy facilities ......... 70 70 70 70 70 65 65 Enhanced oil recovery credit .................................................................... 80 80 75 75 75 70 70 New technology credit ............................................................................... 60 95 115 125 135 140 150 5 5 5 5 5 5 5 Alcohol fuel credit 1 ................................................................................... Tax credit and deduction for clean-fuel burning vehicles and properties 45 55 55 55 60 60 60 Exclusion from income of conservation subsidies provided by public utilities .................................................................................................... 45 85 110 120 120 125 125 –5 5 –10 5 5 5 * 5 15 5 30 5 40 5 285 5 140 300 5 150 310 5 150 325 5 150 345 5 140 360 5 130 380 5 120 90 10 105 5 * 10 5 100 15 105 5 * 30 10 110 15 105 5 * 40 10 120 15 105 5 * 45 10 130 15 105 5 * 45 15 145 15 100 5 * 45 20 160 15 100 5 * 45 25 55 60 65 70 70 75 75 10 20 * 5 10 20 * 5 10 20 * 5 10 20 * 5 10 20 * 5 10 20 * 5 10 20 * 5 Natural resources and environment: Expensing of exploration and development costs, nonfuel minerals ...... 35 35 35 35 40 40 40 Excess of percentage over cost depletion, nonfuel minerals .................. 165 165 170 175 180 185 190 Capital gains treatment of iron ore ........................................................... ............ ............ ............ ............ ............ ............ ............ Special rules for mining reclamation reserves ......................................... 45 45 45 45 45 45 45 Exclusion of interest on State and local IDBs for pollution control and sewage and waste disposal facilities ................................................... 245 250 245 240 235 225 220 Capital gains treatment of certain timber income .................................... ............ ............ ............ ............ ............ ............ ............ Expensing of multiperiod timber growing costs ....................................... 200 210 225 235 250 260 275 Investment credit and seven-year amortization for reforestation expenditures .............................................................................................. 15 15 15 20 20 20 20 Tax incentives for preservation of historic structures .............................. 25 25 25 25 25 25 20 365 10 150 375 15 160 370 15 170 360 15 180 350 15 190 340 15 200 330 15 210 25 105 25 100 25 100 25 95 25 90 30 90 30 90 Agriculture: Expensing of certain capital outlays ......................................................... 10 10 10 10 10 10 10 Expensing of certain multiperiod production costs .................................. 10 10 10 10 10 10 10 Treatment of loans forgiven solvent farmers as if insolvent ................... ............ ............ ............ ............ ............ ............ ............ Capital gains treatment of certain income ............................................... ............ ............ ............ ............ ............ ............ ............ 60 75 10 120 60 75 10 125 55 70 10 125 55 70 10 160 55 70 10 135 60 75 10 140 60 75 10 140 Commerce and housing: Financial institutions and insurance: Exemption of credit union income ........................................................ 765 855 940 1,035 1,140 1,255 1,380 Excess bad debt reserves of financial institutions .............................. 50 55 60 65 70 75 80 Exclusion of interest on life insurance savings ................................... 265 290 310 335 360 390 415 Special alternative tax on small property and casualty insurance companies ......................................................................................... 5 5 5 5 5 5 5 Tax exemption of certain insurance companies .................................. 225 235 240 245 255 260 280 Small life insurance company deduction .............................................. 110 110 115 120 130 135 140 Housing: Exclusion of interest on owner-occupied mortgage subsidy bonds .... 705 715 705 680 650 625 600 Exclusion of interest on State and local debt for rental housing ....... 385 365 345 320 295 270 255 Deductibility of mortgage interest on owner-occupied homes ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 9,145 10,075 10,850 11,665 12,540 13,480 14,495 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 1,055 1,070 1,070 1,035 990 950 910 585 555 525 490 455 415 380 48,430 51,270 54,165 57,240 60,490 63,960 67,495 44 ANALYTICAL PERSPECTIVES TABLE 5–2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued (In millions of dollars) Revenue Loss Provision Corporations 1994 Deductibility of State and local property tax on owner-occupied homes ................................................................................................ Deferral of income from post 1987 installment sales .......................... Deferral of capital gains on home sales .............................................. Exclusion of capital gains on home sales for persons age 55 and over ................................................................................................... Exception from passive loss rules for $25,000 of rental loss ............. Accelerated depreciation on rental housing (normal tax method) ...... Commerce: Cancellation of indebtedness ................................................................ Permanent exceptions from imputed interest rules ............................. Capital gains (other than agriculture, timber, iron ore, and coal) (normal tax method) ......................................................................... Capital gains exclusion of small corporation stock ............................. Step-up basis of capital gains at death ............................................... Carryover basis of capital gains on gifts ............................................. Ordinary income treatment of loss from small business corporation stock sale .......................................................................................... Accelerated depreciation of buildings other than rental housing (normal tax method) ................................................................................ Accelerated depreciation of machinery and equipment (normal tax method) ............................................................................................. Expensing of certain small investments (normal tax method) ............ Amortization of start-up costs (normal tax method) ............................ Graduated corporation income tax rate (normal tax method) ............. Exclusion of interest on small issue IDBs ........................................... Deferral of gains from sale of broadcasting facilities to minority owned business ................................................................................ Treatment of Alaska Native Corporations ............................................ 1995 1996 1997 Individuals 1998 1999 2000 1994 1995 1996 1997 1998 1999 2000 ............ ............ ............ ............ ............ ............ ............ 14,020 14,845 15,680 16,570 17,515 18,520 19,540 225 235 240 245 250 255 260 690 700 710 720 730 740 750 ............ ............ ............ ............ ............ ............ ............ 16,640 17,140 17,850 18,180 18,725 19,290 19,870 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 705 795 880 975 1,070 1,170 1,270 4,690 4,765 440 4,820 4,255 495 4,920 4,170 545 5,010 4,120 605 5,070 4,085 665 5,125 4,065 725 5,120 4,055 785 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 125 150 115 150 75 150 40 155 15 155 * 160 –10 160 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 5,745 6,135 6,205 6,335 6,545 6,710 6,865 ............ * * * * * 30 250 ............ 26,850 28,305 29,480 30,285 30,710 31,160 31,615 ............ 125 130 135 140 145 150 155 ............ ............ ............ ............ ............ ............ ............ 775 30 30 35 35 35 35 40 1,650 1,600 1,410 1,140 835 520 305 3,495 3,320 2,975 2,440 1,840 1,225 14,765 1,035 85 3,775 265 16,120 825 85 3,960 210 17,105 665 85 4,120 160 17,815 510 90 4,240 125 18,830 370 90 4,360 110 20,805 280 90 4,510 100 22,480 2,855 3,280 3,745 4,070 4,385 5,010 5,815 210 655 510 405 305 215 145 85 90 100 100 105 105 110 110 110 4,760 ............ ............ ............ ............ ............ ............ ............ 90 425 335 260 200 170 155 140 285 45 300 30 315 20 330 15 345 10 360 5 380 * * * * * * * 5 ............ ............ ............ ............ ............ ............ ............ Transportation: Deferral of tax on shipping companies .................................................... 15 15 15 15 15 15 15 ............ ............ ............ ............ ............ ............ ............ Exclusion of reimbursed employee parking expenses ............................. ............ ............ ............ ............ ............ ............ ............ 1,845 1,930 2,015 2,100 2,190 2,275 2,365 Exclusion for employer-provided transit passes ....................................... ............ ............ ............ ............ ............ ............ ............ 30 40 50 65 80 95 110 Community and regional development: Credit for low-income housing investments .............................................. 385 Investment credit for rehabilitation of structures (other than historic) ..... 20 Exclusion of interest on IDBs for airports, docks, and sports and convention facilities ..................................................................................... 315 Exemption of certain mutuals’ and cooperatives’ income ....................... 25 Empowerment zones ................................................................................. ............ Education, training, employment, and social services: Education: Exclusion of scholarship and fellowship income (normal tax method) Exclusion of interest on State and local student loan bonds ............. Exclusion of interest on State and local debt for private nonprofit educational facilities .......................................................................... Exclusion of interest on savings bonds transferred to educational institutions ............................................................................................ Parental personal exemption for students age 19 or over ................. Deductibility of charitable contributions (education) ............................. Exclusion of employer provided educational assistance ..................... Training, employment, and social services: Targeted jobs credit .............................................................................. Exclusion of employer provided child care .......................................... Exclusion of employee meals and lodging (other than military) ......... Credit for child and dependent care expenses ................................... Credit for disabled access expenditures .............................................. Expensing of costs of removing certain architectural barriers to the handicapped ...................................................................................... Deductibility of charitable contributions, other than education and health ................................................................................................. Exclusion of certain foster care payments ........................................... Exclusion of parsonage allowances ..................................................... 450 15 520 15 590 15 655 15 700 15 710 15 335 30 95 350 30 130 370 30 155 385 35 175 405 35 185 425 470 495 520 545 575 600 625 40 ............ ............ ............ ............ ............ ............ ............ 195 * 235 310 355 390 410 435 ............ ............ ............ ............ ............ ............ ............ 125 120 115 110 100 95 90 1,540 70 1,810 65 2,080 65 2,355 65 2,615 55 2,800 55 2,850 55 795 185 825 185 835 180 845 165 850 155 860 145 870 135 360 440 450 460 470 485 505 525 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 160 170 180 190 200 210 220 ............ ............ ............ ............ ............ ............ ............ 5 800 1,450 235 5 5 10 10 15 15 815 825 855 895 930 965 1,535 1,630 1,725 1,825 1,930 2,045 85 ............ ............ ............ ............ ............ 260 320 270 50 30 5 5 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 130 130 130 130 130 130 135 45 675 515 2,820 30 75 725 545 2,900 30 55 775 575 2,995 30 10 830 605 3,060 35 10 890 640 3,135 35 5 955 675 3,195 35 * 1,025 710 3,245 35 15 5 5 5 5 5 5 5 4,570 4,895 5,160 5,425 5,690 5,910 6,320 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 13,235 30 250 14,015 30 265 14,835 35 285 15,710 35 300 16,635 40 320 17,605 40 345 18,625 40 365 295 15 300 15 310 15 315 15 325 15 340 15 45 5. TAX EXPENDITURES TABLE 5–2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued (In millions of dollars) Revenue Loss Provision Corporations 1994 1995 1996 1997 Individuals 1998 1999 2000 1994 1995 1996 1997 1998 1999 2000 Health: Exclusion of employer contributions for medical insurance premiums and medical care .................................................................................. ............ ............ ............ ............ ............ ............ ............ 56,000 60,670 66,620 72,300 78,815 86,245 9,410 Deductibility of medical expenses ............................................................. ............ ............ ............ ............ ............ ............ ............ 3,380 3,660 3,965 4,295 4,650 5,035 5,455 Exclusion of interest on State and local debt for private nonprofit health facilities ....................................................................................... 585 600 615 635 660 685 700 870 895 920 950 980 1,015 1,050 Deductibility of charitable contributions (health) ....................................... 605 640 680 710 750 780 825 1,480 1,570 1,660 1,780 1,880 1,970 2,075 Tax credit for orphan drug research ........................................................ * 15 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ Special Blue Cross/Blue Shield deduction ............................................... 115 125 140 100 170 185 190 ............ ............ ............ ............ ............ ............ ............ Income security: Exclusion of railroad retirement system benefits ..................................... Exclusion of workmen’s compensation benefits ....................................... Exclusion of public assistance benefits (normal tax method) ................. Exclusion of special benefits for disabled coal miners ............................ Exclusion of military disability pensions ................................................... Net exclusion of pension contributions and earnings: Employer plans ..................................................................................... Individual Retirement Accounts ............................................................ Keogh plans .......................................................................................... Exclusion of employer provided death benefits ....................................... Exclusion of other employee benefits: Premiums on group term life insurance ............................................... Premiums on accident and disability insurance ................................... Income of trusts to finance supplementary unemployment benefits ... Special ESOP rules (other than investment credit) ................................. Additional deduction for the blind ............................................................. Additional deduction for the elderly .......................................................... Tax credit for the elderly and disabled .................................................... Deductibility of casualty losses ................................................................. Earned income credit 2 ............................................................................. ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 425 4,240 530 100 130 425 4,475 570 95 130 425 4,860 590 90 130 430 5,120 635 85 130 435 5,380 695 85 130 440 5,645 740 80 130 440 5,950 795 75 130 ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ ............ 48,750 55,540 59,010 ............ 5,185 6,245 6,375 ............ 3,915 4,435 4,825 ............ 30 30 35 59,490 6,120 5,195 35 59,950 5,675 5,595 35 60,400 4,970 6,025 40 60,850 3,950 6,485 40 ............ ............ ............ 2,155 ............ ............ ............ ............ ............ ............ ............ ............ 1,830 ............ ............ ............ ............ ............ ............ ............ ............ 1,680 ............ ............ ............ ............ ............ ............ ............ ............ 1,575 ............ ............ ............ ............ ............ ............ ............ ............ 1,440 ............ ............ ............ ............ ............ ............ ............ ............ 1,310 ............ ............ ............ ............ ............ ............ 2,750 2,880 3,020 3,170 3,325 3,485 3,660 ............ 140 150 155 165 175 185 195 ............ 35 35 35 35 35 35 35 1,190 ............ ............ ............ ............ ............ ............ ............ ............ 30 35 35 35 35 40 40 ............ 1,470 1,490 1,510 1,520 1,535 1,540 1,550 ............ 55 55 60 60 65 65 70 ............ 715 450 315 315 315 315 315 ............ 4,020 5,110 5,740 6,440 6,715 7,025 7,325 Social Security: Exclusion of social security benefits: OASI benefits for retired workers ......................................................... ............ ............ ............ ............ ............ ............ ............ Disability insurance benefits ................................................................. ............ ............ ............ ............ ............ ............ ............ Benefits for dependents and survivors ................................................. ............ ............ ............ ............ ............ ............ ............ 18,295 1,815 3,620 16,875 1,895 3,610 17,395 2,100 3,730 18,110 2,300 3,940 18,935 2,520 4,150 19,840 2,750 4,365 20.605 2,980 4,590 Veterans benefits and services: Exclusion of veterans disability compensation ......................................... ............ ............ ............ ............ ............ ............ ............ Exclusion of veterans pensions ................................................................ ............ ............ ............ ............ ............ ............ ............ Exclusion of GI bill benefits ...................................................................... ............ ............ ............ ............ ............ ............ ............ Exclusion of interest on State and local debt for veterans housing ....... 35 35 30 30 30 30 30 1,910 80 55 55 1,985 75 70 50 1,930 70 75 50 1,975 70 80 45 2,115 75 85 45 2,180 80 90 45 2,245 90 95 45 General purpose fiscal assistance: Exclusion of interest on public purpose State and local debt ................. 4,810 4,955 5,095 5,255 5,440 5,645 5,880 7,160 7,395 7,595 7,830 8,095 8,395 8,710 Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ......................................................................... ............ ............ ............ ............ ............ ............ ............ 25,745 27,250 28,795 30,425 32,155 34,000 35,880 Tax credit for corporations receiving income from doing business in U.S. possessions .................................................................................. 2,890 2,630 2,680 2,735 2,815 2,960 3,110 ............ ............ ............ ............ ............ ............ ............ Interest: Deferral of interest on savings bonds ...................................................... ............ ............ ............ ............ ............ ............ ............ 1,250 1,360 1,470 1,600 1,730 1,880 2,040 Addendum—Aid to State and local governments: Deductibility of: Property taxes on owner-occupied homes ........................................... ............ ............ ............ ............ ............ ............ ............ 14,020 14,845 15,680 16,570 17,515 18,520 19,540 Nonbusiness State and local taxes other than on owner-occupied homes ................................................................................................ ............ ............ ............ ............ ............ ............ ............ 25,745 27,250 28,795 30,425 32,155 34,000 35,880 Exclusion of interest on: Public purpose State and local debt .................................................... 4,810 4,955 5,095 5,255 5,440 5,645 5,880 7,160 7,395 7,595 7,830 8,095 8,395 8,710 IDBs for certain energy facilities .......................................................... 70 70 70 70 70 65 65 105 105 105 105 105 100 100 IDBs for pollution control and sewage and waste disposal facilities .. 245 250 245 240 235 225 220 365 375 370 360 350 340 330 Small-issue IDBs ................................................................................... 265 210 160 125 110 100 90 425 335 260 200 170 155 140 Owner-occupied mortgage revenue bonds .......................................... 705 715 705 680 650 625 600 1,055 1,070 1,070 1,035 990 950 910 State and local debt for rental housing ............................................... 385 365 345 320 295 270 255 585 555 525 490 455 415 380 IDBs for airports, docks, and sports and convention facilities ............ 315 335 350 370 385 405 425 470 495 520 545 575 600 625 State and local student loan bonds ..................................................... 125 120 115 110 100 95 90 185 185 180 165 155 145 135 State and local debt for private nonprofit educational facilities .......... 295 300 310 315 325 340 360 440 450 460 470 485 505 525 46 ANALYTICAL PERSPECTIVES TABLE 5–2. CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES—Continued (In millions of dollars) Revenue Loss Provision Corporations 1994 State and local debt for private nonprofit health facilities ................... State and local debt for veterans housing ........................................... 585 35 1995 600 35 1996 615 30 1997 Individuals 1998 635 30 660 30 1999 2000 685 30 700 30 1994 870 55 1995 895 50 1996 920 50 1997 950 45 1998 1999 980 45 1,015 45 2000 1,050 45 * $2.5 million or less. 1 In addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts for fiscal year 1996 of $725 million. 2 The effect on outlays (in millions of dollars) is as follows: $10,990 in 1994; $16,845 in 1995; $20,230 in 1996; $22,755 in 1997; $23,850 in 1998; $25,000 in 1999; amd $26,035 in 2000. Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method. All estimates have been rounded to the nearest $5 million. Interpreting Tax Expenditure Estimates Tax expenditure revenue loss estimates do not necessarily equal the increase in Federal revenues (or the reduction in budget deficits) that would result from repealing the special provisions, for the following reasons: • Eliminating a tax expenditure may have incentive effects that alter economic behavior. These incentives can affect the resulting magnitudes of the formerly subsidized activity or of other tax preferences or Government programs. For example, if deductibility of mortgage interest were limited, some taxpayers would hold smaller mortgages, with a concomitantly smaller effect on the budget than if no such limits were in force. • Tax expenditures are interdependent even without incentive effects. Repeal of a tax expenditure provision can increase or decrease the the revenue losses associated with other provisions. For example, even if behavior does not change, repeal of an itemized deduction could increase the revenue losses from other deductions because some taxpayers would be moved into higher tax brackets. Alternatively, repeal of an itemized deduction could lower the revenue loss from other deductions if taxpayers are led to claim the standard deduction instead of itemizing. Similarly, if two provisions were repealed simultaneously, the increase in tax liability could be greater or less than the sum of the two separate tax expenditures, since each is estimated assuming that the other remains in force. In addition, the estimates reported in Table 5–1 are the totals of individual and corporate income tax revenue losses reported in Table 5–2 and do not reflect any possible interactions between the individual and corporate income tax receipts. For this reason, the figures in Table 5–1 (as well as those in Table 5–4, which are also based on summing individual and corporate estimates) should be regarded as approximations. • The annual value of tax expenditures for tax deferrals is reported on a cash basis in all tables except table 5–3. Cash-based estimates reflect the difference between taxes deferred in the current year and incoming revenues that are received due to deferrals of taxes from prior years. While such estimates are useful as a measure of cash flows into the Government, they do not always accu- rately reflect the true economic cost of these provisions. For example, for a provision where activity levels have changed, so that incoming tax receipts from past deferrals are greater than deferred receipts from new activity, the cash-basis tax expenditure estimate can be negative, despite the fact that in present-value terms current deferrals do have a real cost to the Government. Alternatively, in the case of a newly enacted deferral provision, a cash-based estimate can overstate the real cost to the Government because the newly deferred taxes will ultimately be received. Presentvalue estimates, which are a useful supplement to the cash-basis estimates for provisions involving deferrals, are discussed below. • Repeal of some provisions could affect overall levels of income and rates of economic growth. In principle, repeal of major tax provisions may have some impact on the budget economic assumptions. In general, however, most changes in particular provisions are unlikely to have significant macroeconomic effects. Present-Value Estimates Discounted present-value estimates of revenue losses are presented in table 5–3 for certain provisions that involve tax deferrals or similar long-term revenue effects. These estimates complement the cash-based tax expenditure estimates presented in the other tables. The present-value estimates represent the revenue losses, net of future tax payments, that follow from activities undertaken during calendar year 1995 which cause the deferrals or related revenue effects. For instance, a pension contribution in 1995 would cause a deferral of tax payments on wages in 1995 and on pension earnings on this contribution (e.g., interest) in later years. In some future year, however, the 1995 pension contribution and accrued earnings will be paid out and taxes will be due; these receipts are included in the present-value estimate. In general, this conceptual approach is similar to the one used for reporting the budgetary effects of credit programs, where direct loans and guarantees in a given year affect future cash flows. The discount rate used for the present-value estimates is the interest rate on comparable maturity Treasury debt. As noted in the table, the estimates 47 5. TAX EXPENDITURES Table 5–3. PRESENT VALUE OF SELECTED TAX EXPENDITURES FOR ACTIVITY IN CALENDAR YEAR 1995 (In millions of dollars) Present Value of Revenue Loss Provision Deferral of income from controlled foreign corporations (normal tax method) ............................. Expensing of research and experimentation expenditures (normal tax method) ......................... Expensing of exploration and development costs—oil and gas .................................................... Expensing of exploration and development costs—other fuels ..................................................... Expensing of exploration and development costs—nonfuels ........................................................ Expensing of multiperiod timber growing costs .............................................................................. Expensing of certain multiperiod production costs—agriculture .................................................... Expensing of certain capital outlays—agriculture ........................................................................... Deferral of capital gains on home sales ........................................................................................ Accelerated depreciation of rental housing (normal tax method) .................................................. Accelerated depreciation of buildings other than rental housing (normal tax method) ................ Accelerated depreciation of machinery and equipment (normal tax method) .............................. Expensing of certain small investments (normal tax method) ....................................................... Amortization of start-up costs (normal tax method) ....................................................................... Deferral of capital gains from sale of broadcasting facilities to minority-owned businesses ....... Deferral of tax on shipping companies ........................................................................................... Credit for low-income housing investments .................................................................................... Exclusion of pension contributions and earnings—employer plans .............................................. Exclusion of IRA contributions and earnings ................................................................................. Exclusions of contribution and earnings for Keogh plans ............................................................. Exclusion of interest on State and local public-purpose bonds .................................................... Exclusion of interest on State and local non-public purpose bonds ............................................. Deferral of interest on U.S. savings bonds .................................................................................... 1,740 2,460 185 45 65 225 85 65 16,455 1,805 400 18,745 1,220 160 260 10 2,420 47,895 2,185 3,065 16,460 8,865 615 Note: Provisions with estimates denoted ‘‘normal tax method’’ have no revenue loss under the reference tax law method. for several of the provisions have been made based on the normal tax baseline, as by definition these provisions would not be treated as tax expenditures under the reference tax law baseline. Outlay Equivalents The concept of ‘‘outlay equivalents’’ complements ‘‘revenue losses’’ as a measure of the budget effect of tax expenditures. It is the amount of outlay that would be required to provide the taxpayer the same aftertax income as would be received through the tax preference. The outlay equivalent measure allows a comparison of the cost of the tax expenditure with that of a direct Federal outlay. Outlay equivalents are reported in table 5–4. The measure is larger than the revenue loss estimate when the tax expenditure is judged to function as a Government payment for service. This occurs because an outlay program would increase the taxpayer’s pretax income. For some tax expenditures, however, the revenue loss equals the outlay equivalent measure. This occurs when the tax expenditure is judged to function like a price reduction or tax deferral that does not directly enter the taxpayer’s pre-tax income.1 1 Budget outlay figures generally reflect the pre-tax price of the resources. In some instances, however, Government purchases or subsidies are exempted from tax by a special tax provision. When this occurs, the outlay figure understates the resource cost of the program and is, therefore, not comparable with other outlay amounts. For example, the outlays for certain military personnel allowances are not taxed. If this form of compensation were treated as part of the employee’s taxable income, the Defense Department would have to make larger cash payments to its military personnel to leave them as well off after tax as they are now. The tax subsidy must be added to the tax-exempt budget outlay to make this element of national defense expenditures comparable with other outlays. 48 ANALYTICAL PERSPECTIVES TABLE 5–4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX (In millions of dollars) Outlay Equivalents Provision 1994 National defense: Exclusion of benefits and allowances to armed forces personnel International affairs: Exclusion of income earned abroad by United States citizens .... Exclusion of income of foreign sales corporations ....................... Inventory property sales source rules exception .......................... Interest allocation rules exception for certain financial operations Deferral of income from controlled foreign corporations (normal tax method) ................................................................................ General science, space, and technology: Expensing of research and experimentation expenditures (normal tax method) Credit for increasing research activities ........................................ Suspension of the allocation of research and experimentation expenditures ............................................................................... Energy: Expensing of exploration and development costs: Oil and gas ................................................................................. Other fuels .................................................................................. Excess of percentage over cost depletion: Oil and gas ................................................................................. Other fuels .................................................................................. Alternative fuel production credit ................................................... Exception from passive loss limitation for working interests in oil and gas properties ..................................................................... Capital gains treatment of royalties on coal ................................. Exclusion of interest on State and local IDBs for energy facilities .............................................................................................. New technology credit .................................................................... Enhanced oil recovery credit ......................................................... Alcohol fuel credit 1 ........................................................................ Tax credit and deduction for clean-fuel burning vehicles and properties .................................................................................... Exclusion from income of conservation subsidies provided by public utilities .............................................................................. Natural resources and environment: Expensing of exploration and development costs, nonfuel minerals ............................................................................................ Excess of percentage over cost depletion, nonfuel minerals ....... Capital gains treatment of iron ore ................................................ Special rules for mining reclamation reserves .............................. Exclusion of interest on State and local IDBs for pollution control and sewage and waste disposal facilities .......................... Capital gains treatment of certain timber income ......................... Expensing of multiperiod timber growing costs ............................ Investment credit and seven-year amortization for reforestation expenditures ............................................................................... Tax incentives for preservation of historic structures ................... Agriculture: Expensing of certain capital outlays .............................................. Expensing of certain multiperiod production costs ....................... Treatment of loans forgiven solvent farmers as if insolvent ........ Capital gains treatment of certain income .................................... Commerce and housing: Financial institutions and insurance: Exemption of credit union income ............................................. Excess bad debt reserves of financial institutions ................... Exclusion of interest on life insurance savings ........................ Special alternative tax on small property and casualty insurance companies ..................................................................... Tax exemption of certain insurance companies ....................... Small life insurance company deduction ................................... Housing: Exclusion of interest on owner-occupied mortgage revenue bonds ...................................................................................... 1995 1996 1997 1998 1999 2000 1996–2000 2,330 2,335 2,355 2,365 2,385 2,410 2,435 11,950 2,875 2,000 1,845 140 3,045 2,155 2,000 140 3,225 2,310 2,155 140 3,410 2,460 2,310 140 3,615 2,615 2,460 140 3,830 2,770 2,615 140 4,045 2,925 2,770 140 18,125 13,080 12,310 700 1,600 1,700 1,800 2,000 2,200 2,400 2,600 11,000 2,060 2,110 2,230 1,820 2,390 1,040 2,560 440 2,740 185 2,930 60 3,130 10 14,715 1,735 465 465 .................. .................. .................. .................. .................. .................. –85 15 –70 15 –20 20 –50 20 85 20 165 20 215 20 395 100 1,130 130 1,260 1,290 130 1,370 1,345 140 1,400 1,420 150 1,390 1,495 165 1,330 1,570 175 1,240 1,645 185 1,160 7,475 815 6,520 90 15 100 20 110 20 120 20 130 20 145 20 160 20 665 100 245 90 120 15 250 150 115 35 255 175 110 45 250 185 105 50 245 200 105 50 240 210 105 50 240 230 105 50 1,230 1,000 530 245 65 90 90 95 105 110 120 520 140 205 245 265 265 280 280 1,335 45 260 * 50 45 260 * 50 45 265 * 50 45 270 * 50 50 280 * 50 50 285 * 50 50 290 * 50 240 1,390 * 250 885 15 350 895 20 370 885 20 395 865 20 415 840 20 440 815 20 460 790 20 485 4,195 100 2,195 45 130 45 125 45 125 45 120 50 115 50 115 50 110 240 585 70 90 10 160 65 85 10 165 65 80 10 165 60 80 10 175 65 80 10 180 70 85 10 185 70 85 10 185 330 410 50 890 975 70 12,355 1,090 80 13,610 1,200 90 14,660 1,320 95 15,760 1,450 105 16,945 1,595 115 18,215 1,755 120 19,585 7,320 525 85,165 5 315 155 5 330 155 5 340 160 5 345 170 5 365 185 5 380 190 5 395 200 25 1,825 905 2,540 2,575 2,545 2,465 2,360 2,260 2,165 11,795 49 5. TAX EXPENDITURES TABLE 5–4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX—Continued (In millions of dollars) Outlay Equivalents Provision 1994 Exclusion of interest on State and local debt for rental housing ........................................................................................... Deductibility of mortgage interest on owner-occupied homes . Deductibility of State and local property tax on owner-occupied homes ............................................................................ Deferral of income from post 1987 installment sales ............... Deferral of capital gains on home sales ................................... Exclusion of capital gains on home sales for persons age 55 and over ................................................................................. Exception from passive loss rules for $25,000 of rental loss .. Accelerated depreciation on rental housing (normal tax method) .......................................................................................... Commerce: Cancellation of indebtedness ..................................................... Permanent exceptions from imputed interest rules .................. Capital gains (other than agriculture,timber, iron ore, and coal) (normal tax method) ..................................................... Capital gains exclusion of small corporation stock .................. Step-up basis of capital gains at death .................................... Carryover basis of capital gains on gifts .................................. Ordinary income treatment of loss from small business corp. stock sale ............................................................................... Accelerated depreciation of buildings other than rental housing (normal tax method) ........................................................ Accelerated depreciation of machinery and equipment (normal tax method) ..................................................................... Expensing of certain small investments (normal tax method) . Amortization of start-up costs (normal tax method) ................. Graduated corporation income tax rate (normal tax method) .. Exclusion of interest on small issue industrial development bonds ...................................................................................... Deferral of gains from sale of broadcasting facilities to minority owned business ................................................................ Treatment of Alaska Native Corporations ................................. Transportation: Deferral of tax on shipping companies ......................................... Exclusion of reimbursed employee parking expenses .................. Exclusion for employer-provided transit passes ............................ Community and regional development: Credit for low-income housing investments ................................... Investment credit for rehabilitation of structures (other than historic) ............................................................................................ Exclusion of interest on IDBs for airports, docks, and sports and convention facilities .................................................................... Exemption of certain mutuals’ and cooperatives’ income ............ Empowerment zones ...................................................................... Education, training, employment, and social services: Education: Exclusion of scholarship and fellowship income (normal tax method) .................................................................................. Exclusion of interest on State and local student loan bonds .. Exclusion of interest on State and local debt for private nonprofit educational facilities ..................................................... Exclusion of interest on savings bonds transferred to educational institutions ................................................................ Parental personal exemption for students age 19 or over ...... Deductibility of charitable contributions (education) .................. Exclusion of employer provided educational assistance .......... Training, employment, and social services: Targeted jobs credit ................................................................... Exclusion of employer provided child care ............................... Exclusion of employee meals and lodging (other than military) ........................................................................................ Credit for child and dependent care expenses ........................ Credit for disabled access expenditures ................................... Expensing of costs of removing certain architectural barriers to the handicapped ................................................................ 1995 1996 1997 1998 1999 2000 1996–2000 1,395 48,430 1,325 51,270 1,245 54,165 1,160 57,240 1,070 60,490 985 63,960 900 67,495 5,360 303,350 14,020 915 16,640 14,845 935 17,140 15,680 950 17,650 16,570 965 18,180 17,515 980 18,725 18,520 995 19,290 19,540 1,010 19,870 87,825 4,900 93,715 6,255 4,765 6,425 4,255 6,580 4,170 6,680 4,120 6,760 4,085 6,835 4,065 6,945 4,055 33,800 20,495 1,140 1,285 1,430 1,580 1,735 1,890 2,055 8,690 165 150 155 150 100 150 55 155 20 155 * 160 –15 160 160 780 7,680 * 35,800 125 8,180 * 37,740 130 8,275 * 38,305 135 8,445 * 40,355 140 8,725 * 40,945 145 8,945 40 41,545 150 9,155 335 42,155 155 43,545 375 203,305 725 40 40 50 50 50 50 55 255 5,145 4,925 4,380 3,580 2,675 1,750 1,075 13,460 17,625 1,690 200 5,395 19,400 1,335 200 5,655 20,855 1,070 210 5,885 21,885 815 215 6,060 23,210 585 220 6,230 25,815 420 225 6,440 28,295 300 230 6,800 120,060 3,190 1,100 31,415 985 770 595 465 400 370 335 2,165 285 45 300 30 315 20 330 15 345 10 360 5 380 5 1,730 55 15 2,400 35 15 2,510 50 15 2,625 65 15 2,735 80 15 2,845 100 15 2,960 115 15 3,080 135 75 14,245 495 1,925 2,260 2,800 2,945 3,270 3,500 3,660 16,175 90 80 80 80 70 70 70 370 1,135 25 * 1,200 30 330 1,260 30 440 1,320 30 510 1,385 35 565 1,450 35 600 1,510 40 630 6,925 170 2,745 875 445 910 440 915 420 925 395 935 370 945 345 955 320 4,675 1,850 1,055 1,080 1,105 1,135 1,170 1,210 1,260 5,880 5 890 2,145 275 5 905 2,270 100 10 920 2,415 .................. 10 955 2,555 .................. 15 995 2,700 .................. 20 1,035 2,855 .................. 20 1,075 3,020 .................. 75 4,980 13,545 .................. 305 880 395 945 325 1,010 60 1,085 40 1,160 20 1,245 5 1,315 450 5,815 625 3,780 210 660 3,865 210 700 3,980 210 740 4,080 215 780 4,180 215 820 4,260 215 865 4,325 220 3,905 20,825 1,075 20 20 20 20 20 20 20 100 50 ANALYTICAL PERSPECTIVES TABLE 5–4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX—Continued (In millions of dollars) Outlay Equivalents Provision 1994 Deductibility of charitable contributions, other than education and health .............................................................................. Exclusion of certain foster care payments ................................ Exclusion of parsonage allowances .......................................... Health: Exclusion of employer contributions for medical insurance premiums and medical care ........................................................... Deductibility of medical expenses .................................................. Exclusion of interest on State and local debt for private nonprofit health facilities .................................................................. Deductibility of charitable contributions (health) ............................ Tax credit for orphan drug research ............................................. Special Blue Cross/Blue Shield deduction .................................... Income security: Exclusion of railroad retirement system benefits .......................... Exclusion of workmen’s compensation benefits ............................ Exclusion of public assistance benefits (normal tax method) ...... Exclusion of special benefits for disabled coal miners ................. Exclusion of military disability pensions ........................................ Net exclusion of pension contributions and earnings: Employer plans .......................................................................... Individual Retirement Accounts ................................................. Keogh plans ............................................................................... Exclusion of employer provided death benefits ............................ Exclusion of other employee benefits: Premiums on group term life insurance .................................... Premiums on accident and disability insurance ....................... Income of trusts to finance supplementary unemployment benefits ................................................................................... Special ESOP rules (other than investment credit) ...................... Additional deduction for the blind .................................................. Additional deduction for the elderly ............................................... Tax credit for the elderly and disabled ......................................... Deductibility of casualty losses ...................................................... Earned income credit 2 .................................................................. Social Security: Exclusion of social security benefits: OASI benefits for retired workers .............................................. Disability insurance benefits ...................................................... Benefits for dependents and survivors ..................................... Veterans benefits and services: Exclusion of veterans disability compensation .............................. Exclusion of veterans pensions ..................................................... Exclusion of GI bill benefits ........................................................... Exclusion of interest on State and local debt for veterans housing ............................................................................................... General purpose fiscal assistance: Exclusion of interest on public purpose State and local debt ...... Deductibility of nonbusiness State and local taxes other than on owner-occupied homes .............................................................. Tax credit for corporations receiving income from doing business in U.S. possessions .......................................................... Interest: Deferral of interest on savings bonds ........................................... Addendum—Aid to State and local governments: Deductibility of: Property taxes on owner-occupied homes ................................ Nonbusiness State and local taxes other than on owner-occupied homes ........................................................................ Exclusion of interest on: Public purpose State and local debt ......................................... IDBs for certain energy facilities ............................................... IDBs for pollution control and sewage and waste disposal facilities ...................................................................................... Small-issue IDBs ........................................................................ 1995 1996 1997 1998 1999 2000 1996–2000 23,740 40 305 25,040 40 325 26,520 45 350 28,040 45 375 29,625 50 400 31,235 50 425 33,040 50 455 148,460 240 2,005 71,150 3,380 77,340 3,660 85,065 3,965 92,470 4,295 100,975 4,650 100,675 5,035 120,975 5,455 500,160 23,400 2,100 2,780 20 160 2,155 2,950 * 175 2,215 3,120 .................. 185 2,285 3,290 .................. 140 2,365 3,480 .................. 240 2,455 3,665 .................. 260 2,540 3,880 .................. 270 11,860 17,435 .................. 1,095 425 4,240 530 100 130 425 4,475 570 95 130 425 4,860 590 90 130 430 5,120 635 85 130 435 5,380 695 85 130 440 5,645 740 80 130 440 5,950 795 75 130 2,170 26,955 3,455 415 650 66,960 7,590 5,295 40 75,940 8,900 6,000 40 80,410 9,550 6,525 40 81,040 8,940 7,030 45 81,650 8,485 7,565 50 82,230 7,720 8,145 50 82,845 6,555 8,770 55 408,175 41,250 38,035 240 3,570 180 3,745 190 3,925 200 4,120 210 4,320 225 4,530 235 4,755 245 21,650 1,115 35 3,080 40 1,780 70 930 4,465 35 2,610 40 1,800 70 585 5,680 35 2,400 40 1,825 75 405 6,380 35 2,250 45 1,840 75 405 7,155 35 2,055 45 1,855 80 405 7,460 35 1,870 45 1,865 80 405 7,805 35 1,700 50 1,875 85 405 8,140 175 10,275 225 9,260 395 2,025 36,940 18,295 1,815 3,620 16,875 1,895 3,610 17,395 2,100 3,730 18,110 2,300 3,940 18,935 2,520 4,150 19,840 2,570 4,365 20,605 2,980 4,590 94,885 12,470 20,775 1,910 80 55 1,985 75 70 1,930 70 75 1,975 70 80 2,115 75 85 2,180 80 90 2,245 90 95 10,445 385 425 130 120 115 110 105 105 105 540 17,265 17,800 18,295 18,870 19,525 20,250 21,010 97,950 25,745 27,250 28,795 30,425 32,155 34,000 35,880 161,255 4,160 3,810 3,885 3,960 4,085 4,295 4,510 20,735 1,250 1,360 1,470 1,600 1,730 1,880 2,040 8,720 14,020 14,845 15,680 16,570 17,515 18,520 19,540 87,825 25,745 27,250 28,795 30,425 32,155 34,000 35,880 161,255 17,265 245 17,800 250 18,295 255 18,870 250 19,525 245 20,250 240 21,010 240 97,950 1,230 885 985 895 770 885 595 865 465 840 400 815 370 790 335 4,195 2,165 51 5. TAX EXPENDITURES TABLE 5–4. OUTLAY EQUIVALENT ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX—Continued (In millions of dollars) Outlay Equivalents Provision 1994 Owner-occupied mortgage revenue bonds ............................... State and local debt for rental housing .................................... IDBs for airports, docks, and sports and convention facilities . State and local student loan bonds .......................................... State and local debt for private nonprofit educational facilities State and local debt for private nonprofit health facilities ........ State and local debt for veterans housing ................................ 1995 2,540 1,395 1,135 445 1,055 2,100 130 1996 2,575 1,325 1,200 440 1,080 2,155 120 2,545 1,245 1,260 420 1,105 2,215 115 1997 2,465 1,160 1,320 395 1,135 2,285 110 1998 2,360 1,070 1,385 370 1,170 2,365 105 1999 2,260 985 1,450 345 1,210 2,455 105 2000 2,165 900 1,510 320 1,260 2,540 105 1996–2000 11,795 5,360 6,925 1,850 5,880 11,860 540 * $2.5 million or less. 1 In addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts for fiscal year 1996 of $725 million. 2 The effect on outlays (in millions of dollars) is as follows: $10,990 in 1994; $16,845 in 1995; $20,230 in 1996; $22,755 in 1997; $23,850 in 1998; $25,010 in 1999; amd $26,035 in 2000. Note: Provisions with estimates denoted ‘‘normal tax method’’ have outlay equivalents of zero under the reference tax law method. All estimates have been rounded to the nearest $5 million. Tax Expenditure Baselines A tax expenditure is a preferential exception to the baseline provisions of the tax structure. The 1974 Congressional Budget Act does not, however, specify the baseline provisions of the tax law. Deciding whether provisions are preferential exceptions, therefore, is a matter of judgement. As in prior years, this year’s tax expenditure estimates are presented using two baselines: the normal tax baseline, which is used by the Joint Committee on Taxation, and the reference tax law baseline, which has been used by the Administration since 1983. The normal tax baseline is patterned on a comprehensive income tax, which defines income as the sum of consumption and the change in net wealth in a given period of time. The normal tax baseline allows personal exemptions, a standard deduction, and deductions of the expenses incurred in earning income. It is not limited to a particular structure of tax rates, or by a specific definition of the taxpaying unit. The reference tax law baseline is closer to existing law. Reference law tax expenditures are limited to special exceptions in the tax code that serve programmatic functions. These functions correspond to specific budget categories such as national defense, agriculture, or health care. While tax expenditures under the reference law baseline are generally tax expenditures under the normal tax baseline, the reverse is not always true. Both the normal and reference tax baselines allow several major departures from a pure comprehensive income tax. For example: • Income is taxable when realized in exchange. Thus, neither the deferral of tax on unrealized capital gains nor the tax exclusion of imputed income (such as the rental value of owner-occupied housing or farmers’ consumption of their own produce) is regarded as a tax expenditure. Both accrued and imputed income would be taxed under a comprehensive income tax. • There is a separate corporation income tax. Under a comprehensive income tax corporate income would be taxed only once—at the shareholder level, whether or not distributed in the form of dividends. • Values of assets and debt are not adjusted for inflation. A comprehensive income tax would adjust the cost basis of capital assets and debt for changes in the price level during the time the assets or debt are held. Thus, under a comprehensive income tax baseline the failure to take account of inflation in measuring depreciation, capital gains, and interest income would be regarded as a negative tax expenditure (i.e., a tax penalty), and failure to take account of inflation in measuring interest costs would be regarded as a positive tax expenditure (i.e., a tax subsidy). While the reference law and normal tax baselines are generally similar, areas of difference include: • Tax rates. The separate schedules applying to the various taxpaying units are included in the reference law baseline. Thus, corporate tax rates below the maximum statutory rate do not give rise to a tax expenditure. The normal tax baseline is similar, except that it specifies the current maximum rate as the baseline for the corporate income tax. The lower tax rates applied to the first $10 million of corporate income are thus regarded as a tax expenditure. Similarly, under the reference law baseline, preferential tax rates for capital gains generally do not yield a tax expenditure; only capital gains treatment of otherwise ‘‘ordinary income,’’ such as that from coal and iron ore royalties and the sale of timber and certain agricultural products, is considered a tax expenditure. The alternative minimum tax is treated as part of the baseline rate structure under both the reference and normal tax methods. • Income subject to the tax. Income subject to tax is defined as gross income less the costs of earning that income. The Federal income tax defines gross income to include: (1) consideration received in the exchange of goods and services, including labor services or property; and (2) the taxpayer’s share of gross or net income earned and/or reported by another entity (such as a partnership). Under the reference tax rules, therefore, gross income does not include gifts—defined as receipts of money or property that are not consideration in an exchange—or most transfer payments, which can be 52 ANALYTICAL PERSPECTIVES thought of as gifts from the Government.2 The normal tax baseline also excludes gifts between individuals from gross income. Under the normal tax baseline, however, all cash transfer payments from the Government to private individuals are counted in gross income, and exemptions of such transfers from tax are identified as tax expenditures. The costs of earning income are generally deductible in determining taxable income under both the reference and normal tax baselines.3 • Capital recovery. Under the reference tax law baseline no tax expenditures arise from accelerated depreciation. Under the normal tax baseline, the depreciation allowance for machinery and equipment is determined using straight-line depreciation over tax lives equal to mid-values of the asset depreciation range (a depreciation system in effect from 1971 through 1980). The normal tax baseline for real property is computed using 40-year straight-line depreciation. • Treatment of foreign income. Both the normal and reference tax baselines allow a tax credit for foreign income taxes paid (up to the amount of U.S. income taxes that would otherwise be due), which prevents double taxation of income earned abroad. Under the normal tax method, however, controlled foreign corporations (CFCs) are not regarded as entities separate from their controlling U.S. shareholders. Thus, the deferral of tax on income received by CFCs is regarded as a tax expenditure under this method. In contrast, except for tax haven activities, the reference law baseline follows current law in treating CFCs as separate taxable entities whose income is not subject to U.S. tax until distributed to U.S. taxpayers. Under this baseline, deferral of tax on CFC income is not a tax expenditure because U.S. taxpayers generally are not taxed on accrued, but unrealized, income. In addition to these areas of difference, the Joint Committee on Taxation considers a somewhat broader set of tax expenditures under its normal tax baseline than is considered here. Other Considerations Additional tax expenditure analysis may be helpful to policy makers. For example, information on the programmatic and economic effects of tax expenditures could be useful. The outputs and efficiency of tax expenditures could then be compared more systematically with direct outlay programs. In addition, the tax expenditure analysis could be extended beyond the income and transfer taxes to include payroll and excise taxes. The exclusion of certain 2 Gross income does, however, include transfer payments associated with past employment, such as social security benefits. 3 In the cases of individuals who hold ‘‘passive’’ equity interests in businesses, however, the pro rata shares of sales and expense deductions reportable in a year are limited. A passive business activity is defined to be one in which the holder of the interest, usually a partnership interest, does not actively perform managerial or other participatory functions. The taxpayer may generally report no larger deductions for a year than will reduce taxable income from such activities to zero. Deductions in excess of the limitation may be taken in subsequent years, or when the interest is liquidated. forms of compensation from the wage base, for instance, reduces payroll taxes, as well as income taxes. Payroll tax exclusions are complex to analyze, however, because they also affect social insurance benefits. Certain targeted excise tax provisions might also be considered tax expenditures. In this case challenges include determining an appropriate baseline. Descriptions of Income Tax Provisions Descriptions of the individual and corporate income tax expenditures reported upon in this chapter follow. NATIONAL DEFENSE Benefits and allowances to armed forces personnel.—The housing and meals provided military personnel, either in cash or in kind, are excluded from income subject to tax. INTERNATIONAL AFFAIRS Income earned abroad.—A U.S. citizen or resident alien who resides in a foreign country or who stays in one or more foreign countries for a minimum of 11 out of the past 12 months may exclude $70,000 per year of foreign-earned income. Eligible taxpayers also may exclude or deduct reasonable housing costs in excess of one-sixth of the salary of a civil servant at grade GS –14, step 1. These provisions do not apply to Federal employees working abroad; however, the tax expenditure estimate does reflect certain allowances that are excluded from their taxable income. Income of Foreign Sales Corporations.—The Foreign Sales Corporation (FSC) provisions exempt from tax a portion of U.S. exporters’ foreign trading income to reflect the FSC’s sales functions as foreign corporations. These provisions conform to the General Agreement on Tariffs and Trade. Source rule exceptions.—The worldwide income of U.S. persons is taxable by the United States and a credit for foreign taxes paid is allowed. The amount of foreign taxes that can be credited is limited to the pre-credit U.S. tax on the foreign source income. Two exceptions give rise to tax expenditures: sales of inventory property that reduces the U.S. tax of exporters; and, for financial institutions and certain financing operations of nonfinancial enterprises, an exception from the rules that require allocation of interest expenses between domestic and foreign activities of a U.S. taxpayer. Income of U.S.-controlled foreign corporations.— The income of foreign corporations controlled by U.S. shareholders is not subject to U.S. taxation. The income becomes taxable only when the controlling U.S. shareholders receive dividends or other distributions from their foreign stockholding. Under the normal tax method, the currently attributable foreign source pre-tax income from such a controlling interest is subject to U.S. 53 5. TAX EXPENDITURES taxation, whether or not distributed. Thus, under the normal tax baseline the excess of controlled foreign corporation income over the amount distributed to a U.S. shareholder gives rise to a tax expenditure in the form of a tax deferral. GENERAL SCIENCE, SPACE, AND TECHNOLOGY Expensing R&E expenditures.—Research and experimentation (R&E) projects can be viewed as investments because their benefits accrue for several years when they are successful. It is difficult, however, to identify whether a specific R&E project is completed and successful and, if it is successful, what its expected life will be. For these reasons, the statutory provision that these expenditures may be expensed is considered part of the reference law. Under the normal tax method, however, the expensing of R&E expenditures is viewed as a tax expenditure. The baseline assumed for the normal tax method is that all R&E expenditures are successful and have an expected life of five years. R&E credit.—Under legislation that expires on July 1, 1995, the tax credit is 20 percent of the qualified expenditures in excess of each year’s base amount. This threshold is determined by multiplying a ‘‘fixed-base percentage’’ (limited to a maximum of .16 for existing companies) by the average amount of the company’s gross receipts for the four preceding years. The ‘‘fixedbase percentage’’ is the ratio of R&E expenses to gross receipts for the 1984 to 1988 period. Start-up companies that did not both incur qualified expenses and have gross receipts in at least three of the base years are assigned a ‘‘fixed-base percentage’’ of .03. A similar credit with its own separate threshold is provided for taxpayers’ basic research grants to universities. Beginning in 1989, the otherwise deductible qualified R&E expenditures were reduced by the amount of the credit. Allocation of R&E expenditures.—Regulations issued in 1977 were designed to achieve a reasonable allocation of R&E expenses between corporations’ domestic and foreign activities, but successive legislative and administrative actions suspended this requirement. Under legislation that expires on July 31, 1995, 50 percent of both U.S.- and foreign-based R&E expenses were allocated to their respective income sources. The remaining R&E expenses then had to be allocated on the basis of gross sales or gross income. ENERGY Exploration and development costs.—In the case of successful investments in domestic oil and gas wells, intangible drilling costs, such as wages, the costs of using machinery for grading and drilling, and the cost of unsalvageable materials used in constructing wells, may be expensed rather than amortized over the productive life of the property. Integrated oil companies may currently deduct only 70 percent of such costs and amortize the remaining 30 percent over five years. The same rule applies to the exploration and development costs of surface stripping and the construction of shafts and tunnels for other fuel minerals. Percentage depletion.—Independent fuel mineral producers and royalty owners are generally allowed to take percentage depletion deductions rather than cost depletion on limited quantities of output. Under cost depletion, outlays are deducted over the productive life of the property based on the fraction of the resource extracted. Under percentage depletion taxpayers deduct a percentage of gross income from mineral production at rates of 22 percent for uranium, 15 percent for oil, gas and oil shale, and 10 percent for coal. The deduction is limited to 50 percent of net income from the property, except for oil and gas where the deduction can be 100 percent of net property income. Production from geothermal deposits is eligible for percentage depletion at 65 percent of net income, but with no limit on output and no limitation with respect to qualified producers. Unlike depreciation or cost depletion, percentage depletion deductions can exceed the cost of the investment. Alternative fuel production credit.—A nontaxable credit of $3 per barrel (in 1979 dollars) of oil-equivalent production is provided for several forms of alternative fuels. It is generally available as long as the price of oil stays below $29.50 (in 1979 dollars). Oil and gas exception to passive loss limitation.—Although owners of working interests in oil and gas properties are subject to the alternative minimum tax, they are exempted from the ‘‘passive income’’ limitations. This means that the working interest-holder, who manages on behalf of himself and all other owners the development of wells and incurs all the costs of their operation, may aggregate negative taxable income from such interests with his income from all other sources. Thus, he will be relieved of the minimum tax rules limit on tax deferrals. Capital gains treatment of royalties on coal.— Sales of certain coal under royalty contracts can be treated as capital gains. While the top statutory rate on ordinary income is 39.6 percent, the rates on capital gains are limited to 28 percent. Tax-exempt bonds for energy facilities.—Certain energy facilities, such as municipal electric and gas utilities, may benefit from tax-exempt financing. Enhanced oil recovery credit.—A credit is provided equal to 15 percent of the taxpayer’s costs for tertiary oil recovery on projects in the United States. Qualifying costs include tertiary injectant expenses, intangible drilling and development costs on a qualified enhanced oil recovery project, and amounts incurred for tangible depreciable property. 54 ANALYTICAL PERSPECTIVES New technology credits.—A credit of 10 percent is available for investment in solar and geothermal energy facilities. In addition, a credit of 1.5 cents is provided per kilowatt hour of electricity produced from renewable resources such as wind and biomass. The renewable resources credit applies only to electricity produced by a facility placed in service before July 1, 1999. Alcohol fuel credit.—Gasohol, a motor fuel composed of at least 10 percent alcohol, is exempt from 5.4 of the 18.4 cents per gallon Federal excise tax on gasoline. Smaller exemptions are allowed for motor fuel with lower alcohol content. There is a corresponding income tax credit for alcohol used as a fuel in applications where the excise tax is not assessed. This credit, equal to a subsidy of 54 cents per gallon for alcohol used as a motor fuel, is intended to encourage substitution of alcohol for petroleum-based gasoline. In addition, small producers of ethanol are eligible for a 10 cent per gallon credit. Credit and deduction for clean-fuel vehicles and property.—A tax credit of 10 percent is provided for electric vehicles. In addition, a deduction is provided for other clean-fuel burning vehicles as well as refueling property. Exclusion of utility conservation subsidies.—Subsidies by public utilities for customer expenditures on energy conservation measures are excluded from the gross income of the customer. NATURAL RESOURCES AND ENVIRONMENT Exploration and development costs.—As is true for fuel minerals, certain capital outlays associated with exploration and development of nonfuel minerals may be expensed rather than depreciated over the life of the asset. Percentage depletion.—Most nonfuel mineral extractors also make use of percentage depletion rather than cost depletion, with percentage depletion rates ranging from 22 percent for sulphur down to 5 percent for sand and gravel. Capital gains treatment of iron ore and of certain timber income.—Iron ore and certain timber sold under a royalty contract can be treated as capital gains. Mining reclamation reserves.—Taxpayers are allowed to establish reserves to cover certain costs of mine reclamation and of closing solid waste disposal properties. Net increases in reserves may be taken as a deduction against taxable income. Tax-exempt bonds for pollution control and waste disposal.—Interest on State and local government debt issued to finance private pollution control and waste disposal facilities was excludable from income subject to tax. This authorization was repealed for pollution control equipment and limits placed on the amount of debt that can be issued for private waste disposal facilities by the Tax Reform Act of 1986. Expensing multiperiod timber growing costs.— Generally, costs must be capitalized when goods are produced for inventory used in one’s own trade or business, or under contract to another party. Timber production, however, was specifically exempted from these multiperiod cost capitalization rules, creating a special benefit derived from this deferral of taxable income. Credit and seven-year amortization for reforestation.—A special 10 percent investment tax credit is allowed for up to $10,000 invested annually in clearing land and planting trees for the ultimate production of timber. The same amount of forestation investment may also be amortized over a seven-year period. Without this preference, the amount would have to be capitalized and could be recovered (deducted) only when the trees were sold or harvested 20 or more years later. Moreover, the amount of forestation investment that is amortizable is not reduced by any of the investment credit that is allowed. Historic preservation.—Expenditures to preserve and restore historic structures qualify for a 20 percent investment credit, but the depreciable basis must be reduced by the full amount of the credit taken. AGRICULTURE Expensing certain capital outlays.—Farmers, except for certain agricultural corporations and partnerships, are allowed to deduct certain expenditures for feed and fertilizer, as well as for soil and water conservation measures. Expensing is allowed, even though these expenditures are for inventories held beyond the end of the year, or for capital improvements that would otherwise be capitalized. Expensing multiperiod livestock and crop production costs.—The production of livestock and crops with a production period of less than two years is exempted from the uniform cost capitalization rules. Farmers establishing orchards, constructing farm facilities for their own use, or producing any goods for sale with a production period of two years or more may elect not to capitalize costs. If they do, they must apply straight-line depreciation to all depreciable property they use in farming. Loans forgiven solvent farmers.—Farmers are granted special tax treatment by being forgiven the tax liability on certain forgiven debt. Normally, the amount of loan forgiveness is accounted for as a gain (income) of the debtor and he must either report the gain, or reduce his recoverable basis in the property to which the loan relates. If the debtor elects to reduce basis and the amount of forgiveness exceeds his basis in the property, the excess forgiveness is taxable. However, in the case of insolvent (bankrupt) debtors, the amount of loan forgiveness never results in an income 5. TAX EXPENDITURES tax liability.4 Farmers with forgiven debt are considered insolvent for tax purposes, and thus qualify for income tax forgiveness. Capital gains treatment of certain income.—Certain agricultural income, such as unharvested crops, can be treated as capital gains. COMMERCE AND HOUSING This category includes a number of tax expenditure provisions that also affect economic activity in other functional categories. For example, provisions related to investment, such as accelerated depreciation, could also have been classified under the energy, natural resources and environment, agriculture, or transportation categories. Credit union income.—The earnings of credit unions not distributed to members as interest or dividends are exempt from income tax. Bad debt reserves.—Only commercial banks with less than $500 million in assets, mutual savings banks, and savings and loan associations are permitted to deduct additions to bad debt reserves in excess of actually experienced losses. The deduction for additions to loss reserves allowed qualifying mutual savings banks and savings and loan associations is 8 percent of otherwise taxable income. To qualify, the thrift institutions must maintain a specified fraction of their assets in the form of mortgages, primarily residential. Interest on life insurance savings.—Savings in the form of policyholder reserves are accumulated from premium payments and interest is earned on the reserves. Such interest income is not taxed as it accrues nor when received by beneficiaries upon the death of the insured. Small property and casualty insurance companies.— Insurance companies that have annual net premium incomes of less than $350,000 are exempted from tax; those with $350,000 to $2,100,000 of net premium incomes may elect to pay tax only on the income earned by their investment portfolio. Insurance companies owned by exempt organizations.—Generally, the income generated by life and property and casualty insurance companies is subject to tax, albeit by special rules. Insurance operations conducted by such exempt organizations as fraternal societies and voluntary employee benefit associations, however, are exempted from tax. Mortgage housing bonds.—Interest on all mortgage revenue bonds issued by State and local governments is exempt from taxation. Proceeds are used to finance homes purchased by first-time buyers—with low to 4 The insolvent taxpayer’s carryover losses and unused credits are extinguished first, and then his basis in assets reduced to no less than amounts still owed creditors. Finally, the remainder of the forgiven debt is excluded from tax. 55 moderate incomes—of dwellings with prices under 90 percent of the average area purchase price. There are limits imposed on the amount of tax-exempt State and local government bonds that could be issued to fund private activity. The volume cap for single-family mortgage revenue bonds and multifamily rental housing bonds is combined with the cap for student loans and industrial development bonds (IDBs). The cap is set at $50 per capita or a minimum of $150 million for each State. States are authorized to issue mortgage credit certificates (MCCs) in lieu of qualified mortgage revenue bonds because the bonds are relatively inefficient subsidies to first-time home buyers. MCCs entitle home buyers to income tax credits for a specified percentage of interest on qualified mortgage loans. In this way, the entire amount of the subsidy flows directly to the home buyer without being partly diverted to financial middlemen or bondholders. A State cannot issue an aggregate annual amount of MCCs greater than 25 percent of its annual ceiling for qualified mortgage bonds. Because of the relationship between MCCs and qualified mortgage bonds, their estimates are presented as one line item in the tables. Rental housing bonds.—State and local government issues of IDBs are restricted to multifamily rental housing projects in which 20 percent (15 percent in targeted areas) of the units are reserved for families whose income does not exceed 50 percent of the area’s median income; or 40 percent for families with incomes of no more than 60 percent of the area median income. Other tax-exempt bonds for multifamily rental projects are generally issued with the requirement that all tenants must be low or moderate income families. Rental housing bonds are subject to the volume cap discussed in the mortgage housing bond section above. Interest and taxes on owner-occupied homes.— Owner-occupants of homes may deduct mortgage interest and property taxes on their primary and secondary residences as itemized nonbusiness deductions. The mortgage interest deduction is limited to interest on debt no greater than the owner’s basis in the residence and, for debt incurred after October 13, 1987, it is limited to no more than $1 million. Interest on up to $100,000 of other debt secured by a lien on a principal or second residence is also deductible, irrespective of the purpose of borrowing, provided the debt does not exceed the fair market value of the residence. Mortgage interest deductions on personal residences are tax expenditures because the taxpayers are not required to report the value of owner-occupied housing services as gross income. Real property installment sales.—Dealers in real and personal property, i.e., sellers that regularly hold property for sale or resale, cannot defer taxable income from installment sales until the receipt of the loan repayment. Nondealers, defined as sellers of real property used in their business, are required to pay interest 56 to the Federal Government on deferred taxes attributable to their total installment obligations in excess of $5 million. Only properties with sales prices exceeding $150,000 are includable in the total. The payment of a market rate of interest eliminates the benefit of the tax deferral. The tax exemption for nondealers with total installment obligations of less than $5,000,000 is, therefore, a tax expenditure. Capital gains on home sales.—When a primary residence is sold, the homeowner can defer paying a capital gains tax on the proceeds by purchasing or constructing a home of value at least equal to that of the prior home (net of sales and qualified fix-up expenses) within two years. This deferral is a tax expenditure. Capital gains on sales by owners aged 55 or older.—A taxpayer who is 55 years of age or older at the time of the sale of his residence may elect to exclude from tax up to $125,000 of the gain from its sale. This is a once-in-a-lifetime election. In effect, this provision converts some prior deferrals of tax into forgiveness of tax. Passive loss real estate exemption.—In general, passive losses may not offset income from other sources. Losses up to $25,000 attributable to certain rental real estate activity, however, are exempted from this rule. Accelerated depreciation of real property, machinery and equipment.—As previously noted, the tax depreciation allowance provisions are part of the reference law rules, and thus do not cause tax expenditures under the reference method. Under the normal tax method, however, a 40-year tax life for depreciable real property is the norm. So, the statutory depreciation period in effect from 1987 to 1993 for nonresidential properties of 31.5 years, and the 39-year period for property placed in service after February 25, 1993, give rise to tax expenditures. The statutory depreciation period for residential property is 27.5 years, which also results in tax expenditures. Statutory depreciation of machinery and equipment also is somewhat accelerated relative to the normal tax baseline. In addition, tax expenditures arise from pre-1987 tax allowances for real and personal property. Cancellation of indebtedness.—Individuals are not required to report the cancellation of certain indebtedness as current income. However, if they do not, it would be included as an adjustment in the basis of the underlying property. Imputed interest rules.—Under reference law rules commonly referred to as original issue discount (OID), both the holder and seller of a financial contract are generally required to report interest earned in the period it accrues, not when the contract payments are made. Moreover, the amount of interest accruable is determined by the actual price paid for the contract, ANALYTICAL PERSPECTIVES not by the stated or nominal principal and interest stipulated in the contract.5 Exceptions to the general rules for accounting for interest expense or income include the following: (a) permission for the mortgagor of his personal residence to treat the discount from the nominal principal of his mortgage loan, commonly called ‘‘points,’’ as prepaid interest which is deductible in the year paid, not the year accrued; and (b) sellers of farms and small businesses worth less than $1 million, in exchange for the purchaser’s debt obligation, are exempted from the OID rules. This is $750,000 more than the $250,000 exemption that the reference tax law generally allows for such transactions. Capital gains (other than agriculture, timber, iron ore and coal).—While the top statutory rate on ordinary income is 39.6 percent, the rates on capital gains are limited to 28 percent. This treatment is considered a tax expenditure under the normal tax method but not under the reference law method. Capital gains exclusion for small business stock.—An exclusion of 50 percent is provided for capital gains from qualified small business stock held by individuals for more than 5 years. A qualified small business is a corporation whose gross assets do not exceed $50 million as of the date of issuance of the stock. Certain activities such as personal services and banking are ineligible for the exclusion. Step-up in basis of capital gains at death.—Capital gains on assets held at the owner’s death are not subject to capital gains taxes. The cost basis of the appreciated assets is adjusted upward to the market value at the owner’s date of death. The step-up in the heir’s cost basis means that, in effect, the capital gain is forgiven. Carryover basis of capital gains on gifts.—When a gift is made, the transferred property carries to the donee the donor’s basis—the cost that was incurred when the property was first acquired. The carryover of the donor’s basis allows a continued deferral of unrealized capital gains. Ordinary income treatment of losses from sale of small business corporate stock shares.—Up to $100,000 in losses from the sale of such stock may be treated as ordinary losses, and therefore not be subject to the $3,000 annual capital loss write-off limit if the corporation’s capitalization is less than $1 million. Expensing of certain small investments.—Qualifying investments in tangible property up to $17,500 ($10,000 prior to 1993) can be expensed rather than depreciated over time. To the extent that qualifying 5 Thus, when a borrower on December 31, 1994, issues a promise to pay $1,000 plus interest at 10 percent on December 30, 1995, for a total repayment of $1,100, and accepts $900 from a lender in exchange for the contract, the rules require that both parties: (a) recognize that $900 is the amount lent, so that the effective loan interest rate is not the nominal 10 percent rate but is 22.2 percent; and (b) both report $200 as interest paid or received in 1995, as the case may be. 57 5. TAX EXPENDITURES investment during the year exceeds $200,000, the amount eligible for expensing is decreased. The amount expensed is completely phased out when qualifying investments exceed $217,500. Business start-up costs.—When an individual or corporation acquires or otherwise enters into a new business, certain start-up expenses, such as the costs of investigating opportunities and legal services, are normally incurred. The taxpayer may elect to amortize these outlays over 60 months although they are similar to other payments he makes for nondepreciable intangible assets that are not recoverable until the business is sold. Under the normal tax method this gives rise to a tax expenditure, while under the reference method it does not. Graduated corporation income tax rate schedule.—The schedule is graduated, with rates of 15 percent on the first $50,000 of taxable income, 25 percent on the next $25,000, 34 percent on the next $9.925 million, and a rate of 35 percent on income over $10 million. As compared with a flat 35 percent tax rate, the lower rates provide a $111,000 reduction in tax liability for corporations with taxable incomes of $10 million. This benefit is recaptured in the cases of corporations with taxable incomes exceeding $100,000. This is accomplished by (1) a 5 percent additional tax on corporate incomes in excess of $100,000, but less than $335,000 and (2) a 3 percent additional tax on income over $15 million but less than $18.33 million. At this point the $111,000 is fully recaptured. Since this rate schedule is part of the reference tax law, it does not give rise to a tax expenditure under the reference method. A flat corporation income tax rate is taken as the baseline under the normal tax method; therefore the lower rates do yield a tax expenditure under this concept. Small issue industrial development bonds.—The interest on small issue industrial development bonds (IDBs) issued by State and local governments to finance private business property is excluded from income subject to tax. Depreciable property financed with small issue IDBs must be depreciated, however, using the straight-line method. The tax exemption of small issue bonds expired in 1986, except for small issue IDBs exclusively issued to finance manufacturing facilities for which the tax exemption is permanent. The annual volume of small issue IDBs is subject to the unified volume cap discussed in the mortgage housing bond section above. Deferral of gains from sale of broadcasting facility to minority owned business.—The voluntary sale of assets generally requires the seller to pay tax on the gain that has accrued over the period of ownership. However, in the case of an involuntary sale, as when an owner’s property must be sold in a condemnation preceding, or to implement a change in a government’s regulatory policy, the owner is permitted to defer payment of tax, provided the proceeds are reinvested in similar property within a specified period. In 1979, the Federal Communications Commission instituted a policy of encouraging minority group ownership of broadcast licenses. Since that time, the tax laws have been interpreted to permit voluntary sellers of licensed broadcasting facilities to defer payment of capital gains tax when the buyer has been certified as a ‘‘minority business,’’ in effect treating the sale as ‘‘involuntary.’’ Treatment of Alaskan Native Corporations losses.—Tax law restricts the ability of profitable corporations to reduce their tax liabilities by merging or buying corporations with accumulated net operating losses (NOLs) and as yet unrefunded claims to investment credits. Alaska Native Corporations have a limited exemption (fifteen years after the NOL or credit claim was first experienced) from these restrictions that includes NOLs and credits claimable prior to April 26, 1988. TRANSPORTATION Shipping companies that are U.S. flag carriers.—Certain companies that operate U.S. flag vessels receive a deferral of income taxes on that portion of their income used for shipping purposes, primarily construction, modernization and major repairs to ships, and repayment of loans to finance these qualified investments. Once indefinite, the deferral has been limited to 25 years since January 1, 1987. Exclusion of reimbursed employee parking expenses.—Parking at or near an employer’s business premises that is paid for by the employer is excludable from the income of the employee as a working condition fringe benefit. The maximum amount of the parking exclusion is $155 month (in 1993 dollars), indexed in $5 increments. The tax expenditure estimate does not include parking at facilities owned by the employer. Exclusion of employer-provided transit passes.— Transit passes, tokens, and fare cards provided by an employer to defray an employee’s commuting costs are excludable from the employee’s income as a de minimis fringe benefit, if the total value of the benefit does not exceed $60 per month (in 1993 dollars), indexed in $5 increments. COMMUNITY AND REGIONAL DEVELOPMENT Low-income housing investment.—Through 1989, a tax credit for investment in new, substantially rehabilitated, and certain unrehabilitated low-income housing was structured to have a present value of 70 percent of construction or rehabilitation costs incurred and was allowed over 10 years. For Federally subsidized projects and those involving unrehabilitated existing low income housing, the credit was structured to have a present value of 30 percent. Beginning on January 58 ANALYTICAL PERSPECTIVES 1, 1990, the credit was extended at a present value of 70 percent, including projects financed with other Federal subsidies, but only if substantial rehabilitation was done. Notwithstanding the capital grant character of this subsidy, the investor’s recoverable basis is not reduced by the substantial credit allowed. Rehabilitation of structures.—A 10 percent investment tax credit is available for the rehabilitation of buildings that are used for business or productive activities and that were erected before 1936 for other than residential purposes. A full reduction by the amount of the credit is required in the taxpayer’s recoverable basis. Tax-exempt bonds for airports and similar facilities.—Government-owned airports, docks and wharves, as well as high-speed rail facilities that need not be government-owned, may be financed with taxexempt bonds. These bonds are not covered by a volume cap. Exemption of certain mutuals’ and cooperatives’ income.—The incomes of mutual and cooperative telephone and electric companies are exempted from tax if at least 85 percent of their revenues are derived from patron service charges. Empowerment zones—Qualifying businesses in designated economically depressed areas can receive tax benefits such as an employer wage credit, increasing expensing of investment in equipment, tax-exempt financing, and accelerated depreciation. In addition, a tax credit for contributions to certain community development corporations can be available. EDUCATION, TRAINING, EMPLOYMENT, SERVICES AND SOCIAL Scholarship and fellowship income.—Scholarships and fellowships are not excluded from taxable income to the extent they exceed tuition and courserelated expenses of the grantee. From an economic point of view, scholarships and fellowships are either gifts not conditioned on the performance of services, or they are rebates of educational costs. Thus, under the reference law method, the exclusion is not a tax expenditure because this method does not include either gifts or price reductions in a taxpayer’s gross income. Under the normal tax method, however, the exclusion is considered a tax expenditure because under this method gift-like transfers of government funds—and many scholarships are derived directly or indirectly from government funding—are included in gross income. Tax-exempt bonds for educational purposes.—Interest on State and local government debt issued to finance student loans or the construction of facilities used by private nonprofit educational institutions is excluded from income subject to tax. The aggregate vol- ume of such private activity bonds that each State may issue during any calendar year is limited. U.S. savings bonds for education.—Interest on U.S. savings bonds, issued after December 31, l989, may be excluded from tax if the bonds, plus accrued interest, are transferred to an educational institution as payment for educational expenses. The exclusion from tax is phased out for joint returns with adjusted gross incomes of $63,450 to $93,450 and $42,300 to $57,300 for single and head of household returns in 1994. Dependent students age 19 or older.—Taxpayers can claim personal exemptions for dependent children age 19 or over who receive parental support payments of $1,000 or more per year, are full-time students, and do not claim a personal exemption on their own tax returns. This preferential arrangement usually generates tax savings because the students’ marginal tax rates are more often than not lower than their parents’ marginal tax rates. Charitable contributions.—Contributions to charitable, religious, and certain other nonprofit organizations are allowed as an itemized deduction for individuals, generally up to 50 percent of adjusted gross income. Taxpayers who donate capital assets to charitable or educational organizations can deduct the assets’ current value without the taxation of any appreciation in value. Corporations can also deduct charitable contributions up to 10 percent of their pre-tax income. Tax expenditures resulting from the deductibility of contributions are shown separately for educational and other institutions. Contributions to health institutions are reported under the health function. Employer provided benefits.—Many employers provide employee benefits that are not counted in employee income. The employers’ costs for these benefits are deductible business expenses. The exclusion from an employee’s income of the value of educational assistance, child care, meals and lodging, as well as ministers’ housing allowances and the rental value of parsonages are tax expenditures. The exclusion for educational assistance expired on December 31, 1994. Health and other insurance benefits are reported under the health and income security functions. Certain parking and transit benefits are reported under the transportation function. Targeted jobs credit.—Employers may claim a tax credit for qualified wages paid to individuals who began work before January 1, 1995, and who are certified as members of various targeted groups. The amount of the credit that may be claimed is 40 percent of the first $3,000 paid during the first year of employment. The 40 percent credit also applies to the summer employment wages paid 16 and 17 year old youths who are members of low income families. Employers must 59 5. TAX EXPENDITURES reduce their deduction for wages paid by the amount of the credit claimed. ed under the education, training, employment, and social services function. Child and dependent care expenses.—A tax credit may be claimed by married couples for child and dependent care expenses incurred when one spouse works full time and the other works at least part time or goes to school. The credit may also be claimed by divorced or separated parents who have custody of children, and by single parents. Expenditures up to a maximum $2,400 for one dependent and $4,800 for two or more dependents are eligible for the credit. The credit is equal to 30 percent of qualified expenditures for taxpayers with incomes of $10,000 or less. The credit is reduced to a minimum of 20 percent by one percentage point for each $2,000 of income between $10,000 and $28,000. Orphan drugs.—To encourage the development of drugs for the treatment of rare diseases or physical conditions, a tax credit is granted equal to 50 percent of the costs for clinical testing that has to be completed before manufacture and distribution are approved by the Food and Drug Administration. Because the drug firm is not required to reduce its deduction for testing expenses (an R&D expenditure) by the amount of this credit, the private cost of clinically testing orphan drugs is reduced substantially. This tax expenditure expired December 31, 1994. Disabled access expenditures.—A credit is provided of 50 percent of eligible disabled access expenditures in excess of $250. The credit is limited to $5,000. Blue Cross and Blue Shield.—Although these organizations are not qualified as exempt, they are provided exceptions from otherwise applicable insurance company income tax accounting rules that effectively eliminate their tax liabilities. INCOME SECURITY Costs of removing architectural barriers to the handicapped.—The investment cost of making any business accessible to persons suffering physical or mental disabilities may be deducted, rather than capitalized as part of the taxpayer’s basis in such property and recovered by subsequent depreciation allowances, as is generally required. Foster care payments.—Foster parents provide a home and care for children who are wards of the State, under contract with the State. Compensation received for this service is explicitly excluded from the gross incomes of foster parents, making the expenses they incur nondeductible. This activity is, in effect, tax-exempt. HEALTH Employer paid medical insurance and expenses.—Employee compensation, in the form of payments by employers for health insurance premiums and other medical expenses, is deducted as a business expense by employers, but it is not included in employee gross income. Medical care expenses.—Personal expenditures for medical care (including the costs of prescription drugs) exceeding 7.5 percent of the taxpayer’s adjusted gross income are deductible. Tax-exempt bonds for hospital construction.—Interest earned on State and local government debt issued to finance hospital construction is excluded from income subject to tax. Charitable contributions to health institutions.—Contributions to nonprofit health institutions are allowed as a deduction for individuals and corporations. Tax expenditures resulting from the deductibility of contributions to other charitable institutions are list- Railroad retirement benefits.—These benefits are not generally subject to the income tax unless the recipient’s gross income reaches a certain threshold discussed more fully under the social security function. Workmen’s compensation benefits.—Workmen’s compensation provides payments to disabled workers. These benefits, although income to the recipients, are a tax preference because they are not subject to the income tax. Public assistance benefits.—The exclusion from taxable income of public assistance benefits received by individuals is listed as a tax expenditure under the normal tax method because, under this method, cash transfers from government are included in gross income. In contrast, gifts not conditioned on the performance of services, including transfers from government, are not taxable under the reference law. Therefore, under the reference tax method, the tax exclusion for public assistance benefits is not shown as a tax expenditure. Special benefits for disabled coal miners.—Disability payments to former coal miners out of the Black Lung Trust Fund, although income to the recipient, are not subject to the income tax. Military disability pensions.—Most of the military pension income received by current disabled retired veterans is excluded from their income subject to tax. Pension contributions and earnings.—Certain employer contributions to pension plans, along with individual contributions to individual retirement accounts (IRAs) and amounts set aside by the self-employed, are excluded from adjusted gross income in the year of contribution. The investment income earned by pension funds and other qualifying retirement plans is not tax- 60 able when earned, and this deferral is, therefore, also a tax expenditure. Limited amounts ($9,240 in 1995) can be excluded from an employee’s adjusted gross income under a qualified cash or deferred arrangement with the employer (401(k) plan). An employee’s own contribution of no more than $9,500 or the 401(k) limitation (whichever is greater) may be excluded annually from an employee’s adjusted gross income when placed in a taxsheltered annuity (403(b) plan). Employees may deduct annual contributions to an IRA of $2,000 (or 100 percent of compensation, if less), or $2,250 on a joint return with only one spouse earning income, if: (a) neither the individual or spouse is an active participant in an employer-provided retirement plan; or (b) their adjusted gross income falls below $40,000 ($25,000 for a single taxpayer). The allowable IRA deduction is phased out between $40,000 and $50,000 for a joint return and $25,000 and $35,000 for a single return. Beyond these income limits, nondeductible contributions to IRAs are available to taxpayers who are active participants in employer-provided retirement plans. Self-employed persons can make deductible contributions to their own retirement (Keogh) plans equal to 25 percent of their income, up to a maximum of $30,000 per year. Employer provided insurance benefits.—Many employers cover part or all the cost of premiums or payments for: (a) employees’ life insurance benefits; (b) accident and disability benefits; (c) death benefits; and (d) supplementary unemployment benefits. The amounts are deductible by the employers and are excluded as well from employees’ gross incomes for tax purposes. Employer Stock Ownership Plan (ESOP) provisions.—A special type of employee benefit plan, organized as a trust, is tax-exempt. Employer-paid contributions (the value of stock issued to the ESOP) are deductible by the employer as part of employee compensation costs. They are not included in the employees’ gross income for tax purposes, however, until they are paid out as benefits. The following special income tax provisions for ESOPs are intended to increase ownership of corporations by their employees: (1) annual employer contributions are subject to less restrictive limitations (percentages of employees’ cash compensation); (2) ESOPs may borrow to purchase employer stock, guaranteed by their agreement with the employer that the debt will be serviced by his payment (deductible by him) of a portion of wages (excludable by the employees) to service the loan; (3) ESOPs’ lenders may exclude half the interest from their gross income; (4) employees who sell appreciated company stock to the ESOP may defer any taxes due until they withdraw benefits; and (5) dividends paid to ESOP-held stock are deductible by the employer. Support of the aged and the blind.—Taxpayers who are blind or 65 years of age or older may take ANALYTICAL PERSPECTIVES an additional $950 standard deduction if single, or $750 if married. In addition, individuals who are 65 years of age or older, or who are permanently disabled, can take a tax credit equal to 15 percent of the sum of their earned and retirement income. Qualified income is limited to no more than $2,500 for single individuals or married couples filing a joint return where only one spouse is 65 years of age or older, and up to $3,750 for joint returns where both spouses are 65 years of age or older. These limits are reduced by one-half of the taxpayer’s adjusted gross income over $7,500 for single individuals and $10,000 for married couples filing a joint return. Casualty losses.—Neither the purchase of property nor insurance premiums to protect its value are deductible as costs of earning income; therefore, reimbursement for insured loss of such property is not reportable as a part of gross income. However, a special provision permits relief for taxpayers suffering an uninsured loss. They may deduct casualty and theft losses of more than $100 each, but only to the extent that total losses during the year exceed 10 percent of adjusted gross income. Earned income credit.—This credit may be claimed by low income workers. For a family with one qualifying child, the credit is 34 percent of the first $6,160 of earned income in 1995. The credit is 36 percent of the first $8,640 of income for a family with two or more qualifying children. When the taxpayer’s income exceeds $11,290, the credit is phased out at the rate of 15.98 percent (20.22 percent if two or more qualifying children are present). It is completely phased out at $24,396 of adjusted gross income ($26,673 if two or more qualifying children are present). Beginning in 1994, the credit may also be claimed by workers who do not have children living with them. Qualifying workers must be at least age 25 and may not be claimed as a dependent on another taxpayer’s return. The credit is not available to workers age 65 or older. In 1995, the credit is 7.65 percent of the first $4,100 of earned income. When the taxpayer’s income exceeds $5,130, the credit is phased out at the rate of 7.65 percent. It is completely phased out at $9,230 of adjusted gross income. For workers with or without children, the income level at which the credit’s phase-outs begin and the maximum amounts of income on which the credit can be taken are adjusted for inflation. Earned income tax credits in excess of tax liabilities are refundable to individuals, and as such are paid by the Federal Government. This portion of the credit is included in outlays, while the amount that offsets tax liabilities is shown as a tax expenditure. SOCIAL SECURITY Old Age and Survivors Insurance (OASI) benefits for retired workers.—Social security benefits that exceed the beneficiary’s contributions out of taxed income are deferred employee compensation and the de- 61 5. TAX EXPENDITURES ferral of tax on that compensation is a tax expenditure. These additional retirement benefits are paid for partly by employers’ contributions that were not included in employees’ taxable compensation. Portions (reaching as much as 85 percent) of recipients’ social security and tier 1 railroad retirement benefits are included in the income tax base, however, if the recipient’s provisional income exceeds certain base amounts. Provisional income is equal to adjusted gross income plus foreign or U.S. possession income and tax-exempt interest, and one half of social security and tier 1 railroad retirement benefits. The tax expenditure is limited to the portion of the benefits received by taxpayers who are below the base amounts at which 85 percent of the benefits are taxable. Social Security benefits for the disabled, dependents and survivors.—Benefit payments from the Social Security Trust Fund, for disability and for dependents and survivors, are excluded from the beneficiaries’ gross incomes, and thus give rise to tax expenditures. VETERANS BENEFITS AND SERVICES Veterans benefits.—All compensation due to death or disability and pensions paid by the Veterans Administration are excluded from taxable income. Tax-exempt mortgage bonds for veterans.—Interest earned on general obligation bonds issued by State and local governments to finance housing for veterans is excluded from taxable income. The issuance of such bonds is limited, however, to five pre-existing State programs and to amounts based upon previous volume lev- els for the period January 1, 1979 to June 22, 1984. Furthermore, future issues are limited to veterans who served on active duty before 1977. GENERAL GOVERNMENT Public purpose State and local debt.—Interest on State and local government debt, issued to finance government activities, is excluded from Federal taxation. State and local governments, therefore, can sell debt obligations at a lower interest cost than would be possible if such interest were subject to tax. Only the excluded interest on bonds for public purposes, such as schools, roads, and sewers, is included here. Nonbusiness State and local taxes excluding home-owner property taxes.—The deductibility of nonbusiness State and local income and personal property taxes gives indirect assistance to these governments by reducing the costs of the services they provide. Business income earned in U.S. possessions.— Under certain conditions, U.S. corporations receiving income from an active trade or business, or from investments located in a U.S. possession, can claim a special credit against U.S. tax otherwise due. INTEREST U.S. savings bonds.—The interest on U.S. savings bonds is not taxable until the bonds are redeemed, thereby deferring tax liability. The deferral is equivalent to an interest-free loan and, therefore, it is a tax expenditure. TAX EXPENDITURES IN THE UNIFIED TRANSFER TAX Exceptions to the general terms of the Federal unified transfer tax favor particular transferees or dispositions of transferors, similar to Federal direct expenditure or loan programs. The transfer tax provisions identified as tax expenditures satisfy the reference law criteria for inclusion in the tax expenditure budget that were described above. There is no generally accepted normal tax baseline for transfer taxes. Unified Transfer Tax Reference Rules The reference tax rules for the unified transfer tax from which departures represent tax expenditures include: • Definition of the taxpaying unit. The payment of the tax is the liability of the transferor whether the transfer of cash or property was made by gift or bequest. • Definition of the tax base. The base for the tax is the transferor’s cumulative, taxable lifetime gifts made plus the net estate at death. Gifts in the tax base are all annual transfers in excess of $10,000 to any donee except the donor’s spouse. Excluded are, however, payments on behalf of family members’ educational and medical expenses, as well as the cost of ceremonial gatherings and celebrations that are not in honor of the donor. • Property valuation. In general, property is valued at its fair market value at the time it is transferred. This is not necessarily the case in the valuation of property for transfer tax purposes. Executors of estates are provided the option to value assets at the time of the testator’s death or up to six months later. • Tax rate schedule. A single graduated tax rate schedule applies to all taxable transfers. This is reflected in the name of the ‘‘unified transfer tax’’ that has replaced the former separate gift and estate taxes. The tax rates vary from 18 percent on the first $10,000 of aggregate taxable transfers, to 55 percent on amounts exceeding $3 million. A $192,800 lifetime credit is provided against the tax in determining the final amount of transfer taxes that are due and payable. This allows each 62 ANALYTICAL PERSPECTIVES the donor’s otherwise taxable income in the year of the gift. taxpayer to make a $600,000 tax-free transfer of assets that otherwise would be liable to the unified transfer tax.6 • Time when tax is due and payable. Donors are required to pay the tax annually as gifts are made. The generation-skipping transfer tax is payable by the donees whenever they accede to the gift. The net estate tax liability is due and payable within nine months after the decedent’s death. The Internal Revenue Service may grant an extension of up to 10 years for a reasonable cause. Interest is charged on the unpaid tax liability at a rate equal to the cost of Federal short-term borrowing, plus three percentage points. AGRICULTURE Special use valuation of farms.—Farmland owned and operated by a decedent and/or a member of the family may be valued for estate tax purposes on the basis of its ‘‘continued use’’ as a farm if: the farmland is at least 25 percent of the decedent’s gross estate; the entire value of all farm property is at least 50 percent of the gross estate; and family heirs to the farm agree to continue to operate the property as a farm for at least 10 years. Since continued use valuation of farmland is frequently substantially less than the fair market value, the resulting reduction in tax liability serves as a subsidy to the continued operation of family farms. Tax Expenditures by Function The estimates of tax expenditures in the Federal unified transfer tax for fiscal years 1994–2000 are displayed by functional category in table 5–5. Outlay equivalent estimates are similar to revenue loss estimates for transfer tax expenditures and, therefore, are not shown separately. A description of the provisions follows. NATURAL RESOURCES AND Tax deferral of closely held farms.—Decedents’ estates may use a preferential, extended installment payment period of five to 15 years to discharge estate tax liabilities if the value of the farm properties exceeds 35 percent of the net estates. The interest charged is only 4 percent for the first five years, rather than the standard Federal short-term borrowing rate plus three percentage points, which applies during the last 10 years of the repayment period. ENVIRONMENT Donations of conservation easements.—Bequests for conservation are excluded from taxable estates. A conservation bequest is the value of property and easements (in perpetuity) to such property the use of which is restricted to any one or more of the following: the public for outdoor recreation; protection of the natural habitats of fish, wildlife, plants, etc.; scenic enjoyment of the public; and preservation of historic land areas and structures. Similar conservation gifts are excluded from the gift tax base and are also deductible from COMMERCE HOUSING CREDIT Special use valuation of closely held businesses.—The two estate tax incentives to family farming are also available to the estates of owners of nonfarm family businesses. If the same three conditions previously described are met, the real property in their estates is eligible for continued use valuation. 6 An additional tax, at a flat rate of 55 percent, is imposed on lifetime, generationskipping transfers in excess of $1 million. It is considered a generation-skipping transfer whenever the transferee is at least two generations younger than the transferor, as it would be in the case of transfers to grandchildren or great-grandchildren. The liability of this tax is on the recipients of the transfer. TABLE 5–5. AND Tax deferral of closely held businesses.—Nonfarm family businesses that satisfy the net estate requirements qualify for preferential 15 year deferred estate REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE FEDERAL UNIFIED TRANSFER TAX (In millions of dollars) Fiscal Years Provision 1994 Natural Resources and Environment: Deductions for donations of conservation easements .................................. Agriculture: Special use valuation of farm real property .................................................. Tax deferral of closely held farms ................................................................. Commerce: Special use valuation of real property used in closely held businesses ..... Tax deferral of closely held business ............................................................ Education, training, employment, and social services: Deduction for charitable contributions (education) ........................................ Deduction for charitable contributions (other than education and health) ... Health: Deduction for charitable contributions (health) .............................................. General government: Credit for State death taxes ........................................................................... * $2.5 million or less. Note: All estimates have been rounded to the nearest $5 million. 1995 1996 1997 1998 1999 2000 1996–2000 * * * * * * * * 70 55 75 60 80 65 85 70 90 75 95 80 100 85 450 375 20 10 20 10 20 10 25 10 25 15 25 15 25 15 120 65 530 1,565 580 1,700 620 1,820 660 1,945 700 2,065 750 2,200 800 2,350 3,530 10,380 480 525 565 610 650 700 755 3,280 2,975 3,275 3,525 3,800 4,090 4,380 4,695 20,490 63 5. TAX EXPENDITURES tax payment. To be eligible for this special provision, the value of stock in closely held corporations must exceed 35 percent of the decedent’s gross estate, less debt and funeral expenses. EDUCATION, TRAINING, EMPLOYMENT, SERVICES AND SOCIAL Bequests to tax-exempt organizations.—These bequests are deductible from decedent’s otherwise taxable lifetime transfers. HEALTH Bequests to health providers.—Such bequests, that are exempt from the income tax, are deductible from otherwise taxable lifetime transfers of decedents. GENERAL GOVERNMENT State and local death taxes.—A credit is allowed for state death taxes against any Federal estate tax that otherwise would be due. The amount of the state death tax credit is determined by a rate schedule that reaches a limit of 16 percent of the taxable estate in excess of $60,000. 64 ANALYTICAL PERSPECTIVES TABLE 5–6. MAJOR TAX EXPENDITURES IN THE INCOME TAX, RANKED BY TOTAL 1996 REVENUE LOSS (In millions of dollars) Provision Exclusion of employer contributions for medical insurance premiums and medical care .......................................................................................... Net exclusion of employer pension plan contributions and earnings .......................................................................................................................... Deductibility of mortgage interest on owner-occupied homes ..................................................................................................................................... Step-up basis of capital gains at death ........................................................................................................................................................................ Deductibility of nonbusiness State and local taxes other than on owner-occupied homes ....................................................................................... Deductibility of charitable contributions (all types) ....................................................................................................................................................... Accelerated depreciation of machinery and equipment (normal tax method) ............................................................................................................. Deferral of capital gains on home sales ...................................................................................................................................................................... Exclusion of OASI benefits for retired workers ............................................................................................................................................................ Deductibility of State and local property tax on owner-occupied homes .................................................................................................................... Exclusion of interest on public purpose State and local debt ..................................................................................................................................... Exclusion of interest on life insurance savings ............................................................................................................................................................ Exclusion of interest on State and local debt for various non-public purposes ......................................................................................................... Net exclusion of Individual Retirement Account conbtributions and earnings ............................................................................................................ Capital gains (other than agriculture, timber, iron ore, and coal) (normal tax method) ............................................................................................. Earned income credit 1 ................................................................................................................................................................................................. Exclusion of capital gains on home sales for persons age 55 and over ................................................................................................................... Exclusion of workmen’s compensation benefits ........................................................................................................................................................... Net exclusion of Keogh plan contributions and earnings ............................................................................................................................................ Accelerated depreciation of buildings other than rental housing (normal tax method) .............................................................................................. Exception from passive loss rules for $25,000 of rental loss ..................................................................................................................................... Graduated corporation income tax rate (normal tax method) ..................................................................................................................................... Deductibility of medical expenses ................................................................................................................................................................................. Exclusion of social security benefits for dependents and survivors ............................................................................................................................ Premiums on group term life insurance ....................................................................................................................................................................... Credit for child and dependent care expenses ............................................................................................................................................................ Tax credit for corporations receiving income from doing business in U.S. possessions ........................................................................................... Credit for low-income housing investments .................................................................................................................................................................. Expensing of research and experimentation expenditures (normal tax method) ........................................................................................................ Exclusion of income earned abroad by United States citizens ................................................................................................................................... Exclusion of social security disability insurance benefits ............................................................................................................................................. Exclusion of benefits and allowances to armed forces personnel .............................................................................................................................. Exclusion of reimbursed employee parking expenses ................................................................................................................................................. Exclusion of veterans disability compensation ............................................................................................................................................................. Deferral of income from controlled foreign corporations (normal tax method) ........................................................................................................... Special ESOP rules (other than investment credit) ..................................................................................................................................................... Additional deduction for the elderly .............................................................................................................................................................................. Exclusion of income of foreign sales corporations ...................................................................................................................................................... Deferral of interest on savings bonds .......................................................................................................................................................................... Accelerated depreciation on rental housing (normal tax method) ............................................................................................................................... Inventory property sales source rules exception .......................................................................................................................................................... Excess of percentage over cost depletion (fuel and nonfuel minerals) ...................................................................................................................... Expensing of certain small investments (normal tax method) ..................................................................................................................................... Alternative fuel production credit ................................................................................................................................................................................... Deferral of income from post 1987 installment sales .................................................................................................................................................. Exemption of credit union income ................................................................................................................................................................................ Exclusion of scholarship and fellowship income (normal tax method) ........................................................................................................................ Parental personal exemption for students age 19 or over .......................................................................................................................................... Exclusion of employer provided child care ................................................................................................................................................................... Credit for increasing research activities ........................................................................................................................................................................ Exclusion of public assistance benefits (normal tax method) ...................................................................................................................................... Exclusion of employee meals and lodging (other than military) .................................................................................................................................. Empowerment zones ..................................................................................................................................................................................................... Exclusion of railroad retirement system benefits ......................................................................................................................................................... Expensing of multiperiod timber growing costs ............................................................................................................................................................ Targeted jobs credit ....................................................................................................................................................................................................... Deferral of gains from sale of broadcasting facilities to minority owned business .................................................................................................... Deductibility of casualty losses ..................................................................................................................................................................................... Exclusion of parsonage allowances .............................................................................................................................................................................. Tax exemption of certain insurance companies ........................................................................................................................................................... Amortization of start-up costs (normal tax method) ..................................................................................................................................................... Exclusion from income of conservation subsidies provided by public utilities ............................................................................................................ Credit for disabled access expenditures ....................................................................................................................................................................... Premiums on accident and disability insurance ........................................................................................................................................................... Permanent exceptions from imputed interest rules ...................................................................................................................................................... Special Blue Cross/Blue Shield deduction ................................................................................................................................................................... Carryover basis of capital gains on gifts ...................................................................................................................................................................... Exclusion of military disability pensions ........................................................................................................................................................................ Capital gains treatment of certain agricultural income ................................................................................................................................................. 1996 66,620 59,010 54,165 29,480 28,795 24,145 20,850 17,850 17,395 15,680 12,690 11,160 7,405 6,375 6,205 5,740 4,920 4,860 4,825 4,385 4,170 4,120 3,965 3,730 3,020 2,995 2,680 2,600 2,560 2,125 2,100 2,020 2,015 1,930 1,800 1,680 1,510 1,500 1,470 1,425 1,400 1,240 1,070 1,000 950 940 835 825 775 675 590 575 440 425 395 325 315 315 285 240 190 175 160 155 150 140 135 130 125 1996–2000 398,090 299,700 303,350 153,250 161,255 135,180 120,060 93,915 94,885 87,825 67,940 64,840 36,020 27,090 32,660 33,245 25,245 26,955 28,125 13,465 20,495 21,990 23,400 20,775 16,660 15,630 14,300 15,875 14,715 11,955 12,650 10,245 10,945 10,445 11,000 7,195 7,655 8,500 8,720 8,690 8,000 6,860 3,190 4,630 4,900 5,750 4,260 4,470 4,475 1,125 3,455 3,205 2,740 2,170 2,195 440 1,730 1,575 1,615 1,280 985 955 825 875 780 785 725 650 700 65 5. TAX EXPENDITURES TABLE 5–6. MAJOR TAX EXPENDITURES IN THE INCOME TAX, RANKED BY TOTAL 1996 REVENUE LOSS—Continued (In millions of dollars) Provision Tax incentives for preservation of historic structures .................................................................................................................................................. New technology credit ................................................................................................................................................................................................... Small life insurance company deduction ...................................................................................................................................................................... Exception from passive loss limitation for working interests in oil and gas properties .............................................................................................. Interest allocation rules exception for certain financial operations .............................................................................................................................. Exclusion of special benefits for disabled coal miners ................................................................................................................................................ Expensing of certain multiperiod production costs ....................................................................................................................................................... Enhanced oil recovery credit ......................................................................................................................................................................................... Investment credit for rehabilitation of structures (other than historic) ......................................................................................................................... Exclusion of GI bill benefits .......................................................................................................................................................................................... Cancellation of indebtedness ........................................................................................................................................................................................ Exclusion of veterans pensions .................................................................................................................................................................................... Tax credit and deduction for clean-fuel burning vehicles and properties ................................................................................................................... Expensing of certain capital outlays ............................................................................................................................................................................. Excess bad debt reserves of financial institutions ....................................................................................................................................................... Tax credit for the elderly and disabled ......................................................................................................................................................................... Exclusion for employer-provided transit passes ........................................................................................................................................................... Special rules for mining reclamation reserves ............................................................................................................................................................. Expensing of exploration and development costs (fuel and nonfuel minerals) .......................................................................................................... Alcohol fuel credit 2 ....................................................................................................................................................................................................... Investment credit and seven-year amortization for reforestation expenditures ........................................................................................................... Exclusion of certain foster care payments ................................................................................................................................................................... Additional deduction for the blind ................................................................................................................................................................................. Exclusion of employer provided death benefits ........................................................................................................................................................... Ordinary income treatment of loss from small business corporation stock sale ........................................................................................................ Income of trusts to finance supplementary unemployment benefits ........................................................................................................................... Exemption of certain mutuals’ and cooperatives’ income ............................................................................................................................................ Expensing of costs of removing certain architectural barriers to the handicapped .................................................................................................... Treatment of Alaska Native Corporations ..................................................................................................................................................................... Capital gains treatment of certain timber income ........................................................................................................................................................ Deferral of tax on shipping companies ......................................................................................................................................................................... Capital gains treatment of royalties on coal ................................................................................................................................................................. Treatment of loans forgiven solvent farmers as if insolvent ........................................................................................................................................ Exclusion of interest on savings bonds transferred to educational institutions .......................................................................................................... Special alternative tax on small property and casualty insurance companies ........................................................................................................... Capital gains exclusion of small corporation stock ...................................................................................................................................................... * $2.5 million or less. 1 The effect of the earned income tax credit on outlays is $20,230 million in 1996 and $117,870 million for 1996–2000. 2 In addition, the partial exemption from the excide tax for alcohol fuels results in a reduction in excise tax receipts for 1996 of $725 million. Note: Provisions with estimates denoted normal tax method have no revenue loss under the reference tax law method. All estimates have been rounded to the nearest $5 million. Figures in table 5–6 are the arithmetic sums of corporate and individual income tax revenue loss estimates from table 6–2, and do not reflect possible interactions across these two taxes. 1996 1996–2000 125 115 115 110 95 90 80 80 80 75 75 70 65 65 60 60 50 50 45 45 40 35 35 35 35 35 30 20 20 15 15 15 10 5 5 * 585 665 640 665 475 415 410 390 370 425 120 385 370 335 350 320 400 250 735 245 230 190 185 185 180 175 170 100 55 75 75 75 50 55 25 280 FEDERAL SPENDING 67 6. FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 050 National defense: 051 Department of Defense—Military: Military personnel ................................................................................ Operation and maintenance ................................................................ Procurement ........................................................................................ Research, development, test and evaluation ..................................... Military construction ............................................................................. Family housing .................................................................................... Voluntary Separation Incentive (VSI fund) ......................................... Offset for payment to VSI fund .......................................................... Revolving and management funds ..................................................... Trust funds and other ......................................................................... General transfer authority ................................................................... Emergency supplemental .................................................................... DOD-wide savings proposals .............................................................. Proposed legislation (non-PAYGO) .................................................... Offsetting receipts ............................................................................... 71,365 88,341 44,141 34,567 6,009 3,501 55 .................... 4,354 117 .................... .................... .................... .................... –1,086 70,389 92,084 44,582 35,438 5,463 3,387 77 –20 297 118 .................... 2,557 –703 .................... –1,062 68,697 91,932 39,409 34,332 6,573 4,125 334 –269 1,703 171 .................... .................... .................... –72 –939 67,492 90,590 43,464 32,654 4,488 4,335 160 –93 506 172 .................... .................... .................... –30 –931 68,226 89,891 51,446 31,677 4,575 4,077 160 –93 666 95 .................... .................... .................... –73 –938 69,561 92,743 54,236 30,919 4,366 4,418 159 –93 916 93 .................... .................... .................... –73 –899 70,903 94,823 62,277 30,194 3,673 4,520 159 –93 569 93 .................... .................... .................... –74 –896 Subtotal, Department of Defense—Military .................................... 251,364 252,608 245,995 242,808 249,710 256,345 266,147 053 Atomic energy defense activities: Weapons activities .............................................................................. Defense environmental restoration and waste management ............ Defense nuclear waste disposal ......................................................... Other defense activities ...................................................................... Defense Nuclear Facilities Safety Board ............................................ 3,630 5,170 120 1,960 17 3,229 5,108 129 1,850 18 3,540 6,008 198 1,432 18 3,058 5,597 166 1,198 18 3,080 4,847 167 1,206 18 3,091 4,820 168 1,211 17 3,059 4,809 166 1,198 17 Subtotal, Atomic energy defense activities .................................... 10,897 10,334 11,197 10,037 9,318 9,307 9,249 054 Defense-related activities .............................................................. 1,039 546 562 586 597 608 619 Total, National defense ..................................................................... 263,300 263,488 257,755 253,431 259,625 266,261 276,015 150 International affairs: 151 International development and humanitarian assistance: Agency for International Development ............................................... Multilateral development banks (MDB’s) ............................................ Food aid .............................................................................................. Refugee programs ............................................................................... Voluntary contributions to international organizations ........................ Peace Corps ........................................................................................ Other programs ................................................................................... Credit liquidating accounts .................................................................. Offsetting receipts ............................................................................... 4,217 1,556 1,459 750 363 233 159 –458 –564 3,961 2,241 1,261 721 374 232 169 –519 –579 4,182 2,346 996 721 425 235 248 –542 –561 4,056 2,275 966 699 412 228 241 –515 –632 3,973 2,229 946 685 404 223 214 –465 –641 3,889 2,182 926 671 395 218 192 –473 –645 3,806 2,135 906 656 387 214 168 –435 –632 Subtotal, International development and humanitarian assistance 7,714 7,862 8,049 7,731 7,568 7,355 7,204 152 International security assistance: Foreign military financing grants and loans ....................................... Economic support fund ....................................................................... Other programs ................................................................................... Repayment of foreign military financing loans ................................... Foreign military loan liquidating account ............................................ 3,094 2,107 114 –545 –255 3,199 2,451 148 –566 –457 3,352 2,494 165 –655 –239 3,251 2,419 160 –658 –178 3,184 2,370 157 –570 –185 3,117 2,320 153 –423 –181 3,050 2,270 150 –312 –194 Subtotal, International security assistance ..................................... 4,516 4,776 5,117 4,995 4,955 4,987 4,963 153 Conduct of foreign affairs: State Department operations .............................................................. Foreign buildings ................................................................................. Assessed Contributions to International Organizations ..................... Assessed Contributions to International Peacekeeping ..................... 2,109 400 861 1,072 2,126 412 873 1,205 2,121 422 934 445 2,057 409 906 432 2,015 401 887 423 1,972 392 869 414 1,930 384 850 405 69 70 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 Other programs ................................................................................... 189 174 237 232 228 224 220 Subtotal, Conduct of foreign affairs ............................................... 4,630 4,789 4,159 4,036 3,953 3,871 3,789 154 Foreign information and exchange activities: U.S. Information Agency ..................................................................... Board for International Broadcasting .................................................. Other programs ................................................................................... 1,270 208 17 1,186 237 16 1,302 .................... 11 1,263 .................... 11 1,237 .................... 11 1,211 .................... 10 1,185 .................... 10 Subtotal, Foreign information and exchange activities .................. 1,496 1,439 1,313 1,274 1,248 1,221 1,195 155 International financial programs: Export-Import Bank ............................................................................. International monetary fund ................................................................ Exchange stabilization fund ................................................................ Foreign military sales trust fund (net) ................................................ Special defense acquisition fund ........................................................ Credit liquidating account (Exim) ........................................................ Other .................................................................................................... Offsetting receipts ............................................................................... 945 .................... .................... –66 –266 –1,158 .................... –102 709 25 .................... 1,120 –282 –937 .................... –104 780 25 .................... 50 –220 –644 .................... –106 715 24 .................... –510 –166 –622 .................... –108 663 24 .................... –990 –66 –457 .................... –110 636 23 .................... –1,540 –10 –574 .................... –112 614 23 .................... –240 –17 –122 .................... –115 Subtotal, International financial programs ...................................... –647 530 –115 –668 –937 –1,577 143 Total, International affairs ................................................................ 17,709 19,397 18,524 17,368 16,788 15,857 17,295 250 General science, space, and technology: 251 General science and basic research: National Science Foundation programs ............................................. Department of Energy general science programs ............................. 2,992 1,604 3,197 984 3,336 1,018 3,237 852 3,169 858 3,102 861 2,897 852 Subtotal, General science and basic research .............................. 4,596 4,181 4,353 4,089 4,028 3,964 3,749 252 Space flight, research, and supporting activities: Science, Aeronautics and Technology ............................................... Human space flight ............................................................................. Mission support ................................................................................... Research and program management ................................................. Space flight control and data communications .................................. Construction of facilities ...................................................................... Research and development ................................................................ Other .................................................................................................... .................... .................... .................... 1,349 4,835 290 6,532 16 5,079 5,515 2,157 .................... .................... –27 .................... 16 5,090 5,510 2,304 .................... .................... .................... .................... 17 4,937 5,408 2,235 .................... .................... .................... .................... 17 4,835 5,340 2,189 .................... .................... .................... .................... 16 4,733 5,273 2,142 .................... .................... .................... .................... 16 4,632 5,205 2,096 .................... .................... .................... .................... 16 Subtotal, Space flight, research, and supporting activities ........... 13,022 12,740 12,920 12,597 12,380 12,165 11,948 Total, General science, space, and technology ............................ 17,618 16,921 17,274 16,685 16,408 16,128 15,698 270 Energy: 271 Energy supply: Research and development ................................................................ Naval petroleum reserves ................................................................... Proposed Legislation (PAYGO) ...................................................... 3,830 –188 .................... 3,796 –264 .................... 3,881 –362 .................... 3,474 –492 448 3,399 –474 439 3,386 –449 417 3,366 –414 395 Subtotal, Naval petroleum reserves ........................................... –188 –264 –362 –44 –35 –32 –19 Federal power marketing .................................................................... Proposed Legislation (PAYGO) ...................................................... –207 .................... –420 .................... –576 .................... –542 11 –449 182 –804 672 –786 679 Subtotal, Federal power marketing ............................................ –207 –420 –576 –531 –268 –131 –108 Tennessee Valley Authority ................................................................ Uranium enrichment ............................................................................ Proposed Legislation (PAYGO) ...................................................... 1,094 126 .................... 1,181 73 .................... 633 42 .................... 528 30 .................... 483 30 .................... 518 30 .................... 357 30 .................... Subtotal, Uranium enrichment .................................................... 126 73 42 30 30 30 30 Uranium enrichment facility decontamination and decommissioning fund .................................................................................................. Decontamination transfer .................................................................... Foreign fees (proposed) ...................................................................... 286 –130 .................... 301 –134 .................... 289 –350 –45 292 –292 –46 295 –292 –47 298 –292 –48 301 –292 –49 6. 71 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Nuclear waste program ....................................................................... Proposed Legislation (PAYGO) ...................................................... 261 .................... 394 .................... .................... 432 .................... 540 .................... 604 .................... 668 .................... 512 Subtotal, Nuclear waste program .............................................. 261 394 432 540 604 668 512 Nuclear waste fund receipts ............................................................... Subsidies for nonconventional fuel production ................................... Rural electric and telephone loans ..................................................... Credit liquidating account (REA) ........................................................ –396 –26 80 –1,343 –555 –8 90 –1,452 –591 –18 137 –1,129 –600 –2 133 –1,102 –606 –2 130 –1,155 –607 –2 128 –1,130 –616 –2 125 –1,175 Subtotal, Energy supply .................................................................. 3,386 3,002 2,341 2,380 2,536 2,787 2,432 272 Energy conservation ...................................................................... 274 Emergency energy preparedness ................................................ 276 Energy information, policy, and regulation: Nuclear Regulatory Commission (NRC) ............................................. Other energy programs ....................................................................... 669 216 773 144 907 34 641 274 627 276 627 277 621 274 35 419 22 392 22 404 22 351 21 365 20 369 19 365 Subtotal, Energy information, policy, and regulation ..................... 455 414 426 373 386 389 385 Total, Energy ...................................................................................... 4,726 4,333 3,708 3,668 3,824 4,080 3,711 300 Natural resources and environment: 301 Water resources: Corps of Engineers ............................................................................. Bureau of Reclamation ....................................................................... Other .................................................................................................... Offsetting receipts ............................................................................... 4,082 874 757 –373 3,621 889 247 –472 3,632 842 279 –596 3,572 791 271 –592 3,712 804 266 –649 3,663 787 260 –669 3,619 739 255 –665 Subtotal, Water resources .............................................................. 5,340 4,285 4,157 4,043 4,133 4,042 3,949 302 Conservation and land management: Forest Service ..................................................................................... Management of public lands (BLM) ................................................... Federal land acquisition ...................................................................... Mining reclamation and enforcement ................................................. Conservation reserve program ........................................................... Other conservation of agricultural lands ............................................. Other .................................................................................................... Offsetting receipts ............................................................................... 3,169 966 12 308 1,743 932 368 –2,309 3,047 976 15 293 1,743 830 364 –2,278 2,866 1,011 24 293 1,926 952 384 –2,304 2,825 982 24 284 2,021 806 372 –2,313 2,779 963 23 278 2,035 791 364 –2,337 2,733 954 23 272 2,029 776 357 –2,490 2,687 926 22 267 1,962 761 349 –2,453 Subtotal, Conservation and land management .............................. 5,190 4,990 5,152 5,001 4,897 4,653 4,521 303 Recreational resources: Federal land acquisition ...................................................................... Urban park and historic preservation funds ....................................... Operation of recreational resources ................................................... Proposed Legislation (PAYGO) ...................................................... 255 58 2,658 .................... 222 54 2,736 .................... 211 45 2,773 * 205 44 2,755 4 200 43 2,710 6 196 42 2,689 8 192 41 2,670 10 Subtotal, Operation of recreational resources ........................... 2,658 2,736 2,773 2,760 2,716 2,697 2,681 Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... –179 .................... –247 .................... –262 –8 –274 –12 –278 –16 –284 –20 –295 –26 Subtotal, Offsetting receipts ....................................................... –179 –247 –270 –286 –295 –304 –322 Subtotal, Recreational resources ................................................... 2,792 2,765 2,759 2,722 2,665 2,631 2,592 304 Pollution control and abatement: Regulatory, enforcement, and research programs ............................. Proposed Legislation (PAYGO) ...................................................... 2,627 .................... 2,782 .................... 4,104 .................... 3,273 .................... 3,209 .................... 3,144 .................... 3,079 .................... Subtotal, Regulatory, enforcement, and research programs .... 2,627 2,782 4,104 3,273 3,209 3,144 3,079 Hazardous substance superfund ........................................................ Proposed Legislation (PAYGO) ...................................................... 1,497 .................... 1,431 .................... 1,563 200 1,516 200 1,485 200 1,454 200 1,422 200 Subtotal, Hazardous substance superfund ................................ 1,497 1,431 1,763 1,716 1,685 1,654 1,622 Oil pollution funds (gross) ................................................................... Water infrastructure financing ............................................................. Leaking underground storage tank trust fund .................................... 149 2,455 76 164 2,962 70 169 2,365 77 168 2,295 75 168 2,248 73 159 2,200 72 159 2,138 70 72 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Superfund recoveries and other ......................................................... –209 –235 –969 –211 –171 –146 –146 Subtotal, Pollution control and abatement ..................................... 6,595 7,174 7,508 7,316 7,211 7,083 6,923 306 Other natural resources: Program activities ................................................................................ Proposed Legislation (PAYGO) ...................................................... 2,789 .................... 2,829 .................... 2,986 24 2,893 24 2,837 24 2,829 24 2,812 24 Subtotal, Program activities ....................................................... 2,789 2,829 3,010 2,917 2,861 2,853 2,836 Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... –19 .................... –19 .................... –19 –10 –19 –10 –19 –10 –21 –10 –33 –10 Subtotal, Offsetting receipts ....................................................... –19 –19 –29 –29 –29 –31 –43 Subtotal, Other natural resources .................................................. 2,770 2,810 2,981 2,888 2,833 2,822 2,793 Total, Natural resources and environment .................................... 22,688 22,024 22,558 21,970 21,738 21,231 20,778 350 Agriculture: 351 Farm income stabilization: Commodity Credit Corporation ........................................................... Proposed Legislation (PAYGO) ...................................................... 12,400 .................... 8,895 .................... 8,533 .................... 8,080 .................... 5,801 –500 5,997 –500 5,467 –500 Subtotal, Commodity Credit Corporation ................................... 12,400 8,895 8,533 8,080 5,301 5,497 4,967 Crop insurance .................................................................................... Agricultural credit insurance ................................................................ Emergency food assistance program ................................................. Other .................................................................................................... Proposed Legislation (PAYGO) ...................................................... 236 401 120 1,060 .................... 1,093 404 65 784 .................... 1,264 414 40 818 .................... 1,062 401 39 807 .................... 1,115 392 38 752 .................... 1,068 384 37 738 .................... 1,207 375 36 726 .................... Subtotal, Other ............................................................................ 1,060 784 818 807 752 738 726 Credit liquidating accounts (ACIF and FAC) ...................................... 51 –787 –762 –1,244 –1,117 –996 –881 Subtotal, Farm income stabilization ............................................... 14,268 10,455 10,306 9,145 6,480 6,728 6,431 352 Agricultural research and services: Research programs ............................................................................. Marketing programs ............................................................................ Animal and plant inspection programs ............................................... Economic intelligence .......................................................................... Other programs and unallocated overhead ........................................ Offsetting receipts ............................................................................... 1,201 168 476 138 928 –126 1,203 157 461 135 940 –131 1,191 158 442 145 959 –130 1,156 156 428 141 930 –130 1,132 155 419 138 911 –130 1,109 154 411 135 891 –130 1,085 153 402 132 872 –130 Subtotal, Agricultural research and services ................................. 2,785 2,765 2,764 2,681 2,625 2,570 2,514 Total, Agriculture ............................................................................... 17,053 13,220 13,070 11,826 9,106 9,298 8,945 370 Commerce and housing credit: 371 Mortgage credit: Federal Housing Administration (FHA) ............................................... Government National Mortgage Association (GNMA) ....................... Rural housing programs ...................................................................... Privatizing collection of debt (Non-PAYGO proposal) ....................... Other .................................................................................................... Credit liquidating accounts .................................................................. –422 .................... 1,085 .................... .................... 822 187 .................... 770 .................... 50 746 –42 .................... 780 –156 .................... 971 174 .................... 756 .................... .................... 75 190 .................... 741 .................... .................... –643 183 .................... 725 .................... .................... –994 175 .................... 709 .................... .................... –1,219 Subtotal, Mortgage credit ............................................................... 1,485 1,753 1,552 1,005 288 –86 –334 372 Postal service: Payments to the Postal Service fund (On-budget) ............................ Postal Service (Off-budget) ................................................................. 130 2,732 130 3,958 146 4,336 124 1,739 124 1,943 124 1,438 124 53 Subtotal, Postal service .................................................................. 2,863 4,088 4,482 1,863 2,067 1,562 177 373 Deposit insurance: Resolution Trust Corporation Fund .................................................... 18,315 .................... –957 .................... .................... .................... .................... 6. 73 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Bank Insurance Fund .......................................................................... Proposed Legislation (PAYGO) ...................................................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Subtotal, Bank Insurance Fund ................................................. .................... .................... .................... .................... .................... .................... .................... FSLIC Resolution Fund ....................................................................... Savings Association Insurance Fund ................................................. National Credit Union Administration .................................................. Other mandatory ................................................................................. Discretionary ........................................................................................ 1,171 .................... .................... .................... 34 796 .................... .................... .................... 32 .................... .................... .................... .................... 11 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Subtotal, Deposit insurance ............................................................ 19,520 828 –945 .................... .................... .................... .................... 376 Other advancement of commerce: Small and minority business assistance ............................................ Proposed Legislation (PAYGO) ...................................................... 624 .................... 712 .................... 682 .................... 660 .................... 634 .................... 623 .................... 611 .................... Subtotal, Small and minority business assistance .................... 624 712 682 660 634 623 611 Science and technology ...................................................................... Economic and demographic statistics ................................................ Payments to copyright owners ........................................................... Regulatory agencies ............................................................................ Proposed Legislation (PAYGO) ...................................................... 547 284 213 232 .................... 893 328 226 216 .................... 1,060 405 232 125 251 1,059 394 236 109 263 1,058 386 242 100 276 1,058 387 246 93 289 1,058 3,141 252 91 303 Subtotal, Regulatory agencies ................................................... 232 216 376 372 375 381 394 International trade and other business promotion ............................. Credit liquidating accounts .................................................................. 501 170 405 .................... 458 .................... 436 .................... 422 .................... 437 .................... 437 .................... Subtotal, Other advancement of commerce .................................. 2,571 2,780 3,213 3,157 3,118 3,134 5,893 Total, Commerce and housing credit ............................................. 26,439 9,449 8,302 6,025 5,472 4,609 5,735 On-budget ........................................................................................ Off-budget ........................................................................................ (23,706) (2,732) (5,491) (3,958) (3,966) (4,336) (4,286) (1,739) (3,529) (1,943) (3,171) (1,438) (5,682) (53) 400 Transportation: 401 Ground transportation: Highways ............................................................................................. Highway safety .................................................................................... Mass transit ......................................................................................... Railroads .............................................................................................. Regulation (ICC) .................................................................................. Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... 22,198 200 4,567 1,100 45 –29 .................... 21,036 405 4,620 1,219 33 –46 .................... 894 440 .................... 270 29 –8 –45 1,116 443 .................... 241 .................... –6 –47 7 438 .................... 116 .................... –4 –49 7 399 .................... 105 .................... 2 –51 7 399 .................... 105 .................... 4 –53 Subtotal, Offsetting receipts ....................................................... –29 –46 –53 –52 –52 –48 –48 Subtotal, Ground transportation ..................................................... 28,081 27,267 1,580 1,747 509 462 462 402 Air transportation: Airports and airways (FAA) ................................................................. Aeronautical research and technology ............................................... Payments to air carriers ...................................................................... 9,859 1,546 33 9,035 1,696 22 6,880 1,340 .................... 6,759 1,300 .................... 6,759 1,273 .................... 6,150 1,246 .................... 6,150 1,219 .................... Subtotal, Air transportation ............................................................. 11,439 10,754 8,219 8,058 8,031 7,396 7,370 403 Water transportation: Marine safety and transportation ........................................................ Ocean shipping ................................................................................... Panama Canal Commission ............................................................... Offsetting receipts ............................................................................... 3,538 156 .................... –68 3,612 193 .................... –73 3,687 379 .................... –79 3,740 255 .................... –83 3,795 255 .................... –83 3,563 245 .................... –84 3,605 244 .................... –91 Subtotal, Water transportation ........................................................ 3,626 3,733 3,987 3,912 3,966 3,724 3,759 407 Other transportation: Unified transportation infrastructure investment program .................. Department of Transportation headquarters building ......................... Miscellaneous programs ..................................................................... .................... .................... 348 .................... .................... 370 24,393 331 413 26,094 .................... 397 25,760 .................... 398 23,552 .................... 363 22,943 .................... 363 74 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Offsetting receipts ............................................................................... 1994 Actual –27 Estimate 1995 1996 –44 1997 –57 1998 –56 1999 –56 2000 –52 –52 Subtotal, Other transportation ........................................................ 321 326 25,079 26,435 26,101 23,863 23,253 Total, Transportation ......................................................................... 43,467 42,079 38,866 40,153 38,607 35,446 34,844 450 Community and regional development: 451 Community development: Community opportunity performance funds ........................................ Community development block grants ............................................... Community development financial institutions .................................... Other .................................................................................................... Credit liquidating accounts .................................................................. .................... 5,050 .................... 439 –27 23 4,622 125 301 –23 4,872 .................... 144 429 –20 4,972 .................... 111 335 –10 4,958 .................... 101 278 –10 4,786 .................... 19 269 –10 4,574 .................... .................... 257 –10 Subtotal, Community development ................................................. 5,461 5,048 5,424 5,408 5,327 5,064 4,821 452 Area and regional development: Rural development .............................................................................. Economic development assistance ..................................................... Indian programs .................................................................................. Proposed Legislation (PAYGO) ...................................................... 835 550 1,762 .................... 887 450 1,599 .................... 1,147 439 1,644 .................... 1,122 427 1,598 .................... 1,099 418 1,566 .................... 1,076 419 1,544 .................... 1,053 418 1,524 .................... Subtotal, Indian programs .......................................................... 1,762 1,599 1,644 1,598 1,566 1,544 1,524 Appalachian Regional Commission .................................................... Tennessee Valley Authority ................................................................ Credit liquidating accounts .................................................................. Offsetting receipts ............................................................................... 252 140 124 –445 287 143 254 –406 188 140 196 –313 182 136 201 –302 179 133 226 –292 175 131 486 –294 171 128 206 –296 Subtotal, Area and regional development ...................................... 3,219 3,213 3,442 3,364 3,328 3,537 3,205 453 Disaster relief and insurance: Small business disaster loans ............................................................ Disaster relief ...................................................................................... National flood insurance fund ............................................................. Other .................................................................................................... Credit liquidating accounts .................................................................. 1,313 5,409 .................... 192 .................... 130 7,020 –* 308 .................... 115 320 .................... 302 .................... 111 310 .................... 293 .................... 109 304 .................... 286 .................... 107 298 .................... 280 .................... 104 291 .................... 274 .................... Subtotal, Disaster relief and insurance .......................................... 6,915 7,458 737 714 699 685 670 Total, Community and regional development ............................... 15,595 15,718 9,603 9,487 9,355 9,285 8,696 500 Education, training, employment, and social services: 501 Elementary, secondary, and vocational education: Education reform ................................................................................. School improvement programs ........................................................... Education for the disadvantaged ........................................................ Special education ................................................................................ Impact aid ............................................................................................ Vocational and adult education .......................................................... Proposed Legislation (PAYGO) ...................................................... 147 1,377 6,924 3,109 913 1,488 .................... 528 1,427 7,233 3,253 728 1,436 .................... 950 1,510 7,441 3,342 619 1,676 –7 950 1,465 7,218 3,242 592 1,676 –7 924 1,435 7,069 3,175 550 1,676 –7 853 1,396 6,920 3,108 550 1,676 –7 794 1,366 6,772 3,041 550 1,676 –7 Subtotal, Vocational and adult education .................................. 1,488 1,436 1,669 1,669 1,669 1,669 1,669 Indian education programs ................................................................. Other .................................................................................................... 577 247 591 252 624 307 605 297 593 291 580 285 567 279 Subtotal, Elementary, secondary, and vocational education ......... 14,782 15,448 16,462 16,038 15,706 15,361 15,037 502 Higher education: Student financial assistance ............................................................... Federal family education loan program .............................................. Proposed Legislation (PAYGO) ...................................................... 8,103 3,003 .................... 7,706 3,836 .................... 5,914 2,420 –770 6,214 2,297 –1,870 6,186 2,205 –2,177 6,159 2,118 –2,090 6,131 2,318 –2,290 Subtotal, Federal family education loan program ..................... 3,003 3,836 1,651 428 29 28 27 Federal direct loan program ............................................................... Proposed Legislation (PAYGO) ...................................................... 316 .................... 1,138 .................... 1,629 419 1,540 803 2,002 1,023 2,386 944 2,507 1,052 Subtotal, Federal direct loan program ....................................... 316 1,138 2,049 2,343 3,026 3,329 3,559 6. 75 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 Higher education ................................................................................. Student loan guaranty agency reserve recoveries (PAYGO proposal) ............................................................................................... Other .................................................................................................... Credit liquidating account (Family education loan program) ............. 894 936 821 757 740 723 707 .................... 120 –2,840 .................... 301 1,345 –350 290 595 –250 283 –16 –250 277 –443 –150 268 –514 –100 262 –552 Subtotal, Higher education ............................................................. 9,596 15,261 10,970 9,759 9,565 9,843 10,035 503 Research and general education aids ........................................ 504 Training and employment: Training and employment services ..................................................... Trade adjustment assistance .............................................................. Older Americans employment ............................................................. Payments to States for AFDC work programs .................................. Federal-State employment service ..................................................... Other .................................................................................................... 2,172 2,308 2,541 2,470 2,431 2,409 2,395 5,050 76 410 1,100 1,253 92 5,456 101 410 1,300 1,327 91 8,170 129 410 1,000 1,367 95 8,126 116 398 1,000 1,359 90 8,071 125 390 1,000 1,353 88 7,970 94 382 1,000 1,297 86 7,882 94 374 1,000 1,241 85 Subtotal, Training and employment ............................................... 7,981 8,685 11,172 11,088 11,027 10,829 10,675 505 Other labor services ...................................................................... 506 Social services: National service initiative .................................................................... Family support and preservation ........................................................ Social services block grant ................................................................. Rehabilitation services ........................................................................ Payments to States for foster care and adoption assistance ........... Children and families services programs ........................................... Aging services program ...................................................................... Interim assistance to States for legalization ...................................... Other social services ........................................................................... 957 997 1,089 1,052 1,030 1,009 987 579 60 3,807 2,297 2,993 4,713 878 812 16 804 150 2,800 2,393 3,624 4,892 877 361 54 1,108 225 2,800 2,457 4,308 5,236 897 .................... 4 1,117 240 2,800 2,525 4,422 5,196 870 .................... 4 1,123 255 2,800 2,590 4,819 5,170 852 .................... 3 1,127 255 2,800 2,655 5,253 5,144 834 .................... 3 1,131 255 2,800 2,722 5,725 5,119 816 .................... 3 Subtotal, Social services ................................................................ 16,154 15,956 17,035 17,174 17,612 18,072 18,571 Total, Education, training, employment, and social services ..... 51,643 58,655 59,268 57,581 57,371 57,522 57,700 550 Health: 551 Health care services: Medicaid grants ................................................................................... Proposed Legislation (PAYGO) ...................................................... 89,077 .................... 89,241 .................... 82,142 –47 104,621 –52 114,503 –56 124,519 28 136,327 166 Subtotal, Medicaid grants ........................................................... 89,077 89,241 82,095 104,570 114,447 124,547 136,494 Health insurance earned income credit .............................................. Federal employees’ and retired employees’ health benefits ............. Coal miners retirees health benefits ................................................... Indian health ........................................................................................ Substance abuse and mental health services ................................... Other health care services .................................................................. 773 3,805 286 1,947 2,150 4,899 .................... 4,211 351 1,968 2,195 5,080 .................... 3,746 344 2,064 2,244 5,351 .................... 4,255 337 2,001 2,179 5,248 .................... 4,769 329 1,960 2,136 5,185 .................... 4,957 323 1,919 2,094 5,124 .................... 5,309 316 1,878 2,051 4,953 Subtotal, Health care services ....................................................... 102,938 103,046 95,845 118,589 128,827 138,964 151,001 552 Health research and training: National Institutes of Health ................................................................ DoD breast cancer and other health research .................................. Clinical training .................................................................................... Substance abuse and mental health research .................................. Other research and training ................................................................ 10,946 .................... 356 .................... 311 11,326 .................... 312 .................... 320 11,793 .................... 331 .................... 330 11,434 .................... 314 .................... 320 11,199 .................... 296 .................... 313 10,965 .................... 276 .................... 307 10,732 .................... 264 .................... 300 Subtotal, Health research and training .......................................... 11,613 11,958 12,455 12,067 11,809 11,548 11,295 554 Consumer and occupational health and safety: Food safety and inspection (net of user fees) ................................... Other consumer safety ........................................................................ Occupational safety and health .......................................................... 518 913 504 542 927 527 488 928 573 470 899 556 458 881 545 446 862 533 435 844 522 Subtotal, Consumer and occupational health and safety ............. 1,935 1,996 1,989 1,926 1,884 1,842 1,800 Total, Health ....................................................................................... 116,486 117,000 110,288 132,582 142,519 152,353 164,096 76 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 570 Medicare: 571 Medicare: Hospital insurance (HI) ....................................................................... Proposed Legislation (PAYGO) ...................................................... 112,397 .................... Subtotal, Hospital insurance (HI) ............................................... 1996 1997 1998 1999 2000 111,430 .................... 123,036 –140 132,368 –530 142,511 –670 154,159 –1,590 164,828 –1,970 112,397 111,430 122,896 131,838 141,841 152,569 162,858 Supplementary medical insurance (SMI) ............................................ Proposed Legislation (PAYGO) ...................................................... 61,256 .................... 65,823 .................... 75,555 .................... 84,050 .................... 93,061 .................... 103,126 –360 114,036 –540 Subtotal, Supplementary medical insurance (SMI) ................... 61,256 65,823 75,555 84,050 93,061 102,766 113,496 Medicare premiums and collections ................................................... Proposed Legislation (PAYGO) ...................................................... –10,977 .................... –20,122 .................... –20,198 1 –21,701 4 –24,101 6 –25,575 –1,140 –26,743 –2,840 Subtotal, Medicare premiums and collections ........................... –10,977 –20,122 –20,197 –21,697 –24,095 –26,715 –29,583 Subtotal, Medicare .......................................................................... 162,677 157,132 178,254 194,191 210,807 228,620 246,770 Total, Medicare .................................................................................. 162,677 157,132 178,254 194,191 210,807 228,620 246,770 600 Income security: 601 General retirement and disability insurance (excluding social security): Railroad retirement .............................................................................. Special benefits for disabled coal miners .......................................... Pension Benefit Guaranty Corporation ............................................... Other .................................................................................................... 4,623 1,433 .................... 189 4,594 1,290 .................... 202 4,533 1,220 .................... 223 4,616 1,200 .................... 230 4,607 1,148 .................... 236 4,651 1,092 .................... 244 4,636 1,037 .................... 254 Subtotal, General retirement and disability insurance (excluding social security) ............................................................................ 6,244 6,087 5,976 6,046 5,992 5,988 5,927 602 Federal employee retirement and disability: Civilian retirement and disability programs ........................................ Military retirement ................................................................................ Proposed Legislation (PAYGO) ...................................................... 36,925 26,804 .................... 38,453 27,332 .................... 40,266 28,005 385 42,555 29,088 .................... 44,676 30,231 .................... 46,890 32,065 .................... 49,154 33,205 .................... Subtotal, Military retirement ....................................................... 26,804 27,332 28,390 29,088 30,231 32,065 33,205 Federal employees workers’ compensation (FECA) .......................... Federal employees life insurance fund .............................................. 279 4 258 26 218 33 271 36 325 41 337 47 352 52 Subtotal, Federal employee retirement and disability ................... 64,012 66,069 68,907 71,950 75,274 79,339 82,764 603 Unemployment compensation ...................................................... 604 Housing assistance: Housing certificates for families and individuals performance funds Public and Indian housing performance funds .................................. Affordable housing performance funds ............................................... Homeless assistance performance funds ........................................... Subsidized, public, homeless and other HUD housing ..................... Rural housing assistance .................................................................... Other housing assistance ................................................................... 28,696 23,814 25,731 25,404 26,007 26,682 27,351 .................... .................... .................... .................... 20,586 521 7 .................... .................... .................... .................... 20,391 608 15 7,665 8,104 3,339 1,120 188 644 15 8,744 7,418 2,359 1,120 154 625 15 19,751 7,249 2,298 1,091 241 612 14 15,463 7,072 2,242 1,055 270 599 14 15,123 6,780 2,149 1,012 259 586 14 Subtotal, Housing assistance ......................................................... 21,114 21,014 21,076 20,435 31,257 26,715 25,923 605 Food and nutrition assistance: Food stamps (including Puerto Rico) ................................................. State child nutrition programs ............................................................. Special supplemental food program for women, infants, and children (WIC) ...................................................................................... Other nutrition programs ..................................................................... Proposed Legislation (PAYGO) ...................................................... 28,097 7,498 28,789 7,438 29,763 7,941 30,990 8,736 32,164 9,326 33,320 9,913 34,489 10,544 3,210 1,160 .................... 3,470 1,096 .................... 3,820 1,198 .................... 3,820 1,095 .................... 3,820 1,078 .................... 3,820 1,062 .................... 3,820 1,046 .................... Subtotal, Other nutrition programs ............................................. 1,160 1,096 1,198 1,095 1,078 1,062 1,046 Subtotal, Food and nutrition assistance ......................................... 39,965 40,793 42,722 44,641 46,388 48,115 49,898 609 Other income security: Supplemental security income (SSI) .................................................. Family support payments .................................................................... 27,488 16,820 27,995 17,359 25,863 18,013 32,163 18,847 34,540 19,581 37,062 20,394 42,623 21,266 6. 77 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 Earned income tax credit (EITC) ........................................................ Proposed Legislation (PAYGO) ...................................................... 10,950 .................... 16,844 .................... 20,228 –12 22,753 –587 23,852 –623 24,997 –640 26,036 –661 Subtotal, Earned income tax credit (EITC) ............................... 10,950 16,844 20,216 22,166 23,229 24,357 25,375 Refugee assistance ............................................................................. Low income home energy assistance ................................................ Payments to states for day-care assistance ...................................... Other .................................................................................................... SSI offsetting receipts ......................................................................... 400 1,737 893 250 –800 406 1,319 935 167 –956 414 1,319 1,049 169 –1,032 402 1,319 1,017 164 –1,194 393 1,253 996 160 –1,295 385 1,227 975 157 –1,391 377 1,200 954 153 –1,592 Subtotal, Other income security ..................................................... 57,739 64,068 66,011 74,885 78,857 83,166 90,356 Total, Income security ...................................................................... 217,770 221,845 230,423 243,361 263,774 270,005 282,219 650 Social security: 651 Social security: Old-age and survivors insurance (OASI) ........................................... Disability insurance (DI) ...................................................................... 282,561 38,577 296,595 42,324 308,670 46,113 324,870 49,866 340,355 54,084 356,429 58,359 373,024 62,659 Total, Social security ........................................................................ 321,138 338,920 354,783 374,735 394,439 414,788 435,683 On-budget ........................................................................................ Off-budget ........................................................................................ (5,687) (315,451) (4,859) (334,060) (5,184) (349,599) (7,154) (367,581) (7,660) (386,779) (8,203) (406,585) (8,779) (426,904) 700 Veterans benefits and services: 701 Income security for veterans: Compensation ...................................................................................... Proposed Legislation (PAYGO) ...................................................... 14,226 .................... 14,414 .................... 14,863 –30 15,703 –74 16,248 –123 16,768 –160 17,290 –194 Subtotal, Compensation ............................................................. 14,226 14,414 14,834 15,629 16,124 16,608 17,095 Pensions .............................................................................................. Proposed Legislation (PAYGO) ...................................................... 3,159 .................... 3,097 .................... 3,044 .................... 3,051 .................... 3,066 .................... 3,585 –523 3,650 –569 Subtotal, Pensions ...................................................................... 3,159 3,097 3,044 3,051 3,066 3,062 3,080 Burial benefits and miscellaneous assistance .................................... National service life insurance trust fund ........................................... All other insurance programs .............................................................. Insurance program receipts ................................................................ 106 1,417 25 –337 111 1,371 33 –298 112 1,335 32 –289 115 1,274 36 –268 118 1,213 36 –245 121 1,137 37 –223 124 1,061 38 –200 Subtotal, Income security for veterans .......................................... 18,597 18,728 19,069 19,835 20,312 20,742 21,199 702 Veterans education, training, and rehabilitation: Readjustment benefits (GI Bill and related programs) ...................... Proposed Legislation (PAYGO) ...................................................... 1,081 .................... 1,287 .................... 1,345 –13 1,468 –27 1,538 –40 1,526 –55 1,516 –68 Subtotal, Readjustment benefits (GI Bill and related programs) ..................................................................................... 1,081 1,287 1,333 1,442 1,498 1,471 1,448 Post-Vietnam era education ................................................................ All-volunteer force educational assistance trust fund ........................ Other .................................................................................................... .................... –51 1 .................... –120 1 .................... –149 1 .................... –166 1 .................... –149 1 .................... –143 1 .................... –138 1 Subtotal, Veterans education, training, and rehabilitation ............. 1,031 1,168 1,185 1,277 1,349 1,329 1,311 703 Hospital and medical care for veterans: Medical care and hospital services .................................................... Construction ......................................................................................... Third-party medical recoveries ............................................................ Proposed Legislation (PAYGO) ...................................................... 15,980 659 –38 .................... 16,553 571 –16 .................... 17,301 787 –53 .................... 16,782 763 –83 .................... 16,436 747 –25 .................... 16,090 732 340 –345 15,744 716 –7 –6 1996 1997 1998 1999 2000 Subtotal, Third-party medical recoveries ................................... –38 –16 –53 –83 –25 –5 –14 Fees and other charges for medical services ................................... Proposed Legislation (PAYGO) ...................................................... –413 .................... –455 .................... –476 .................... –533 .................... –616 .................... –591 –49 –248 –398 Subtotal, Fees and other charges for medical services ........... –413 –455 –476 –533 –616 –641 –646 Subtotal, Hospital and medical care for veterans ......................... 16,187 16,653 17,558 16,929 16,543 16,176 15,801 78 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 704 Veterans housing: Loan guaranty ..................................................................................... Proposed Legislation (PAYGO) ...................................................... –14 .................... 103 .................... 75 –* 71 –* 66 –* 59 –* 54 –* Subtotal, Loan guaranty ............................................................. –14 103 75 71 66 59 54 Direct loans ......................................................................................... Guaranty and indemnity ...................................................................... Proposed Legislation (PAYGO) ...................................................... 3 199 .................... 1 572 .................... 1 582 .................... 1 461 .................... 1 410 .................... 1 577 –187 1 563 –185 Subtotal, Guaranty and indemnity ............................................. 199 572 582 461 410 390 378 Credit liquidating accounts .................................................................. Proposed Legislation (PAYGO) ...................................................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Subtotal, Credit liquidating accounts ......................................... .................... .................... .................... .................... .................... .................... .................... Subtotal, Veterans housing ............................................................ 188 677 658 533 476 450 434 705 Other veterans benefits and services: Cemeteries, administration of veterans benefits, and other .............. Non-VA support programs .................................................................. 962 94 1,030 93 1,056 98 1,026 89 1,006 84 986 80 966 74 Subtotal, Other veterans benefits and services ............................. 1,056 1,122 1,154 1,115 1,090 1,066 1,040 Total, Veterans benefits and services ............................................ 37,059 38,347 39,624 39,688 39,770 39,763 39,784 750 Administration of justice: 751 Federal law enforcement activities: Criminal investigations (DEA, FBI, FinCEN, OCDE) ......................... Proposed Legislation (PAYGO) ...................................................... 3,353 .................... 3,537 .................... 3,739 .................... 3,586 .................... 3,586 .................... 3,586 .................... 3,586 .................... 1996 1997 1998 1999 2000 Subtotal, Criminal investigations (DEA, FBI, FinCEN, OCDE) . 3,353 3,537 3,739 3,586 3,586 3,586 3,586 Alcohol, tobacco, and firearms investigations (ATF) ......................... Border enforcement activities (Customs and INS) ............................ Proposed Legislation (PAYGO) ...................................................... 374 3,303 .................... 386 3,898 .................... 401 4,291 200 389 3,900 426 381 3,937 438 373 3,974 452 365 4,011 466 Subtotal, Border enforcement activities (Customs and INS) .... 3,303 3,898 4,491 4,326 4,375 4,426 4,477 Customs and INS fees ........................................................................ Proposed Legislation (PAYGO) ...................................................... –1,468 .................... –1,722 .................... –1,805 –200 –1,831 –426 –1,859 –438 –1,885 –452 –1,912 –466 Subtotal, Customs and INS fees ............................................... –1,468 –1,722 –2,005 –2,257 –2,297 –2,337 –2,378 Protection activities (Secret Service) .................................................. Equal Employment Opportunity Commission ..................................... Other enforcement .............................................................................. 502 230 473 516 233 494 581 268 577 565 260 406 554 255 388 543 249 383 533 244 377 Subtotal, Federal law enforcement activities ................................. 6,768 7,342 8,053 7,275 7,242 7,223 7,204 752 Federal litigative and judicial activities: Civil and criminal prosecution and representation ............................. Federal judicial activities ..................................................................... Representation of indigents in civil cases .......................................... Other .................................................................................................... 2,649 2,821 401 14 2,698 2,976 415 15 2,794 3,399 440 7 2,756 3,465 427 7 2,756 3,560 418 7 2,756 3,657 409 7 2,756 3,758 400 6 Subtotal, Federal litigative and judicial activities ........................... 5,884 6,104 6,641 6,654 6,741 6,829 6,921 753 Federal correctional activities ...................................................... 754 Criminal justice assistance ........................................................... 2,222 859 2,628 2,633 2,967 4,380 3,040 5,507 3,295 6,007 3,403 7,007 3,586 7,007 Total, Administration of justice ....................................................... 15,734 18,708 22,041 22,475 23,284 24,461 24,717 2,107 2,190 2,405 2,433 2,454 2,477 2,501 19 233 3 108 189 2 147 189 4 143 184 9 140 180 3 137 176 3 134 172 3 255 299 340 335 323 316 310 800 General government: 801 Legislative functions ...................................................................... 802 Executive direction and management: Drug control programs ........................................................................ Executive Office of the President ....................................................... Other .................................................................................................... Subtotal, Executive direction and management ............................ 6. 79 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Estimate 1994 Actual 1995 803 Central fiscal operations: Collection of taxes ............................................................................... Other fiscal operations ........................................................................ Proposed Legislation (PAYGO) ...................................................... 7,345 415 .................... 7,576 159 .................... 8,328 134 59 8,082 119 61 7,918 106 62 7,753 92 64 7,589 82 66 Subtotal, Other fiscal operations ................................................ 415 159 193 180 169 157 148 Subtotal, Central fiscal operations ................................................. 7,760 7,735 8,521 8,261 8,086 7,910 7,737 804 General property and records management: Real property activities ........................................................................ Property and other receipts ................................................................ Records management ......................................................................... Other .................................................................................................... 447 –14 192 187 264 –11 201 177 763 –14 196 217 614 –25 190 223 606 –25 186 229 587 –25 182 235 366 –20 178 242 Subtotal, General property and records management .................. 813 632 1,162 1,002 996 980 766 805 Central personnel management ................................................... 806 General purpose fiscal assistance: Payments and loans to the District of Columbia ............................... Payments to States and counties from Forest Service receipts ....... Payments to States from receipts under the Mineral Leasing Act ... Payments to States and counties from Federal land management activities ........................................................................................... Payments in lieu of taxes ................................................................... Payments to territories and Puerto Rico ............................................ Tax revenues for Puerto Rico (Treasury, BATF) ............................... Other .................................................................................................... 177 173 168 163 159 156 153 689 321 520 700 249 548 700 245 560 678 232 578 664 229 584 650 226 604 636 226 631 19 104 266 201 9 19 104 271 226 9 19 114 284 232 9 19 110 290 240 9 19 108 296 247 8 19 106 303 255 8 19 104 310 263 8 Subtotal, General purpose fiscal assistance .................................. 2,130 2,126 2,162 2,155 2,156 2,170 2,196 808 Other general government: Compact of free association ............................................................... Territories ............................................................................................. Treasury claims ................................................................................... Civil liberties public education fund .................................................... Presidential election campaign fund ................................................... Other .................................................................................................... 143 106 503 100 70 35 390 100 625 5 70 68 174 70 635 5 70 113 156 69 635 5 70 95 154 68 615 5 70 94 154 67 615 5 70 93 154 66 615 5 70 92 Subtotal, Other general government .............................................. 956 1,257 1,067 1,030 1,006 1,004 1,002 809 Deductions for offsetting receipts ............................................... –2,087 –700 –710 –710 –710 –710 –710 Total, General government .............................................................. 12,110 13,712 15,115 14,669 14,471 14,304 13,954 1996 1997 1998 1999 2000 900 Net interest: 901 Interest on the public debt ........................................................... 902 Interest received by on-budget trust funds: Civil Service retirement and disability ................................................ Military retirement ................................................................................ Medicare .............................................................................................. Other on-budget trust fund interest .................................................... 296,278 333,704 364,037 383,430 403,570 425,720 446,502 –26,139 –10,143 –12,709 –7,503 –27,529 –10,360 –12,209 –7,791 –29,379 –10,605 –11,916 –8,131 –30,696 –10,818 –11,847 –8,523 –31,864 –11,024 –11,228 –8,997 –33,152 –11,205 –10,323 –9,661 –34,218 –11,386 –9,061 –10,081 Subtotal, Interest received by on-budget trust funds .................... –56,494 –57,889 –60,031 –61,884 –63,113 –64,340 –64,746 903 Interest received by off-budget trust funds ............................... 908 Other interest: Interest on loans to Federal Financing Bank ..................................... Interest on refunds of tax collections ................................................. Payment to the Resolution Funding Corporation ............................... Interest paid to loan guarantee financing accounts ........................... Interest received from direct loan financing accounts ....................... Interest on deposits in tax and loan accounts ................................... Interest received from Outer Continental Shelf escrow account, Interior ................................................................................................ –29,203 –33,576 –38,102 –42,586 –47,347 –52,499 –58,081 –9,049 3,068 2,328 992 –883 –634 –8,415 3,142 2,328 708 –1,327 –960 –7,234 3,182 2,328 821 –2,574 –1,000 –6,270 3,297 2,328 858 –4,444 –1,000 –5,786 3,422 2,328 772 –6,779 –1,000 –4,973 3,561 2,328 661 –9,364 –1,000 –4,465 3,708 2,328 576 –12,064 –1,000 –* .................... –993 .................... .................... .................... .................... 80 ANALYTICAL PERSPECTIVES TABLE 6–1. BUDGET AUTHORITY BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Budget Authority Source Other .................................................................................................... 1994 Actual –3,441 Estimate 1995 –3,480 1996 –3,434 1997 –3,357 1998 –3,171 1999 –3,004 2000 –2,899 Subtotal, Other interest ................................................................... –7,618 –8,004 –8,903 –8,587 –10,214 –11,791 –13,815 Total, Net interest .............................................................................. 202,962 234,235 257,001 270,373 282,896 297,090 309,860 On-budget ........................................................................................ Off-budget ........................................................................................ (232,166) (–29,203) (267,811) (–33,576) (295,103) (–38,102) (312,959) (–42,586) (330,243) (–47,347) (349,589) (–52,499) (367,941) (–58,081) 920 Allowances: 921 GSA reinventing ............................................................................. 924 Adjustment to maintain Legislative Branch at current level ... 925 OPM reinventing ............................................................................. .................... .................... .................... .................... .................... .................... .................... –250 .................... –200 –339 –7 –400 –430 –7 –400 –527 –8 –400 –633 –8 Total, Allowances .............................................................................. .................... .................... –250 –546 –837 –935 –1,041 –12,808 –12,130 –11,123 –10,351 –10,559 –10,713 –10,881 –5,114 –7,999 –2,440 –5,493 –7,811 –2,452 –5,499 –7,895 –2,545 –5,737 –8,108 –2,620 –6,158 –8,257 –2,718 –6,216 –8,222 –2,836 –6,500 –8,500 –2,982 Subtotal, Employer share, employee retirement (on-budget) ........ –28,361 –27,885 –27,063 –26,817 –27,691 –27,988 –28,864 952 Employer share, employee retirement (off-budget) ................... 953 Rents and royalties on the Outer Continental Shelf ................. 954 Sale of major assets: Sale of U.S. Enrichment Corporation (PAYGO proposal) ................. Sale of Power Marketing Admin. (PAYGO proposal) ........................ –6,409 –3,001 –6,441 –2,692 –6,864 –3,036 –7,137 –2,485 –7,544 –2,426 –8,061 –2,393 –8,707 –2,403 .................... .................... .................... .................... –800 –85 –1,100 –909 .................... –3,475 .................... .................... .................... .................... Subtotal, Sale of major assets ....................................................... .................... .................... –885 –2,009 –3,475 .................... .................... 959 Other undistributed offsetting receipts: Spectrum Auction ................................................................................ Proposed Legislation (PAYGO) ...................................................... .................... .................... –4,375 .................... –4,275 –300 –1,675 –600 –2,075 –1,000 –1,197 –1,400 .................... –1,500 Subtotal, Spectrum Auction ........................................................ .................... –4,375 –4,575 –2,275 –3,075 –2,597 –1,500 Privatization of Elk Hills (PAYGO proposal) ...................................... .................... .................... .................... –2,600 .................... .................... .................... Subtotal, Other undistributed offsetting receipts ............................ .................... –4,375 –4,575 –4,875 –3,075 –2,597 –1,500 Total, Undistributed offsetting receipts ......................................... –37,772 –41,392 –42,424 –43,323 –44,212 –41,039 –41,474 On-budget ........................................................................................ Off-budget ........................................................................................ (–31,362) (–6,409) (–34,951) (–6,441) (–35,560) (–6,864) (–36,186) (–7,137) (–36,668) (–7,544) (–32,978) (–8,061) (–32,767) (–8,707) Total .................................................................................................... 1,528,401 1,563,792 1,613,780 1,686,398 1,765,205 1,839,127 1,923,985 On-budget ........................................................................................ Off-budget ........................................................................................ (1,245,830) (282,571) (1,265,790) (298,002) (1,304,811) (308,969) (1,366,801) (319,597) (1,431,374) (333,831) (1,491,664) (347,463) (1,563,816) (360,169) 950 Undistributed offsetting receipts: 951 Employer share, employee retirement (on-budget): Contributions to military retirement fund ............................................ Postal Service contributions to Civil Service Retirement and Disability Fund ...................................................................................... Other contributions to Civil Service Retirement and Disability Fund Contributions to HI trust fund ............................................................. * $500 thousand or less. 6. 81 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 050 National defense: 051 Department of Defense—Military: Military personnel ................................................................................ Operation and maintenance ................................................................ Procurement ........................................................................................ Research, development, test and evaluation ..................................... Military construction ............................................................................. Family housing .................................................................................... Voluntary Separation Incentive (VSI fund) ......................................... Offset for payment to VSI fund .......................................................... Revolving and management funds ..................................................... Trust funds and other ......................................................................... General transfer authority ................................................................... Emergency supplemental .................................................................... DOD-wide savings proposals .............................................................. Proposed legislation (non-PAYGO) .................................................... Offsetting receipts ............................................................................... 73,137 87,880 61,758 34,762 4,979 3,316 153 .................... 3,620 92 .................... .................... .................... .................... –1,086 70,546 88,385 54,664 34,981 5,619 3,457 163 –20 1,187 198 280 1,956 –200 .................... –1,062 66,181 91,015 48,617 34,476 5,657 3,928 166 –269 649 96 220 459 –204 –73 –939 67,336 90,177 45,727 33,365 5,272 4,121 167 –93 789 92 100 81 –114 –32 –931 67,977 89,759 44,811 32,148 5,490 4,099 167 –93 731 86 40 27 –56 –71 –938 69,279 91,610 48,048 31,299 5,058 4,229 167 –93 925 80 20 13 –24 –73 –899 73,405 93,675 51,387 30,502 4,648 4,319 167 –93 824 76 .................... 6 –11 –74 –896 1996 1997 1998 1999 2000 Subtotal, Department of Defense—Military .................................... 268,611 260,155 249,978 246,058 244,178 249,639 257,935 053 Atomic energy defense activities: Weapons activities .............................................................................. Defense environmental restoration and waste management ............ Defense nuclear waste disposal ......................................................... Other defense activities ...................................................................... Defense Nuclear Facilities Safety Board ............................................ 4,035 5,447 118 2,277 16 3,349 5,080 123 1,901 18 3,447 5,543 192 1,569 19 3,203 5,660 169 1,268 18 3,073 5,285 167 1,204 18 3,088 4,947 168 1,209 17 3,069 4,822 166 1,202 17 Subtotal, Atomic energy defense activities .................................... 11,892 10,471 10,770 10,319 9,747 9,429 9,276 054 Defense-related activities .............................................................. 1,060 973 675 618 596 609 620 Total, National defense ..................................................................... 281,563 271,600 261,424 256,995 254,522 259,677 267,831 150 International affairs: 151 International development and humanitarian assistance: Agency for International Development ............................................... Multilateral development banks (MDB’s) ............................................ Food aid .............................................................................................. Refugee programs ............................................................................... Voluntary contributions to international organizations ........................ Peace Corps ........................................................................................ Other programs ................................................................................... Credit liquidating accounts .................................................................. Offsetting receipts ............................................................................... 3,365 1,443 2,043 687 311 214 57 –494 –564 3,961 1,976 1,532 728 420 243 108 –1,079 –579 4,021 1,997 1,070 749 412 243 168 –1,086 –561 4,087 2,228 984 705 415 229 238 –1,148 –632 4,107 2,091 955 690 406 224 222 –1,100 –641 3,982 2,333 935 675 397 220 208 –1,121 –645 3,927 2,771 915 661 389 215 178 –1,094 –632 Subtotal, International development and humanitarian assistance 7,061 7,311 7,014 7,108 6,955 6,984 7,329 152 International security assistance: Foreign military financing grants and loans ....................................... Economic support fund ....................................................................... Other programs ................................................................................... Repayment of foreign military financing loans ................................... Foreign military loan liquidating account ............................................ 4,023 2,766 173 –545 213 3,674 2,708 158 –566 –124 3,507 2,644 164 –655 –139 3,421 2,553 169 –658 –178 3,275 2,484 157 –570 –185 3,155 2,421 155 –423 –181 3,074 2,310 152 –312 –194 Subtotal, International security assistance ..................................... 6,630 5,850 5,521 5,307 5,161 5,127 5,029 153 Conduct of foreign affairs: State Department operations .............................................................. Foreign buildings ................................................................................. Assessed Contributions to International Organizations ..................... Assessed Contributions to International Peacekeeping ..................... Other programs ................................................................................... 2,052 580 765 979 182 2,038 554 951 1,301 206 2,121 516 933 447 240 2,067 486 906 432 243 2,024 472 887 423 239 1,982 467 868 414 236 1,939 399 850 405 222 Subtotal, Conduct of foreign affairs ............................................... 4,557 5,050 4,257 4,133 4,046 3,967 3,814 154 Foreign information and exchange activities: U.S. Information Agency ..................................................................... Board for International Broadcasting .................................................. 1,168 213 1,233 210 1,335 1 1,257 .................... 1,217 .................... 1,190 .................... 1,164 .................... 82 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Other programs ................................................................................... 18 16 13 11 11 10 10 Subtotal, Foreign information and exchange activities .................. 1,398 1,459 1,349 1,269 1,228 1,201 1,174 155 International financial programs: Export-Import Bank ............................................................................. International monetary fund ................................................................ Exchange stabilization fund ................................................................ Foreign military sales trust fund (net) ................................................ Special defense acquisition fund ........................................................ Credit liquidating account (Exim) ........................................................ Other .................................................................................................... Offsetting receipts ............................................................................... 182 –393 –1,326 185 –96 –1,014 * –102 490 19 –1,300 100 –156 –6 * –104 580 19 –1,320 180 –134 –624 .................... –106 609 26 –1,340 170 –115 –840 .................... –108 578 26 –1,360 240 –66 –659 .................... –110 592 26 –1,380 30 –10 –604 .................... –112 570 18 –1,400 130 –17 –610 .................... –115 Subtotal, International financial programs ...................................... –2,564 –957 –1,405 –1,599 –1,352 –1,459 –1,423 Total, International affairs ................................................................ 17,083 18,713 16,735 16,217 16,037 15,820 15,923 250 General science, space, and technology: 251 General science and basic research: National Science Foundation programs ............................................. Department of Energy general science programs ............................. 2,596 1,268 2,777 1,395 3,077 1,009 3,213 893 3,185 857 3,104 861 3,040 855 Subtotal, General science and basic research .............................. 3,863 4,173 4,086 4,106 4,042 3,965 3,895 252 Space flight, research, and supporting activities: Science, Aeronautics and Technology ............................................... Human space flight ............................................................................. Mission support ................................................................................... Research and program management ................................................. Space flight control and data communications .................................. Construction of facilities ...................................................................... Research and development ................................................................ Other .................................................................................................... .................... .................... .................... 1,316 4,899 328 5,805 15 2,393 3,432 1,716 96 1,614 369 3,168 15 4,463 5,431 2,141 6 199 95 414 17 4,968 4,878 2,323 * 43 46 67 17 4,938 5,082 2,220 * 14 23 17 16 4,820 5,209 2,157 * 6 12 7 16 4,705 5,193 2,107 .................... 2 7 4 16 Subtotal, Space flight, research, and supporting activities ........... 12,363 12,805 12,765 12,342 12,311 12,227 12,034 Total, General science, space, and technology ............................ 16,227 16,977 16,851 16,448 16,353 16,192 15,928 270 Energy: 271 Energy supply: Research and development ................................................................ Naval petroleum reserves ................................................................... Proposed Legislation (PAYGO) ...................................................... 3,697 –176 .................... 3,952 –243 .................... 4,070 –305 .................... 3,916 –484 448 3,742 –475 439 3,576 –448 417 3,475 –413 395 Subtotal, Naval petroleum reserves ........................................... –176 –243 –305 –36 –36 –31 –18 Federal power marketing .................................................................... Proposed Legislation (PAYGO) ...................................................... –146 .................... –457 .................... –635 .................... –541 11 –808 182 –1,089 672 –1,102 679 Subtotal, Federal power marketing ............................................ –146 –457 –635 –531 –626 –417 –424 Tennessee Valley Authority ................................................................ Uranium enrichment ............................................................................ Proposed Legislation (PAYGO) ...................................................... 1,040 95 .................... 1,063 –213 .................... 543 –125 150 136 –51 8 40 41 –10 39 118 –88 –101 190 –159 Subtotal, Uranium enrichment .................................................... 95 –213 25 –43 32 30 30 Uranium enrichment facility decontamination and decommissioning fund .................................................................................................. Decontamination transfer .................................................................... Foreign fees (proposed) ...................................................................... Nuclear waste program ....................................................................... Proposed Legislation (PAYGO) ...................................................... 228 –130 .................... 297 .................... 275 –134 .................... 328 .................... 295 –350 –45 191 216 291 –292 –46 .................... 486 294 –292 –47 .................... 572 297 –292 –48 .................... 636 300 –292 –49 .................... 590 Subtotal, Nuclear waste program .............................................. 297 328 407 486 572 636 590 Nuclear waste fund receipts ............................................................... Subsidies for nonconventional fuel production ................................... Rural electric and telephone loans ..................................................... –396 60 63 –555 96 112 –591 42 115 –600 39 132 –606 –2 120 –607 –2 107 –616 –2 83 6. 83 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 Credit liquidating account (REA) ........................................................ –734 –988 –658 –958 –1,050 –1,064 –1,133 Subtotal, Energy supply .................................................................. 3,899 3,235 2,914 2,493 2,140 2,226 1,843 272 Energy conservation ...................................................................... 274 Emergency energy preparedness ................................................ 276 Energy information, policy, and regulation: Nuclear Regulatory Commission (NRC) ............................................. Other energy programs ....................................................................... 582 275 681 241 800 236 808 290 677 280 629 276 625 275 46 417 37 394 22 397 26 372 23 365 23 366 22 365 Subtotal, Energy information, policy, and regulation ..................... 462 431 419 398 388 389 387 Total, Energy ...................................................................................... 5,219 4,589 4,369 3,988 3,485 3,520 3,130 300 Natural resources and environment: 301 Water resources: Corps of Engineers ............................................................................. Bureau of Reclamation ....................................................................... Other .................................................................................................... Offsetting receipts ............................................................................... 3,640 869 392 –373 4,035 992 508 –472 3,841 834 353 –596 3,892 793 314 –592 3,743 789 285 –649 3,690 779 266 –669 3,544 740 259 –665 Subtotal, Water resources .............................................................. 4,528 5,064 4,432 4,407 4,168 4,066 3,879 302 Conservation and land management: Forest Service ..................................................................................... Management of public lands (BLM) ................................................... Federal land acquisition ...................................................................... Mining reclamation and enforcement ................................................. Conservation reserve program ........................................................... Other conservation of agricultural lands ............................................. Other .................................................................................................... Offsetting receipts ............................................................................... 3,197 934 20 312 1,736 904 368 –2,309 2,852 959 12 255 1,859 885 363 –2,278 2,841 1,005 18 308 1,926 891 371 –2,304 2,810 989 21 307 2,021 939 365 –2,313 2,746 968 23 330 2,035 786 359 –2,337 2,699 958 23 278 2,029 732 347 –2,490 2,649 930 22 267 1,962 706 340 –2,453 Subtotal, Conservation and land management .............................. 5,161 4,907 5,057 5,139 4,910 4,577 4,423 303 Recreational resources: Federal land acquisition ...................................................................... Urban park and historic preservation funds ....................................... Operation of recreational resources ................................................... Proposed Legislation (PAYGO) ...................................................... 243 46 2,509 .................... 265 52 2,732 .................... 237 49 2,779 * 221 48 2,768 2 208 46 2,726 5 200 44 2,681 7 195 42 2,659 9 Subtotal, Operation of recreational resources ........................... 2,509 2,732 2,779 2,771 2,731 2,688 2,668 Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... –179 .................... –247 .................... –262 –8 –274 –12 –278 –16 –284 –20 –295 –26 Subtotal, Offsetting receipts ....................................................... –179 –247 –270 –286 –295 –304 –322 Subtotal, Recreational resources ................................................... 2,619 2,802 2,794 2,753 2,691 2,628 2,584 304 Pollution control and abatement: Regulatory, enforcement, and research programs ............................. Proposed Legislation (PAYGO) ...................................................... 2,542 .................... 2,810 .................... 3,884 –1 3,314 –* 3,317 –1 3,208 –1 3,117 2 Subtotal, Regulatory, enforcement, and research programs .... 2,542 2,810 3,883 3,314 3,316 3,207 3,119 Hazardous substance superfund ........................................................ Proposed Legislation (PAYGO) ...................................................... 1,489 .................... 1,460 .................... 1,484 .................... 1,499 52 1,478 112 1,450 144 1,422 162 Subtotal, Hazardous substance superfund ................................ 1,489 1,460 1,484 1,551 1,590 1,594 1,584 Oil pollution funds (gross) ................................................................... Water infrastructure financing ............................................................. Leaking underground storage tank trust fund .................................... Superfund recoveries and other ......................................................... 179 1,978 70 –209 126 2,202 74 –235 128 2,147 75 –969 132 2,252 76 –211 133 2,398 74 –171 126 2,361 73 –146 125 2,322 71 –146 Subtotal, Pollution control and abatement ..................................... 6,050 6,438 6,748 7,114 7,340 7,214 7,075 84 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 306 Other natural resources: Program activities ................................................................................ Proposed Legislation (PAYGO) ...................................................... 2,725 .................... 2,699 .................... 2,831 6 2,796 27 2,868 28 2,891 29 2,813 29 Subtotal, Program activities ....................................................... 2,725 2,699 2,837 2,822 2,896 2,920 2,842 Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... –19 .................... –19 .................... –19 –10 –19 –10 –19 –10 –21 –10 –33 –10 Subtotal, Offsetting receipts ....................................................... –19 –19 –29 –29 –29 –31 –43 Subtotal, Other natural resources .................................................. 2,706 2,680 2,808 2,793 2,867 2,889 2,799 Total, Natural resources and environment .................................... 21,064 21,891 21,839 22,207 21,976 21,374 20,761 350 Agriculture: 351 Farm income stabilization: Commodity Credit Corporation ........................................................... Proposed Legislation (PAYGO) ...................................................... 10,336 .................... 10,623 .................... 9,073 .................... 8,774 .................... 6,984 –500 6,977 –500 6,414 –500 Subtotal, Commodity Credit Corporation ................................... 10,336 10,623 9,073 8,774 6,484 6,477 5,914 Crop insurance .................................................................................... Agricultural credit insurance ................................................................ Emergency food assistance program ................................................. Other .................................................................................................... Proposed Legislation (PAYGO) ...................................................... 1,007 397 119 953 .................... 709 396 72 816 .................... 1,361 412 40 691 –1 1,345 406 39 676 .................... 1,500 392 40 673 .................... 1,512 384 40 648 .................... 1,549 376 40 632 .................... Subtotal, Other ............................................................................ 953 816 690 676 673 648 632 Credit liquidating accounts (ACIF and FAC) ...................................... –386 –955 –840 –1,315 –1,196 –1,079 –964 1996 1997 1998 1999 2000 Subtotal, Farm income stabilization ............................................... 12,426 11,662 10,735 9,925 7,894 7,982 7,547 352 Agricultural research and services: Research programs ............................................................................. Marketing programs ............................................................................ Animal and plant inspection programs ............................................... Economic intelligence .......................................................................... Other programs and unallocated overhead ........................................ Offsetting receipts ............................................................................... 1,154 158 485 135 889 –126 1,211 159 442 133 925 –131 1,218 161 416 143 1,009 –130 1,182 158 425 141 984 –130 1,157 156 421 138 951 –130 1,134 155 412 135 918 –130 1,113 154 403 132 884 –130 Subtotal, Agricultural research and services ................................. 2,695 2,739 2,817 2,761 2,693 2,624 2,557 Total, Agriculture ............................................................................... 15,121 14,401 13,552 12,686 10,587 10,607 10,104 370 Commerce and housing credit: 371 Mortgage credit: Federal Housing Administration (FHA) ............................................... Government National Mortgage Association (GNMA) ....................... Rural housing programs ...................................................................... Privatizing collection of debt (Non-PAYGO proposal) ....................... Other .................................................................................................... Credit liquidating accounts .................................................................. –472 –513 991 .................... –8 –499 203 –493 950 .................... * –3,263 –35 –469 832 –156 17 –4,817 163 –716 780 .................... 33 –3,209 187 –695 746 .................... * –3,445 183 –668 725 .................... * –4,608 175 –633 709 .................... * –5,638 Subtotal, Mortgage credit ............................................................... –501 –2,603 –4,629 –2,949 –3,207 –4,368 –5,386 372 Postal service: Payments to the Postal Service fund (On-budget) ............................ Postal Service (Off-budget) ................................................................. 130 1,103 130 712 146 625 124 357 124 –450 124 –1,050 124 –1,400 Subtotal, Postal service .................................................................. 1,233 842 771 481 –326 –926 –1,276 373 Deposit insurance: Resolution Trust Corporation Fund .................................................... Bank Insurance Fund .......................................................................... Proposed Legislation (PAYGO) ...................................................... 4,107 –9,498 .................... –6,783 –5,977 .................... –1,660 –1,937 –105 .................... 1,068 –110 .................... 1,203 –115 .................... –687 –119 .................... –2,361 –124 Subtotal, Bank Insurance Fund ................................................. –9,498 –5,977 –2,042 958 1,088 –806 –2,485 FSLIC Resolution Fund ....................................................................... Savings Association Insurance Fund ................................................. –706 –1,197 1,778 –1,078 –3,195 892 –3,453 1,448 –43 498 371 –434 504 –1,118 6. 85 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 National Credit Union Administration .................................................. Other mandatory ................................................................................. Discretionary ........................................................................................ –287 –21 31 –294 45 29 –328 –6 14 –344 –7 .................... –358 –8 .................... –386 –4 .................... –416 1 .................... Subtotal, Deposit insurance ............................................................ –7,570 –12,278 –6,324 –1,398 1,178 –1,259 –3,514 376 Other advancement of commerce: Small and minority business assistance ............................................ Proposed Legislation (PAYGO) ...................................................... 638 .................... 803 .................... 677 .................... 661 .................... 641 .................... 625 .................... 613 .................... Subtotal, Small and minority business assistance .................... 638 803 677 661 641 625 613 Science and technology ...................................................................... Economic and demographic statistics ................................................ Payments to copyright owners ........................................................... Regulatory agencies ............................................................................ Proposed Legislation (PAYGO) ...................................................... 196 296 175 233 .................... 505 333 226 254 .................... 778 371 232 143 216 1,056 396 236 109 259 1,113 388 242 101 271 1,084 387 246 94 284 1,058 2,930 252 92 298 Subtotal, Regulatory agencies ................................................... 233 254 359 368 372 378 390 International trade and other business promotion ............................. Credit liquidating accounts .................................................................. 331 –153 435 –475 449 –236 465 –168 452 –137 518 –118 478 –101 Subtotal, Other advancement of commerce .................................. 1,715 2,082 2,629 3,015 3,071 3,121 5,619 Total, Commerce and housing credit ............................................. –5,122 –11,958 –7,553 –852 715 –3,433 –4,557 On-budget ........................................................................................ Off-budget ........................................................................................ (–6,225) (1,103) (–12,670) (712) (–8,178) (625) (–1,209) (357) (1,165) (–450) (–2,383) (–1,050) (–3,157) (–1,400) 400 Transportation: 401 Ground transportation: Highways ............................................................................................. Highway safety .................................................................................... Mass transit ......................................................................................... Railroads .............................................................................................. Regulation (ICC) .................................................................................. Offsetting receipts ............................................................................... Proposed Legislation (PAYGO) ...................................................... 18,994 330 3,769 833 43 –29 .................... 19,534 377 3,836 1,095 35 –46 .................... 16,480 454 3,449 557 31 –8 –45 6,730 458 2,952 428 4 –6 –47 3,112 441 1,905 129 .................... –4 –49 2,273 418 1,460 109 .................... 2 –51 1,726 397 757 106 .................... 4 –53 Subtotal, Offsetting receipts ....................................................... –29 –46 –53 –52 –52 –48 –48 Subtotal, Ground transportation ..................................................... 23,940 24,832 20,920 10,520 5,534 4,211 2,937 402 Air transportation: Airports and airways (FAA) ................................................................. Aeronautical research and technology ............................................... Payments to air carriers ...................................................................... 8,784 1,330 32 8,674 1,435 23 8,305 1,360 11 7,520 1,634 .................... 7,136 1,395 .................... 6,520 1,263 .................... 6,307 1,233 .................... Subtotal, Air transportation ............................................................. 10,146 10,132 9,677 9,154 8,531 7,783 7,540 403 Water transportation: Marine safety and transportation ........................................................ Ocean shipping ................................................................................... Panama Canal Commission ............................................................... Offsetting receipts ............................................................................... 3,566 241 –23 –68 3,507 446 –13 –73 3,526 386 –12 –79 3,724 323 –1 –83 3,783 135 –1 –83 3,610 68 –1 –84 3,638 69 77 –91 Subtotal, Water transportation ........................................................ 3,716 3,867 3,820 3,964 3,834 3,593 3,693 407 Other transportation: Unified transportation infrastructure investment program .................. Department of Transportation headquarters building ......................... Miscellaneous programs ..................................................................... Offsetting receipts ............................................................................... .................... .................... 360 –27 .................... .................... 368 –44 3,880 .................... 401 –57 14,403 .................... 394 –56 19,620 .................... 396 –56 21,562 331 368 –52 22,225 .................... 364 –52 Subtotal, Other transportation ........................................................ 333 324 4,223 14,741 19,961 22,208 22,536 Total, Transportation ......................................................................... 38,134 39,154 38,639 38,378 37,860 37,794 36,707 86 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 450 Community and regional development: 451 Community development: Community opportunity performance funds ........................................ Community development block grants ............................................... Community development financial institutions .................................... Other .................................................................................................... Credit liquidating accounts .................................................................. .................... 3,651 .................... 539 –58 12 4,330 34 643 –23 198 4,564 131 656 –58 1,922 3,039 135 448 –61 3,848 1,053 108 147 –134 4,720 283 78 102 –133 4,867 .................... 13 83 –130 Subtotal, Community development ................................................. 4,133 4,996 5,490 5,483 5,023 5,050 4,834 452 Area and regional development: Rural development .............................................................................. Economic development assistance ..................................................... Indian programs .................................................................................. Proposed Legislation (PAYGO) ...................................................... 486 232 1,485 .................... 793 393 1,477 .................... 768 432 1,568 .................... 959 380 1,585 .................... 1,037 461 1,575 .................... 1,068 459 1,553 .................... 1,082 492 1,513 .................... Subtotal, Indian programs .......................................................... 1,485 1,477 1,568 1,585 1,575 1,553 1,513 Appalachian Regional Commission .................................................... Tennessee Valley Authority ................................................................ Credit liquidating accounts .................................................................. Offsetting receipts ............................................................................... 190 170 47 –445 169 151 180 –406 208 171 220 –313 244 139 206 –302 222 137 199 –292 209 136 214 –294 200 135 189 –296 Subtotal, Area and regional development ...................................... 2,166 2,757 3,054 3,211 3,338 3,345 3,316 453 Disaster relief and insurance: Small business disaster loans ............................................................ Disaster relief ...................................................................................... National flood insurance fund ............................................................. Other .................................................................................................... Credit liquidating accounts .................................................................. 689 3,743 –79 156 –354 761 4,177 –51 319 –362 330 4,026 –90 313 –309 145 3,630 –64 302 –55 109 1,196 –80 290 –440 107 303 –98 283 –372 105 296 –119 277 –57 Subtotal, Disaster relief and insurance .......................................... 4,156 4,845 4,271 3,957 1,075 223 501 Total, Community and regional development ............................... 10,454 12,598 12,815 12,651 9,436 8,618 8,651 500 Education, training, employment, and social services: 501 Elementary, secondary, and vocational education: Education reform ................................................................................. School improvement programs ........................................................... Education for the disadvantaged ........................................................ Special education ................................................................................ Impact aid ............................................................................................ Vocational and adult education .......................................................... Proposed Legislation (PAYGO) ...................................................... 2 1,460 6,846 2,980 830 1,341 .................... 179 1,575 7,032 3,612 1,088 1,544 .................... 500 1,463 7,051 3,154 679 1,550 –1 858 1,494 7,393 3,220 614 1,656 –6 938 1,469 7,240 3,261 564 1,670 –7 921 1,437 7,085 3,193 552 1,676 –7 860 1,401 6,935 3,125 550 1,676 –7 Subtotal, Vocational and adult education .................................. 1,341 1,544 1,549 1,650 1,663 1,669 1,669 Indian education programs ................................................................. Other .................................................................................................... 563 237 542 271 595 273 599 295 602 297 589 292 576 286 Subtotal, Elementary, secondary, and vocational education ......... 14,258 15,844 15,264 16,123 16,034 15,738 15,402 502 Higher education: Student financial assistance ............................................................... Federal family education loan program .............................................. Proposed Legislation (PAYGO) ...................................................... 7,118 2,743 .................... 7,265 3,283 .................... 7,309 2,460 –512 6,298 2,146 –1,412 6,212 2,113 –1,968 6,184 1,961 –1,933 6,156 2,102 –2,074 Subtotal, Federal family education loan program ..................... 2,743 3,283 1,947 734 145 28 28 Federal direct loan program ............................................................... Proposed Legislation (PAYGO) ...................................................... 148 .................... 843 .................... 1,502 213 1,527 667 1,753 962 2,245 984 2,420 961 Subtotal, Federal direct loan program ....................................... 148 843 1,715 2,195 2,715 3,229 3,381 Higher education ................................................................................. Student loan guaranty agency reserve recoveries (PAYGO proposal) ............................................................................................... Other .................................................................................................... 796 899 858 861 768 741 724 .................... 94 .................... 274 –350 266 –250 257 –250 237 –150 232 –100 225 6. 87 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 Credit liquidating account (Family education loan program) ............. –3,023 1,459 711 83 –371 –467 –520 Subtotal, Higher education ............................................................. 7,876 14,024 12,457 10,178 9,457 9,798 9,895 503 Research and general education aids ........................................ 504 Training and employment: Training and employment services ..................................................... Trade adjustment assistance .............................................................. Older Americans employment ............................................................. Payments to States for AFDC work programs .................................. Federal-State employment service ..................................................... Other .................................................................................................... 2,086 2,291 2,428 2,496 2,471 2,429 2,395 4,353 74 385 839 1,353 94 4,653 91 405 937 1,255 82 6,494 125 410 943 1,335 90 8,538 125 408 957 1,359 89 8,212 121 398 952 1,353 87 8,067 111 389 958 1,337 85 7,979 100 381 967 1,281 83 Subtotal, Training and employment ............................................... 7,097 7,423 9,396 11,477 11,123 10,948 10,791 505 Other labor services ...................................................................... 506 Social services: National service initiative .................................................................... Family support and preservation ........................................................ Social services block grant ................................................................. Rehabilitation services ........................................................................ Payments to States for foster care and adoption assistance ........... Children and families services programs ........................................... Aging services program ...................................................................... Interim assistance to States for legalization ...................................... Other social services ........................................................................... 958 985 1,069 1,048 1,026 1,002 982 211 1 2,728 2,244 3,030 4,306 859 652 –* 319 67 2,996 2,554 3,596 4,722 868 356 20 581 148 3,343 2,515 4,051 4,994 880 5 43 884 212 3,040 2,507 4,329 5,161 887 1 14 996 237 2,860 2,573 4,722 5,164 886 .................... 5 1,032 251 2,800 2,637 5,149 5,133 882 .................... 3 1,051 254 2,800 2,704 5,613 5,109 882 .................... 3 Subtotal, Social services ................................................................ 14,031 15,497 16,559 17,034 17,443 17,888 18,416 Total, Education, training, employment, and social services ..... 46,307 56,065 57,173 58,356 57,554 57,803 57,880 550 Health: 551 Health care services: Medicaid grants ................................................................................... Proposed Legislation (PAYGO) ...................................................... 82,034 .................... 88,438 .................... 95,977 –47 104,621 –52 114,503 –56 124,519 28 136,327 166 Subtotal, Medicaid grants ........................................................... 82,034 88,438 95,930 104,570 114,447 124,547 136,494 Health insurance earned income credit .............................................. Federal employees’ and retired employees’ health benefits ............. Coal miners retirees health benefits ................................................... Indian health ........................................................................................ Substance abuse and mental health services ................................... Other health care services .................................................................. 773 3,254 286 1,822 2,132 3,959 .................... 3,340 351 2,003 2,462 4,828 .................... 4,076 344 2,088 2,214 5,163 .................... 3,831 337 2,017 2,140 5,213 .................... 4,394 329 1,987 2,096 5,052 .................... 4,623 323 1,943 2,052 5,008 .................... 4,630 316 1,901 2,009 4,926 Subtotal, Health care services ....................................................... 94,259 101,423 109,816 118,108 128,306 138,496 150,275 552 Health research and training: National Institutes of Health ................................................................ DoD breast cancer and other health research .................................. Clinical training .................................................................................... Substance abuse and mental health research .................................. Other research and training ................................................................ 10,165 24 329 239 243 10,935 114 317 .................... 294 11,464 67 327 .................... 322 11,344 12 314 .................... 326 11,301 .................... 304 .................... 321 11,120 .................... 282 .................... 314 10,894 .................... 268 .................... 307 Subtotal, Health research and training .......................................... 11,000 11,660 12,179 11,997 11,926 11,716 11,469 554 Consumer and occupational health and safety: Food safety and inspection (net of user fees) ................................... Other consumer safety ........................................................................ Occupational safety and health .......................................................... 511 846 506 527 963 525 483 956 568 472 926 557 459 897 546 447 870 534 436 850 523 Subtotal, Consumer and occupational health and safety ............. 1,863 2,015 2,006 1,955 1,903 1,851 1,808 Total, Health ....................................................................................... 107,122 115,098 124,002 132,060 142,135 152,064 163,552 88 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 570 Medicare: 571 Medicare: Hospital insurance (HI) ....................................................................... Proposed Legislation (PAYGO) ...................................................... 102,770 .................... Subtotal, Hospital insurance (HI) ............................................... 1996 1997 1998 1999 2000 111,630 .................... 122,643 –140 132,608 –530 142,739 –670 153,651 –1,590 165,086 –1,970 102,770 111,630 122,503 132,078 142,069 152,061 163,116 Supplementary medical insurance (SMI) ............................................ Proposed Legislation (PAYGO) ...................................................... 59,724 .................... 65,780 .................... 75,518 .................... 84,060 .................... 93,066 .................... 103,087 –360 114,015 –540 Subtotal, Supplementary medical insurance (SMI) ................... 59,724 65,780 75,518 84,060 93,066 102,727 113,475 Medicare premiums and collections ................................................... Proposed Legislation (PAYGO) ...................................................... –17,747 .................... –20,122 .................... –20,198 1 –21,701 4 –24,101 6 –25,575 –1,140 –26,743 –2,840 Subtotal, Medicare premiums and collections ........................... –17,747 –20,122 –20,197 –21,697 –24,095 –26,715 –29,583 Subtotal, Medicare .......................................................................... 144,747 157,288 177,824 194,442 211,039 228,072 247,008 Total, Medicare .................................................................................. 144,747 157,288 177,824 194,442 211,039 228,072 247,008 600 Income security: 601 General retirement and disability insurance (excluding social security): Railroad retirement .............................................................................. Special benefits for disabled coal miners .......................................... Pension Benefit Guaranty Corporation ............................................... Other .................................................................................................... 4,547 1,375 –385 183 4,492 1,319 –982 196 4,479 1,250 –1,090 214 4,546 1,196 –1,218 222 4,552 1,152 –1,192 228 4,579 1,096 –1,116 237 4,593 1,041 –824 245 Subtotal, General retirement and disability insurance (excluding social security) ............................................................................ 5,720 5,026 4,853 4,746 4,739 4,795 5,055 602 Federal employee retirement and disability: Civilian retirement and disability programs ........................................ Military retirement ................................................................................ Proposed Legislation (PAYGO) ...................................................... 36,776 26,717 .................... 38,284 27,250 .................... 40,078 27,920 385 42,355 29,000 .................... 44,464 30,140 .................... 46,673 31,969 .................... 48,948 33,105 .................... Subtotal, Military retirement ....................................................... 26,717 27,250 28,305 29,000 30,140 31,969 33,105 Federal employees workers’ compensation (FECA) .......................... Federal employees life insurance fund .............................................. 130 –1,136 212 –959 249 –960 220 –921 274 –872 284 –827 300 –791 Subtotal, Federal employee retirement and disability ................... 62,487 64,788 67,671 70,654 74,005 78,099 81,562 603 Unemployment compensation ...................................................... 604 Housing assistance: Housing certificates for families and individuals performance funds Public and Indian housing performance funds .................................. Affordable housing performance funds ............................................... Homeless assistance performance funds ........................................... Subsidized, public, homeless and other HUD housing ..................... Rural housing assistance .................................................................... Other housing assistance ................................................................... 28,729 23,839 25,700 25,404 26,006 26,682 27,351 .................... .................... .................... .................... 23,416 468 4 .................... .................... .................... .................... 26,138 547 9 780 1,236 60 50 24,485 571 15 3,167 3,399 376 308 20,733 612 15 7,301 4,540 1,279 587 14,714 646 14 12,103 5,535 1,813 858 9,392 669 14 14,692 6,334 2,043 1,020 5,234 689 14 Subtotal, Housing assistance ......................................................... 23,888 26,694 27,198 28,609 29,082 30,384 30,026 605 Food and nutrition assistance: Food stamps (including Puerto Rico) ................................................. State child nutrition programs ............................................................. Special supplemental food program for women, infants, and children (WIC) ...................................................................................... Other nutrition programs ..................................................................... Proposed Legislation (PAYGO) ...................................................... 25,441 7,044 26,555 7,645 27,253 8,083 28,497 8,652 29,644 9,239 30,800 9,826 31,968 10,450 3,160 1,129 .................... 3,500 1,192 .................... 3,829 1,117 –10 3,821 1,096 –10 3,820 1,079 –10 3,820 1,063 –10 3,820 1,047 –10 Subtotal, Other nutrition programs ............................................. 1,129 1,192 1,107 1,086 1,069 1,053 1,036 Subtotal, Food and nutrition assistance ......................................... 36,773 38,892 40,272 42,057 43,772 45,499 47,275 609 Other income security: Supplemental security income (SSI) .................................................. Family support payments .................................................................... 26,281 16,508 27,504 17,260 27,528 17,918 32,119 18,741 34,560 19,491 37,035 20,304 42,602 21,166 6. 89 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 Earned income tax credit (EITC) ........................................................ Proposed Legislation (PAYGO) ...................................................... 10,950 .................... 16,844 .................... 20,228 –12 22,753 –587 23,852 –623 24,997 –640 26,036 –661 Subtotal, Earned income tax credit (EITC) ............................... 10,950 16,844 20,216 22,166 23,229 24,357 25,375 Refugee assistance ............................................................................. Low income home energy assistance ................................................ Payments to states for day-care assistance ...................................... Other .................................................................................................... SSI offsetting receipts ......................................................................... 377 2,126 786 210 –800 402 1,570 900 245 –956 409 1,332 918 169 –1,032 405 1,320 990 164 –1,194 398 1,257 1,019 161 –1,295 391 1,228 1,009 158 –1,391 383 1,202 986 155 –1,592 Subtotal, Other income security ..................................................... 56,439 63,768 67,459 74,712 78,820 83,091 90,276 Total, Income security ...................................................................... 214,036 223,006 233,153 246,181 256,426 268,549 281,545 650 Social security: 651 Social security: Old-age and survivors insurance (OASI) ........................................... Disability insurance (DI) ...................................................................... 281,584 37,981 294,592 41,557 308,938 45,610 323,655 49,433 339,036 53,554 355,039 57,833 371,588 62,099 Total, Social security ........................................................................ 319,565 336,149 354,548 373,087 392,590 412,872 433,687 On-budget ........................................................................................ Off-budget ........................................................................................ (5,683) (313,881) (4,860) (331,289) (5,184) (349,364) (7,154) (365,933) (7,660) (384,930) (8,203) (404,669) (8,779) (424,908) 700 Veterans benefits and services: 701 Income security for veterans: Compensation ...................................................................................... Proposed Legislation (PAYGO) ...................................................... 15,092 .................... 14,535 .................... 13,836 –30 15,634 –74 16,145 –123 16,629 –160 18,398 –194 Subtotal, Compensation ............................................................. 15,092 14,535 13,807 15,560 16,021 16,468 18,203 Pensions .............................................................................................. Proposed Legislation (PAYGO) ...................................................... 3,427 .................... 3,093 .................... 2,848 .................... 2,993 .................... 3,051 .................... 3,540 –523 3,984 –569 Subtotal, Pensions ...................................................................... 3,427 3,093 2,848 2,993 3,051 3,017 3,415 Burial benefits and miscellaneous assistance .................................... National service life insurance trust fund ........................................... All other insurance programs .............................................................. Insurance program receipts ................................................................ 106 1,224 100 –337 111 1,279 49 –298 112 1,311 29 –289 115 1,346 54 –268 118 1,377 73 –245 121 1,407 87 –223 124 1,423 106 –200 Subtotal, Income security for veterans .......................................... 19,613 18,768 17,817 19,799 20,394 20,877 23,071 702 Veterans education, training, and rehabilitation: Readjustment benefits (GI Bill and related programs) ...................... Proposed Legislation (PAYGO) ...................................................... 1,123 .................... 1,365 .................... 1,346 –13 1,454 –27 1,499 –40 1,534 –55 1,522 –68 Subtotal, Readjustment benefits (GI Bill and related programs) ..................................................................................... 1,123 1,365 1,334 1,428 1,459 1,479 1,454 Post-Vietnam era education ................................................................ All-volunteer force educational assistance trust fund ........................ Other .................................................................................................... 43 –51 –* 47 –120 1 22 –149 * 19 –166 * 10 –149 * 7 –143 * 4 –138 * Subtotal, Veterans education, training, and rehabilitation ............. 1,115 1,292 1,207 1,282 1,319 1,343 1,321 703 Hospital and medical care for veterans: Medical care and hospital services .................................................... Construction ......................................................................................... Third-party medical recoveries ............................................................ Proposed Legislation (PAYGO) ...................................................... 15,436 693 –39 .................... 16,311 688 –18 .................... 17,176 660 –54 .................... 16,844 711 –84 .................... 16,494 729 –25 .................... 16,147 748 340 –345 15,801 742 –7 –6 1996 1997 1998 1999 2000 Subtotal, Third-party medical recoveries ................................... –39 –18 –54 –84 –25 –5 –14 Fees and other charges for medical services ................................... Proposed Legislation (PAYGO) ...................................................... –413 .................... –455 .................... –476 .................... –533 .................... –616 .................... –591 –49 –248 –398 Subtotal, Fees and other charges for medical services ........... –413 –455 –476 –533 –616 –641 –646 Subtotal, Hospital and medical care for veterans ......................... 15,678 16,527 17,306 16,939 16,583 16,250 15,884 90 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 704 Veterans housing: Loan guaranty ..................................................................................... Proposed Legislation (PAYGO) ...................................................... –16 .................... 105 .................... 75 –* 71 –* 66 –* 59 –* 54 –* Subtotal, Loan guaranty ............................................................. –16 105 75 71 66 59 54 Direct loans ......................................................................................... Guaranty and indemnity ...................................................................... Proposed Legislation (PAYGO) ...................................................... 3 198 .................... 2 573 .................... 2 582 .................... 3 461 .................... 1 410 .................... 1 577 –187 1 563 –185 Subtotal, Guaranty and indemnity ............................................. 198 573 582 461 410 390 378 Credit liquidating accounts .................................................................. Proposed Legislation (PAYGO) ...................................................... 11 .................... 28 .................... 29 –90 19 .................... 14 .................... –18 .................... –14 .................... Subtotal, Credit liquidating accounts ......................................... 11 28 –60 19 14 –18 –14 Subtotal, Veterans housing ............................................................ 197 708 599 553 491 432 420 705 Other veterans benefits and services: Cemeteries, administration of veterans benefits, and other .............. Non-VA support programs .................................................................. 935 104 1,000 97 1,068 94 1,014 90 996 84 975 79 956 73 Subtotal, Other veterans benefits and services ............................. 1,039 1,097 1,162 1,103 1,079 1,054 1,028 Total, Veterans benefits and services ............................................ 37,642 38,392 38,092 39,676 39,866 39,955 41,724 750 Administration of justice: 751 Federal law enforcement activities: Criminal investigations (DEA, FBI, FinCEN, OCDE) ......................... Proposed Legislation (PAYGO) ...................................................... 3,352 .................... 3,357 .................... 3,491 .................... 3,381 .................... 3,440 .................... 3,422 .................... 3,421 .................... 1996 1997 1998 1999 2000 Subtotal, Criminal investigations (DEA, FBI, FinCEN, OCDE) . 3,352 3,357 3,491 3,381 3,440 3,422 3,421 Alcohol, tobacco, and firearms investigations (ATF) ......................... Border enforcement activities (Customs and INS) ............................ Proposed Legislation (PAYGO) ...................................................... 383 3,248 .................... 385 3,698 .................... 400 4,019 200 390 3,761 426 381 3,808 438 373 3,838 452 365 3,869 466 Subtotal, Border enforcement activities (Customs and INS) .... 3,248 3,698 4,219 4,187 4,246 4,290 4,335 Customs and INS fees ........................................................................ Proposed Legislation (PAYGO) ...................................................... –1,468 .................... –1,722 .................... –1,805 –200 –1,831 –426 –1,859 –438 –1,885 –452 –1,912 –466 Subtotal, Customs and INS fees ............................................... –1,468 –1,722 –2,005 –2,257 –2,297 –2,337 –2,378 Protection activities (Secret Service) .................................................. Equal Employment Opportunity Commission ..................................... Other enforcement .............................................................................. 504 229 377 520 232 591 575 261 529 567 257 411 555 252 396 544 247 385 534 242 388 Subtotal, Federal law enforcement activities ................................. 6,624 7,060 7,470 6,935 6,975 6,926 6,907 752 Federal litigative and judicial activities: Civil and criminal prosecution and representation ............................. Federal judicial activities ..................................................................... Representation of indigents in civil cases .......................................... Other .................................................................................................... 2,388 2,695 375 12 2,908 3,118 377 14 2,863 3,352 436 13 2,784 3,423 429 7 2,748 3,421 420 7 2,744 3,517 411 7 2,744 3,616 402 7 Subtotal, Federal litigative and judicial activities ........................... 5,470 6,417 6,663 6,643 6,595 6,678 6,769 753 Federal correctional activities ...................................................... 754 Criminal justice assistance ........................................................... 2,315 847 2,824 1,330 3,019 2,580 3,187 4,581 3,452 5,463 3,554 6,125 3,711 6,701 Total, Administration of justice ....................................................... 15,256 17,631 19,732 21,346 22,485 23,283 24,087 2,051 2,246 2,389 2,413 2,413 2,435 2,458 12 229 3 99 193 2 131 192 4 144 183 9 142 177 4 139 172 4 136 168 4 244 294 326 336 322 315 308 800 General government: 801 Legislative functions ...................................................................... 802 Executive direction and management: Drug control programs ........................................................................ Executive Office of the President ....................................................... Other .................................................................................................... Subtotal, Executive direction and management ............................ 6. 91 FEDERAL SPENDING BY FUNCTION, SUBFUNCTION, AND MAJOR PROGRAM TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Estimate 1994 Actual 1995 803 Central fiscal operations: Collection of taxes ............................................................................... Other fiscal operations ........................................................................ Proposed Legislation (PAYGO) ...................................................... 7,019 398 .................... 7,662 129 .................... 8,146 17 58 7,965 119 60 7,919 104 62 7,781 93 64 7,616 81 65 Subtotal, Other fiscal operations ................................................ 398 129 75 179 166 157 146 Subtotal, Central fiscal operations ................................................. 7,417 7,792 8,222 8,144 8,085 7,938 7,762 804 General property and records management: Real property activities ........................................................................ Property and other receipts ................................................................ Records management ......................................................................... Other .................................................................................................... 155 –14 261 189 713 –11 195 425 408 –14 189 241 409 –25 183 229 449 –25 149 222 581 –25 149 236 448 –20 145 239 Subtotal, General property and records management .................. 590 1,322 824 796 795 941 812 805 Central personnel management ................................................... 806 General purpose fiscal assistance: Payments and loans to the District of Columbia ............................... Payments to States and counties from Forest Service receipts ....... Payments to States from receipts under the Mineral Leasing Act ... Payments to States and counties from Federal land management activities ........................................................................................... Payments in lieu of taxes ................................................................... Payments to territories and Puerto Rico ............................................ Tax revenues for Puerto Rico (Treasury, BATF) ............................... Other .................................................................................................... 202 176 168 163 157 154 150 688 94 520 702 249 548 700 245 560 678 232 578 664 229 584 650 226 604 636 226 631 18 100 272 201 7 19 104 271 226 10 19 114 284 232 10 19 110 290 240 10 19 108 296 247 8 19 106 303 255 8 19 104 310 263 8 Subtotal, General purpose fiscal assistance .................................. 1,899 2,129 2,163 2,157 2,156 2,170 2,196 808 Other general government: Compact of free association ............................................................... Territories ............................................................................................. Treasury claims ................................................................................... Civil liberties public education fund .................................................... Presidential election campaign fund ................................................... Other .................................................................................................... 142 99 504 87 1 163 336 94 625 18 25 136 185 78 635 5 191 105 166 70 635 5 4 105 154 68 615 5 70 97 154 68 615 5 70 95 154 67 610 5 70 94 Subtotal, Other general government .............................................. 995 1,234 1,199 986 1,009 1,007 1,000 809 Deductions for offsetting receipts ............................................... –2,087 –700 –710 –710 –710 –710 –710 Total, General government .............................................................. 11,312 14,493 14,580 14,286 14,229 14,250 13,976 1996 1997 1998 1999 2000 900 Net interest: 901 Interest on the public debt ........................................................... 902 Interest received by on-budget trust funds: Civil Service retirement and disability ................................................ Military retirement ................................................................................ Medicare .............................................................................................. Other on-budget trust fund interest .................................................... 296,278 333,704 364,037 383,430 403,570 425,720 446,502 –26,139 –10,143 –12,709 –7,503 –27,529 –10,360 –12,209 –7,791 –29,379 –10,605 –11,916 –8,131 –30,696 –10,818 –11,847 –8,523 –31,864 –11,024 –11,228 –8,997 –33,152 –11,205 –10,323 –9,661 –34,218 –11,386 –9,061 –10,081 Subtotal, Interest received by on-budget trust funds .................... –56,494 –57,889 –60,031 –61,884 –63,113 –64,340 –64,746 903 Interest received by off-budget trust funds ............................... 908 Other interest: Interest on loans to Federal Financing Bank ..................................... Interest on refunds of tax collections ................................................. Payment to the Resolution Funding Corporation ............................... Interest paid to loan guarantee financing accounts ........................... Interest received from direct loan financing accounts ....................... Interest on deposits in tax and loan accounts ................................... Interest received from Outer Continental Shelf escrow account, Interior ................................................................................................ –29,203 –33,576 –38,102 –42,586 –47,347 –52,499 –58,081 –9,049 3,068 2,328 992 –883 –634 –8,415 3,142 2,328 708 –1,327 –960 –7,234 3,182 2,328 821 –2,574 –1,000 –6,270 3,297 2,328 858 –4,444 –1,000 –5,786 3,422 2,328 772 –6,779 –1,000 –4,973 3,561 2,328 661 –9,364 –1,000 –4,465 3,708 2,328 576 –12,064 –1,000 –* .................... –993 .................... .................... .................... .................... 92 ANALYTICAL PERSPECTIVES TABLE 6–2. OUTLAYS BY FUNCTION AND PROGRAM—Continued (in millions of dollars) Outlays Source Other .................................................................................................... 1994 Actual –3,446 Estimate 1995 –3,491 1996 –3,434 1997 –3,357 1998 –3,171 1999 –3,004 2000 –2,899 Subtotal, Other interest ................................................................... –7,623 –8,015 –8,903 –8,587 –10,214 –11,791 –13,815 Total, Net interest .............................................................................. 202,957 234,224 257,001 270,373 282,896 297,090 309,860 On-budget ........................................................................................ Off-budget ........................................................................................ (232,160) (–29,203) (267,800) (–33,576) (295,103) (–38,102) (312,959) (–42,586) (330,243) (–47,347) (349,589) (–52,499) (367,941) (–58,081) 920 Allowances: 921 GSA reinventing ............................................................................. 924 Adjustment to maintain Legislative Branch at current level ... 925 OPM reinventing ............................................................................. .................... .................... .................... .................... .................... .................... .................... –224 .................... –200 –286 –7 –400 –386 –7 –400 –481 –8 –400 –575 –8 Total, Allowances .............................................................................. .................... .................... –224 –493 –793 –889 –983 –12,808 –12,130 –11,123 –10,351 –10,559 –10,713 –10,881 –5,114 –7,999 –2,440 –5,493 –7,811 –2,452 –5,499 –7,895 –2,545 –5,737 –8,108 –2,620 –6,158 –8,257 –2,718 –6,216 –8,222 –2,836 –6,500 –8,500 –2,982 Subtotal, Employer share, employee retirement (on-budget) ........ –28,361 –27,885 –27,063 –26,817 –27,691 –27,988 –28,864 952 Employer share, employee retirement (off-budget) ................... 953 Rents and royalties on the Outer Continental Shelf ................. 954 Sale of major assets: Sale of U.S. Enrichment Corporation (PAYGO proposal) ................. Sale of Power Marketing Admin. (PAYGO proposal) ........................ –6,409 –3,001 –6,441 –2,692 –6,864 –3,036 –7,137 –2,485 –7,544 –2,426 –8,061 –2,393 –8,707 –2,403 .................... .................... .................... .................... –800 –85 –1,100 –909 .................... –3,475 .................... .................... .................... .................... Subtotal, Sale of major assets ....................................................... .................... .................... –885 –2,009 –3,475 .................... .................... 959 Other undistributed offsetting receipts: Spectrum Auction ................................................................................ Proposed Legislation (PAYGO) ...................................................... .................... .................... –4,375 .................... –4,275 –300 –1,675 –600 –2,075 –1,000 –1,197 –1,400 .................... –1,500 Subtotal, Spectrum Auction ........................................................ .................... –4,375 –4,575 –2,275 –3,075 –2,597 –1,500 Privatization of Elk Hills (PAYGO proposal) ...................................... .................... .................... .................... –2,600 .................... .................... .................... Subtotal, Other undistributed offsetting receipts ............................ .................... –4,375 –4,575 –4,875 –3,075 –2,597 –1,500 Total, Undistributed offsetting receipts ......................................... –37,772 –41,392 –42,424 –43,323 –44,212 –41,039 –41,474 On-budget ........................................................................................ Off-budget ........................................................................................ (–31,362) (–6,409) (–34,951) (–6,441) (–35,560) (–6,864) (–36,186) (–7,137) (–36,668) (–7,544) (–32,978) (–8,061) (–32,767) (–8,707) Total .................................................................................................... 1,460,914 1,538,920 1,612,128 1,684,709 1,745,186 1,822,181 1,905,338 On-budget ........................................................................................ Off-budget ........................................................................................ (1,181,542) (279,372) (1,246,936) (291,984) (1,307,105) (305,023) (1,368,142) (316,567) (1,415,597) (329,589) (1,479,122) (343,059) (1,548,618) (356,720) 950 Undistributed offsetting receipts: 951 Employer share, employee retirement (on-budget): Contributions to military retirement fund ............................................ Postal Service contributions to Civil Service Retirement and Disability Fund ...................................................................................... Other contributions to Civil Service Retirement and Disability Fund Contributions to HI trust fund ............................................................. * $500 thousand or less. 7. FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING Investment outlays are outlays that yield long-term benefits. Their purpose may be to improve the efficiency of internal Federal agency operations or to increase the Nation’s overall stock of capital for economic growth. They can be direct Federal outlays or grants to State and local governments. They can be for physical capital, which yields a stream of services over a period of years, or for research and development or education and training, which are intangible but also increase income in the future or provide other longterm benefits. Most presentations in the Federal budget combine investment outlays with outlays for current use. This chapter focuses solely on Federal and federally-financed investment. These investments are discussed in five sections: • a description of the size and composition of Federal investment spending; • a discussion of fixed assets used to provide Federal services—primarily Federal buildings and information technology—and efforts to improve planning and budgeting for these assets; • a presentation of trends in the stock of federallyfinanced physical capital, research and development, and education; • alternative capital budget and capital expenditure presentations; and • projections of Federal physical capital spending and recent assessments of public civilian capital needs, as required by the Federal Capital Investment Program Information Act of 1984. Part I: DESCRIPTION OF FEDERAL INVESTMENT For more than forty years, a chapter in the budget has shown Federal investment outlays—defined as those outlays that yield long-term benefits—separately from outlays for current use. This year, for the first time, the discussion of the composition in investment includes estimates of both budget authority and outlays. The classification of spending into investment and current outlays is a matter of judgment. The budget has historically employed a relatively broad classification, including physical investment, research, development, education, and training. But presentations for particular purposes could adopt different definitions of investment: • To suit the purposes of a traditional balance sheet, investment might include only those physical assets owned by the Federal Government, excluding capital financed through grants and intangible assets such as research, education, and training. • Focusing on the role of investment in improving national productivity and enhancing economic growth would exclude items such as national defense assets, the benefits of which are enhanced national security rather than economic growth. • Concern with the efficiency of Federal operations would lead to a focus solely on investments to reduce costs or improve the effectiveness of internal Federal agency operations, such as computer systems. • A ‘‘social investment’’ perspective might broaden the coverage of investment beyond what is included in this chapter to encompass programs such as childhood immunization, maternal health, certain nutrition programs, and substance abuse treatment, which are designed in part to prevent more costly health problems in future years. The relatively broad definition of investment used in this section provides consistency over time: historical figures on investment outlays back to 1940 can be found in the separate Historical Tables volume. The detailed tables at the end of this section allow disaggregation of the data to focus on those investment outlays that best suit a particular purpose. In addition to this basic issue of definition, there are two technical problems in the classification of investment data, involving the treatment of grants to State and local governments and the classification of spending that could be shown in more than one category. First, for some grants to State and local governments, the recipient jurisdiction, not the Federal Government, ultimately determines whether the money is used to finance investment or current purposes. This analysis classifies all of the outlays in the category where the recipient jurisdictions are expected to spend most of the money. Hence, the existing community development block grant and the proposed community opportunity performance funds are classified as physical investment, although some may be spent for current purposes. General purpose fiscal assistance is classified as current spending, although some may be spent by recipient jurisdictions on physical investment. Second, some spending could be classified into more than one category of investment. For example, grants for construction of research facilities finance the acquisition of physical assets, but they also contribute to research and development. To avoid double counting, the outlays are classified in the category that is most 93 94 ANALYTICAL PERSPECTIVES commonly recognized as investment. Consequently outlays for the conduct of research and development do not include outlays for research facilities, because these outlays are included in the category for physical investment. Similarly, physical investment and research and development related to education and training are included in the categories of physical assets and the conduct of research and development. When direct loans and loan guarantees are used to fund investment, the subsidy value is included as investment. The subsidies are classified according to their program purpose, such as construction, education and training, or non-investment outlays. For more information about the treatment of Federal credit programs,, refer to Chapter 9, ‘‘Underwriting Federal Credit and Insurance.’’ Composition of Federal Investment Outlays Major Federal Investment The composition of major Federal investment outlays is summarized in Table 7–1. They include major public physical investment, the conduct of research and development, and the conduct of education and training. Defense and nondefense investment outlays were $223.2 billion in 1994. They are estimated to increase to $234.7 billion in 1995 and decline to $229.3 billion in 1996. Major Federal investment will comprise an estimated 14.2 percent of total Federal outlays in 1996 and 3.1 percent of the Nation’s gross domestic product (GDP). Greater detail on Federal investment is available in tables 7–2 and 7–3 at the end of this section. Those tables include both budget authority and outlays. Physical investment.—Outlays for major public physical capital investment (hereafter referred to as physical investment outlays) are estimated to be $112.6 billion in 1996. Physical investment outlays are primarily outlays for construction, rehabilitation, and major equipment. Almost two-thirds of these outlays are for direct physical investment by the Federal Government, with the remaining third being grants to State and local governments for physical investment. Direct physical investment outlays by the Federal Government are primarily for national defense. Defense physical outlays are estimated to be $53.7 billion in 1996. Almost all of these outlays, or $48.5 billion, are for the procurement of weapons and other military equipment, and the remainder is primarily for construction of military bases, family housing for military personnel, and Department of Energy defense facilities. Outlays for direct physical investment for nondefense purposes are estimated to be $19.5 billion in 1996. These outlays include $13.5 billion for construction and rehabilitation. This amount funds water, power, and natural resources projects of the Corps of Engineers, the Department of Interior, the Tennessee Valley Authority, and the power administrations in the Department of Energy; construction and rehabilitation of veterans hospitals and Postal Service facilities; and facilities for space and science programs. Outlays for the acquisition of major equipment are estimated to be $6.4 billion in 1996. The largest items are for the space program and the air traffic control system. Collections for the sale of facilities are expected to exceed disbursements by $0.3 billion, largely due to the proposed sale of the United States Enrichment Corporation. Grants to State and local governments for physical investment are estimated to be $39.3 billion in 1996. More than half of these outlays, or $22.9 billion, are to assist States and localities with transportation infrastructure, including the proposed new unified transportation infrastructure block grant for 1996. Other major grants for physical investment fund sewage treatment plants, community development, and public housing. Conduct of research and development.—Outlays for the conduct of research and development are estimated to be $69.4 billion in 1996. These outlays are devoted to increasing basic scientific knowledge and promoting related research and development. They increase the Nation’s security, improve the productivity of capital and labor for both public and private purposes, and enhance the quality of life. Slightly more than half of these outlays, an estimated $37.7 billion in 1996, are for national defense. Physical investment for research and development facilities and equipment is included in the physical investment category. Nondefense outlays for the conduct of research and development are estimated to be $31.7 billion in 1996. This is almost entirely direct spending by the Federal Government, and is largely for the space programs, the National Science Foundation, health research, and research for nuclear and non-nuclear energy programs. Conduct of education and training.—Outlays for the conduct of education and training are estimated to be $47.3 billion in 1996. These outlays add to the stock of human capital by developing a more skilled and productive labor force. Grants to State and local governments for this category are estimated to be $27.5 billion in 1996, more than half of the total. They include education programs for the disadvantaged and the handicapped, vocational and adult education programs, training programs in the Department of Labor, and Head Start. Direct education and training outlays by the Federal Government are estimated to be $19.8 billion in 1996. Programs in this category are primarily aid for higher education through student financial assistance, loan subsidies, the veterans GI bill, and health training programs. This category does not include outlays for education and training of Federal civilian and military employees. Outlays for education and training that are for physical investment and for research and development are in 7. 95 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING TABLE 7–1. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS (In billions of dollars) 1994 actual Estimate 1995 1996 MAJOR FEDERAL INVESTMENT OUTLAYS Major public physical capital investment: Direct: National defense ........................................................................ Nondefense ................................................................................ 66.7 17.2 59.9 20.3 53.7 19.5 Subtotal, direct major public physical capital investment .... 83.9 80.2 73.3 Grants to State and local governments ........................................ 35.3 38.4 39.3 Subtotal, major public physical capital investment .............. Conduct of research and development: National defense ............................................................................ Nondefense .................................................................................... 119.2 118.6 112.6 38.1 28.4 38.1 30.7 37.7 31.7 Subtotal, conduct of research and development ...................... Conduct of education and training: Grants to State and local governments ........................................ Direct .............................................................................................. 66.5 68.9 69.4 23.3 14.2 26.0 21.2 27.5 19.8 Subtotal, conduct of education and training ............................. 37.6 47.2 47.3 Major Federal investment outlays .................................................. 223.2 234.7 229.3 MEMORANDUM Major Federal investment outlays: National defense ............................................................................ Nondefense .................................................................................... 104.8 118.4 98.1 136.6 91.4 137.8 Total, major Federal investment outlays ................................... 223.2 234.7 229.3 Miscellaneous physical investment: Commodity inventories ................................................................... Other physical investment (direct) ................................................. –1.0 6.0 –0.6 6.1 –0.7 6.6 Total, miscellaneous physical investment ................................. 5.0 5.5 5.9 Total, Federal investment outlays, including miscellaneous physical investment ............................................................... 228.2 240.2 235.2 the categories for physical investment and the conduct of research and development. Miscellaneous Investment Outlays In addition to the categories of major Federal investment, several miscellaneous categories of investment outlays are shown in Table 7–1. These items, all for physical investment, are generally unrelated to improving Government operations or enhancing economic activity. Sales of commodity inventories are estimated to exceed purchases by $0.7 billion in 1996. Outlays in this category are for the purchase or sale of agricultural products pursuant to farm price support programs and the purchase and sale of other commodities such as oil and gas. Outlays for other miscellaneous physical investment are estimated to be $6.6 billion in 1996. This category includes primarily conservation programs, environmental restoration, and assets acquired and sold as collateral on defaulted loans. These outlays are entirely for direct Federal spending. Detailed Tables on Investment Spending In order to include more information in the budget on investment, for the first time the tables in this section provide data on budget authority as well as outlays. The following Table 7–2 displays budget authority and outlays by major programs according to defense and nondefense categories. Table 7–3 shows budget authority and outlays divided according to grants to State and local governments and direct Federal spending. 96 ANALYTICAL PERSPECTIVES TABLE 7–2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: DEFENSE AND NONDEFENSE PROGRAMS (in millions of dollars) Budget Authority Source 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate FEDERAL INVESTMENT: NATIONAL DEFENSE: Major public physical investment: Construction and rehabilitation: Military construction ............................................................................................ Family housing .................................................................................................... Atomic energy defense activities and other ....................................................... 3,787 842 767 2,578 582 731 2,507 807 847 3,248 600 782 3,548 783 732 3,246 804 856 Subtotal, construction and rehabilitation ................................................................. 5,396 3,890 4,160 4,630 5,062 4,906 Acquisition of major equipment: Procurement ........................................................................................................ Atomic energy defense activities and other ....................................................... 44,093 500 44,572 147 39,250 306 61,752 371 54,558 351 48,523 317 Subtotal, acquisition of major equipment ............................................................... 44,593 44,719 39,555 62,123 54,909 48,840 Purchase or sale of land and structures ................................................................ –8 –4 –4 –8 –4 –4 Subtotal, major public physical investment ................................................................. 49,981 48,605 43,711 66,745 59,967 53,742 Conduct of research and development Defense military ....................................................................................................... Atomic energy and other ......................................................................................... 35,277 2,481 36,200 2,385 35,106 2,470 35,474 2,581 35,716 2,422 35,206 2,482 Subtotal, conduct of research and development ........................................................ 37,758 38,585 37,576 38,055 38,138 37,688 Conduct of education and training (civilian) ............................................................... 20 8 15 14 14 13 Subtotal, national defense investment ............................................................................. 87,759 87,198 81,302 104,815 98,119 91,444 NONDEFENSE: Major public physical investment: Construction and rehabilitation: Unified transportation infrastructure investment ................................................. .................... ....................... 22,274 .................... ....................... Highways ............................................................................................................. 21,589 20,380 903 18,435 18,927 Mass transportation ............................................................................................. 3,741 3,828 ....................... 2,535 2,760 Rail transportation ............................................................................................... 258 252 3 147 257 Air transportation ................................................................................................. 3,190 2,605 26 1,674 1,968 Water transportation ............................................................................................ 114 115 133 135 116 Community development block grants ............................................................... 5,050 4,622 ....................... 3,651 4,330 Community opportunity performance funds ....................................................... .................... ....................... 4,850 .................... ....................... Other community and regional development ..................................................... 1,609 1,409 695 1,124 1,391 Pollution control and abatement ......................................................................... 3,724 4,172 3,893 3,505 3,611 Water resources .................................................................................................. 2,707 1,959 1,829 2,168 2,517 Other natural resources and environment ......................................................... 434 381 295 434 455 Housing assistance ............................................................................................. 7,646 8,008 8,455 5,350 6,779 General science, space, and technology ........................................................... 540 412 483 541 662 Energy ................................................................................................................. 1,894 2,501 2,141 1,919 2,748 Veterans hospitals and other health .................................................................. 1,332 1,189 1,420 1,230 1,380 Postal Service ..................................................................................................... 1,012 1,144 805 629 854 GSA real property activities ................................................................................ .................... ....................... 1,022 726 1,519 International affairs .............................................................................................. 180 275 276 301 301 Other programs ................................................................................................... 587 675 956 852 949 2,595 16,179 2,790 306 1,400 119 4,564 175 1,468 3,523 2,146 403 8,119 491 2,399 1,386 809 1,622 316 1,185 Subtotal, construction and rehabilitation ................................................................. 55,607 53,926 50,460 45,358 51,523 51,996 Acquisition of major equipment: Air transportation ................................................................................................. 2,110 2,081 1,949 Other transportation ............................................................................................ 396 450 506 Space flight, research, and supporting activities ............................................... 1,205 868 935 General science and basic research .................................................................. 248 303 284 Veterans medical care ........................................................................................ 524 622 703 Postal Service ..................................................................................................... 283 851 495 General supply fund ............................................................................................ .................... ....................... ....................... Other .................................................................................................................... 570 810 1,021 2,439 394 1,128 181 240 334 425 365 2,077 377 1,125 186 479 257 546 682 2,059 435 954 304 666 511 615 878 Subtotal, acquisition of major equipment ............................................................... 5,335 5,986 5,892 5,505 5,728 6,422 Purchase or sale of land and structures International affairs .............................................................................................. 49 4 10 56 5 11 7. 97 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING TABLE 7–2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: DEFENSE AND NONDEFENSE PROGRAMS—Continued (in millions of dollars) Budget Authority Source 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate Domestic .............................................................................................................. 278 244 –642 801 672 –357 Subtotal, purchase or sale of land and structures ................................................. 327 248 –632 857 677 –346 Other physical assets (grants) ................................................................................ 734 751 722 700 684 738 Subtotal, major public physical investment ................................................................. 62,004 60,911 56,442 52,420 58,612 58,810 Conduct of research and development: General science, space, and technology: NASA ................................................................................................................... National Science Foundation .............................................................................. Other general science ......................................................................................... 7,414 2,061 675 7,874 2,161 700 7,863 2,327 708 6,663 1,873 669 7,592 1,950 700 7,488 2,071 708 Subtotal, general science, space, technology ........................................................ 10,150 10,735 10,897 9,205 10,242 10,266 Energy ...................................................................................................................... Transportation: Department of Transportation ............................................................................. NASA ................................................................................................................... 2,730 2,887 3,001 2,654 2,959 3,060 617 1,271 663 1,204 743 1,273 519 1,215 627 1,194 709 1,236 Subtotal, transportation ........................................................................................... 1,888 1,867 2,016 1,734 1,821 1,945 Health: National Institutes of Health ............................................................................... All other health .................................................................................................... 10,338 905 10,698 862 11,126 919 9,620 1,080 10,308 993 10,804 962 Subtotal, health ........................................................................................................ 11,243 11,560 12,045 10,700 11,301 11,766 Agriculture ................................................................................................................ Natural resources and environment ........................................................................ International affairs .................................................................................................. All other research and development ...................................................................... 1,206 2,062 321 1,015 1,190 2,112 315 1,324 1,199 2,228 256 1,439 1,158 1,747 372 827 1,180 1,941 246 1,036 1,211 2,018 248 1,202 Subtotal, conduct of research and development ........................................................ 30,614 31,989 33,081 28,397 30,726 31,717 Conduct of education and training: Education, training, employment and social services: Elementary, secondary, and vocational education ............................................ Higher education ................................................................................................. Research and general education aids ............................................................... Training and employment ................................................................................... Social services .................................................................................................... 14,715 9,580 1,869 6,191 5,675 15,398 15,246 1,955 6,804 5,998 16,409 10,954 2,110 9,221 6,434 14,121 7,864 1,826 5,234 5,157 15,771 13,999 2,012 5,622 5,951 15,216 12,438 2,039 7,475 6,214 Subtotal, education, training, and social services .................................................. 38,030 45,400 45,128 34,202 43,356 43,382 Income security ....................................................................................................... Veterans education, training, and rehabilitation ..................................................... Health ....................................................................................................................... Intenational affairs ................................................................................................... Other education and training .................................................................................. 132 1,273 816 368 1,006 225 1,498 786 281 1,085 259 1,549 819 253 1,198 106 1,358 759 239 898 168 1,624 772 313 982 225 1,571 797 276 1,072 Subtotal, conduct of education and training ............................................................... 41,624 49,275 49,207 37,562 47,214 47,323 Subtotal, nondefense investment ..................................................................................... 134,242 142,175 138,729 118,379 136,552 137,849 Total, Federal investment ..................................................................................................... 222,001 229,373 220,032 223,194 234,671 229,293 98 ANALYTICAL PERSPECTIVES TABLE 7–3. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS (in millions of dollars) Budget Authority Source 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate FEDERAL INVESTMENT: GRANTS TO STATE AND LOCAL GOVERNMENTS: Major public physical investments: Construction and rehabilitation: Unified transportation infrastructure investment ................................................. .................... ....................... 21,977 .................... ....................... Highways ............................................................................................................. 21,584 20,376 903 18,419 18,901 Mass transportation ............................................................................................. 3,741 3,828 ....................... 2,535 2,760 Rail transportation ............................................................................................... 21 12 3 28 26 Air transportation ................................................................................................. 2,970 2,161 ....................... 1,620 1,785 Pollution control and abatement ......................................................................... 2,563 3,075 2,751 2,219 2,374 Other natural resources and environment ......................................................... 518 113 121 203 316 Community development block grants ............................................................... 5,050 4,622 ....................... 3,651 4,330 Other community and regional development ..................................................... 1,323 1,167 5,402 806 1,034 Housing assistance ............................................................................................. 6,145 6,372 8,427 4,855 5,947 National defense ................................................................................................. 28 49 ....................... 15 23 Other construction ............................................................................................... 179 171 120 215 193 Subtotal, construction and rehabilitation ................................................................. 44,123 41,946 39,704 34,566 37,689 1996 Estimate 2,542 16,164 2,790 33 1,324 2,294 233 4,564 1,275 7,101 16 151 38,486 Other physical assets .............................................................................................. 743 811 825 707 693 805 Subtotal, major public physical capital ........................................................................ 44,866 42,756 40,529 35,274 38,382 39,291 Conduct of research and development ....................................................................... Conduct of education and training: Elementary, secondary, and vocational education ................................................. Higher education ..................................................................................................... Research and general education aids .................................................................... Training and employment ........................................................................................ Social services ......................................................................................................... National defense (civilian) ....................................................................................... Other ........................................................................................................................ 414 427 426 376 418 437 13,858 14,546 15,493 130 130 94 294 273 287 5,041 5,577 7,857 5,444 5,753 6,181 6 ....................... ....................... 535 544 563 13,314 111 289 4,149 4,936 6 522 14,911 129 303 4,486 5,688 3 524 14,364 121 280 6,275 5,958 1 544 Subtotal, conduct of education and training ............................................................... 25,307 26,823 30,475 23,327 26,043 27,542 Subtotal, grants for investment ........................................................................................ 70,587 70,006 71,430 58,976 64,843 67,269 DIRECT FEDERAL PROGRAMS: Major public physical investment: Construction and rehabilitation: National defense ................................................................................................. 5,368 3,842 International affairs .............................................................................................. 180 275 General science, space, and technology ........................................................... 540 412 Water resources projects .................................................................................... 2,214 1,920 Other natural resources and environment ......................................................... 1,570 1,404 Energy ................................................................................................................. 1,894 2,501 Transportation ...................................................................................................... 575 802 Veterans hospitals and other health facilities .................................................... 1,291 1,142 Postal Service ..................................................................................................... 1,012 1,144 Federal Prison System ....................................................................................... 129 147 GSA real property activities ................................................................................ .................... ....................... Other construction ............................................................................................... 2,107 2,283 4,160 276 483 1,760 1,385 2,141 456 1,376 805 187 1,022 864 4,615 301 541 1,981 1,704 1,919 325 1,186 629 399 726 1,096 5,039 301 662 2,226 1,668 2,748 555 1,321 854 435 1,519 1,568 4,890 316 491 2,007 1,539 2,399 536 1,345 809 397 1,622 2,065 14,916 15,421 18,896 18,416 Acquisition of major equipment: National defense ................................................................................................. 44,593 44,719 39,555 General science and basic research .................................................................. 248 303 284 Space flight, research, and supporting activities ............................................... 1,205 868 935 Energy ................................................................................................................. 296 342 270 Postal Service ..................................................................................................... 283 851 495 Air transportation ................................................................................................. 2,110 2,081 1,949 Water transportation (Coast Guard) ................................................................... 201 220 276 Hospital and medical care for veterans ............................................................. 524 622 703 General supply fund ............................................................................................ .................... ....................... ....................... Other .................................................................................................................... 460 639 878 62,123 181 1,128 277 334 2,439 254 240 425 221 54,909 186 1,125 323 257 2,077 184 479 546 542 48,840 304 954 267 511 2,059 221 666 615 759 Subtotal, acquisition of major equipment ............................................................... 67,621 60,628 55,195 Subtotal, construction and rehabilitation ................................................................. 16,880 49,920 15,871 50,645 45,344 7. 99 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING TABLE 7–3. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS—Continued (in millions of dollars) Budget Authority Source 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate Purchase or sale of land and structures: National defense ................................................................................................. International affairs .............................................................................................. Domestic .............................................................................................................. –8 49 278 –4 4 244 –4 10 –642 –8 56 801 –4 5 672 –4 11 –357 Subtotal, purchase or sale of land and structures ................................................. 319 244 –636 849 673 –350 Subtotal, major public physical investment ................................................................. 67,119 66,759 59,624 83,892 80,197 73,261 Conduct of research and development: National defense ...................................................................................................... International affairs .................................................................................................. Domestic .................................................................................................................. 37,758 321 29,878 38,585 315 31,247 37,576 256 32,399 38,055 372 27,649 38,138 246 30,063 37,688 248 31,032 Subtotal, conduct of research and development ........................................................ 67,958 70,147 70,231 66,077 68,446 68,968 Conduct of education and training: Elementary, secondary, and vocational education ................................................. Higher education ..................................................................................................... Research and general education aids .................................................................... Training and employment ........................................................................................ Health ....................................................................................................................... Veterans education, training, and rehabilitation ..................................................... National defense ...................................................................................................... International affairs .................................................................................................. Other ........................................................................................................................ 856 9,450 1,575 1,150 816 1,273 14 368 833 851 15,116 1,681 1,228 786 1,498 8 281 1,011 915 10,860 1,823 1,364 819 1,549 15 253 1,147 806 7,753 1,537 1,085 759 1,358 9 239 703 860 13,871 1,709 1,136 772 1,624 11 313 890 852 12,317 1,759 1,200 797 1,571 13 276 1,009 Subtotal, conduct of education and training ............................................................... 16,337 22,460 18,746 14,249 21,185 19,794 Subtotal, direct Federal investment ................................................................................. 151,414 159,367 148,601 164,218 169,828 162,024 Total, Federal investment ..................................................................................................... 222,001 229,373 220,032 223,194 234,671 229,293 Part II: PLANNING AND BUDGETING FOR FIXED ASSETS The previous section discussed Federal investment as broadly defined. The focus of this section is much narrower—the review of planning and budgeting for fixed assets during the past year and the resultant budget proposals for fixed assets owned by the Federal Government and used to deliver domestic Federal services. These assets include Federal buildings, information technology, and related general purpose facilities and equipment.1 With proposed major agency restructuring, organizational streamlining and other reforms, it may be appropriate to reduce spending for some assets, such as buildings, and increase spending for others, such as information technology, to increase the productivity of a smaller workforce. In either case, in a time of severely constrained resources, it is essential that the caliber of government planning and budgeting for fixed assets be high. Improving Planning and Budgeting During 1994, OMB devoted particular attention to improving the process of fixed asset acquisition. After seeking out and analyzing the problems, which differed from agency to agency, OMB issued new comprehensive guidance to agencies on this process. An OMB Fall Budget Review focused on fixed assets. The Administration proposes to make agencies responsible for the fixed assets they use, and to work throughout the coming 1 Not included are most of national defense (except family housing), grants to State and local governments, federally operated infrastructure (e.g., the air traffic control system and water resources), and major space and science programs. year to improve agency planning, budgeting, management, and accountability for such assets. Long-Term Planning and Analysis.—Planning and managing fixed assets has historically been a low priority for most agencies. Attention focuses on coming-year appropriations, and justifications are generally lists of desired projects. Long-range planning would provide a better basis for justifications and would increase fore- 100 sight, thus improving the odds for cost-effective investments. The lack of integrated life-cycle planning for fixed assets and their operation was evident in the review. Research equipment was acquired with inadequate funding for its operation. New medical facilities sometimes were built without funds for maintenance and operation. New information technology sometimes was acquired without planning for associated changes in agency operations. OMB Bulletin 94-08, Planning and Budgeting for the Acquisition of Fixed Assets, was developed to provide guidance for agencies on what fixed asset planning should include. Agencies were requested to approach planning for fixed assets in the context of strategic plans to carry out their missions, and to consider alternative methods of meeting their goals. Systematic analysis of the full life-cycle expected costs and benefits was required, along with risk analysis and assessment of alternative means of acquiring assets. The Bulletin noted other OMB guidance that would be useful in planning and budgeting for fixed assets.2 Consultations took place with the President’s Management Council on the draft Bulletin before it was issued in July 1994. There was insufficient time for the agencies to undertake fixed asset planning in accordance with the Bulletin for the 1996 Budget. However, many did submit, for the first time, budget proposals for fixed asset acquisitions over the next five years. The Bulletin was intended to be the first step in an ongoing effort to improve decision making on the acquisition of fixed assets. OMB will be working with the President’s Management Council and the agencies in 1995 to carry it out more completely. From Planning to Budgeting.—Long-range agency plans should channel fully justified budget-year and out-year proposals into the budget process. For the first time, agencies were asked to submit projections of both budget authority and outlays for all investment spending, not only for the budget year, but for the four outyears. For fixed assets, agencies were asked to provide specific proposals going beyond the budget year. Also for the first time, OMB held a separate review for fixed assets early in the Fall Budget Review process. This provided an overview of requests, flagged issues, and considered cross-cutting recommendations. Agencyspecific fixed asset issues were highlighted in the agen2 Other OMB guidance includes: (1) OMB Circular No. A-109, Major System Acquisitions, which establishes policies for planning major systems that are generally applicable to fixed asset acquisitions. (2) OMB Circular No. A-94, Guidelines and Discount Rates for BenefitCost Analysis of Federal Programs, which provides guidance on benefit-cost, cost-effectiveness, and lease-purchase analysis to be used by agencies in evaluating Federal activities including fixed asset acquisition. It includes guidelines on the discount rate to use in evaluating future benefits and costs, the measurement of benefits and costs, the treatment of uncertainty, and other issues. This guidance must be followed in all analyses submitted to OMB in support of legislative and budget programs. (3) Executive Order No. 12893, ‘‘Principles for Federal Infrastructure Investments,’’ which provides principles for the systematic economic analysis of infrastructure investments and their management. (4) OMB Bulletin No. 94-16, Guidance on Executive Order No. 12893, ‘‘Principles for Federal Infrastructure Investments,’’ which provides guidance for implementing this order and appends the order itself. (5) The revision of OMB Circular No. A-130, Transmittal 2, Management of Federal Information Resources (July 15, 1994), which provides principles for internal management and planning practices for information systems and technology (published in the Federal Register (Part V), July 25, 1994, pp. 37905-37928). ANALYTICAL PERSPECTIVES cy reviews. Results and cross-cutting issues were reconsidered in the wrap-up session. Attention was given to whether the ‘‘lumpiness’’ of some fixed assets disadvantaged them in the budget review process. In some cases, agencies aggregate fixed asset acquisitions into budget accounts containing only such acquisitions; such accounts tend to smooth out year-to-year changes in outlays and avoid crowding other expenditures. In other cases, programs do not hesitate to request ‘‘spikes’’ or ‘‘bulges’’ in spending for asset acquisitions, and the review process accommodates them. But some programs go out of their way to avoid such spikes, and some agencies seem to have trouble accommodating them. The OMB review process did accommodate justified spikes and bulges, and the Bulletin encouraged agencies to do so in their own internal reviews. Funding Mechanisms.—Good budgeting requires that appropriations for the full costs of asset acquisition be provided up front to help ensure that all costs and benefits are fully taken into account when decisions are made about providing resources. In most cases, this rule is followed throughout the Government. When it is not followed and fixed assets are funded piecemeal, this can and does result in poor planning, acquisition of assets not fully justified, occasional cancellation of major projects, the loss of sunk costs, and inadequate funding to maintain and operate the assets. Nevertheless, the nature of asset acquisition requires some flexibility in funding. One-year funding often may not be enough to complete the acquisition process. Most agencies request multi-year funding to complete acquisitions efficiently, and the Bulletin encourages this. As noted, many agencies aggregate asset acquisition in budget accounts for this purpose. In some cases, these are revolving funds which ‘‘rent’’ the assets to the agency’s programs. The Bulletin also encourages this, noting that it helps to show in one place the total annual costs of a program and moves toward goals consistent with the Government Performance and Results Act. This budget proposes to make agencies responsible for fixed assets by giving them the authority to acquire and manage such assets in the most cost-effective manner available. This proposal would transform the General Services Administration into the government-wide policy and oversight organization for administrative services, except for personnel services. Clarifying agency responsibility for asset management and improving oversight will strengthen the links among planning, budgeting, managing, and accountability for assets. To promote better program performance, agencies are also being encouraged by OMB to examine their budget account structures to better align them with program outputs and outcomes and to charge the appropriate account with significant costs used to achieve these results. The asset acquisition rental accounts, mentioned above, would contribute to this. Budgeting this way would provide information and incentives for better resource allocation among programs and a continual search for better ways to deliver services. It would also 7. 101 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING provide incentives for efficient fixed asset acquisition and management. Outlook.—The effort to improve planning and budgeting for fixed assets will continue in 1995. • OMB and the President’s Management Council will work with agencies to improve planning and analysis of fixed assets, as required in Bulletin 94–08, Planning and Budgeting for the Acquisition of Fixed Assets. • In the OMB review process, proposals for the acquisition of fixed assets and related issues of lumpiness or ‘‘spikes’’ will continue to receive special attention. Agencies will be encouraged to give the same special attention to future asset acquisition proposals. • To ensure that the full costs and benefits of all budget proposals are fully taken into account in allocating resources, agencies will be required to include upfront budget authority for acquisitions in their budget requests. • OMB will be working with Congressional committees, the President’s Management Council, and the Chief Financial Officers Council, to help agencies with their responsibility for fixed assets through the alignment of budgetary resources with program results. Major Acquisition Proposals For the limited definition of major fixed assets described above, this budget requests $7.7 billion of budget authority for 1996. The major requests are shown in the accompanying Table 7–4: ‘‘Fixed Asset Acquisitions.’’ Buildings This category includes both general purpose office buildings as well as special purpose buildings, such as hospitals, prisons, and courthouses. This budget includes $4.4 billion for the major building acquisitions included in the fixed assets definition. General Services Administration.—The 1996 budget requests $1.0 billion for GSA for the construction or acquisition of buildings. GSA has traditionally funded construction, as well as operations, and renovations, through the Federal buildings fund. However, this budget proposes a direct appropriation for the construction and acquisition of general and special purpose space to house Federal agency requirements. construction and neighborhood improvements to bring homes to current standards. Department of Energy.—This budget includes $0.4 billion for building acquisition or construction. It is largely for general science and research activities, energy supply research and development, and the nuclear waste disposal fund. These investments are primarily to continue ongoing construction projects. Other building acquisitions.—Other building acquisitions are primarily for Federal prisons, the Department of Transportation, Indian health facilities, and the Department of State for buildings abroad. Information Technology This category includes computer hardware, major software, and renovations required for this equipment. This budget includes $1.6 billion in 1996 budget authority for major information technology included in the fixed assets category. Veterans hospital construction.—The budget proposes $0.9 billion for construction of veterans hospital and other facilities for 1996. Funds for veterans hospitals are primarily to construct new facilities at Brevard County, Florida, and Travis Air Force Base, California, and to improve or expand existing medical facilities at dozens of locations, including Boston, Massachusetts; Lebanon, Pennsylvania; Marion, Illinois; Marion, Indiana; Perry Point, Maryland; Reno, Nevada; and Salisbury, North Carolina. Internal Revenue Service Tax Systems Modernization.—The budget includes $0.4 billion for 1996 to continue acquisitions for the IRS tax systems modernization project. This is a large, capital-intensive investment, combining the replacement of obsolescent systems with a fundamental, customer-focused, redesign of its organizational structure and operations. The new system will make it easier for responsible taxpayers to comply with their obligations and more difficult for others to evade their responsibilities. Military family housing.—The military family housing program is one of the focal points of the Administration’s initiative to improve the quality of life of military members and their families. The request of $0.7 billion in budget authority for 1996 will provide new or replacement construction of homes and associated community facilities at military bases with a documented housing requirement. The request will also fund renovation of existing military family housing units to extend the useful life of the homes 20–25 years. Renovation programs include Social Security Administration.—This budget includes $0.4 billion to replace the Social Security Administration’s archaic, highly centralized mainframe-based architecture, including ‘‘dumb’’ terminals deployed in more than a thousand field offices, with a nation-wide system of modern personal computers and local area networks. The investment generates immediate productivity savings and service improvements. In the long term, the new technology will enable the Social Security Administration to redesign its work processes to achieve additional efficiencies. 102 ANALYTICAL PERSPECTIVES TABLE 7–4. FIXED ASSET ACQUISITIONS (Budget authority, in billions of dollars) 1994 Actual Buildings: General Services Administration .................................................... Veterans hospital construction ....................................................... Department of Defense military family housing ............................ Department of Energy .................................................................... Other ............................................................................................... Subtotal, buildings .......................................................................... Information technology: Internal Revenue Service ............................................................... Social Security Administration ....................................................... Federal Bureau of Investigation .................................................... Other ............................................................................................... 1995 Estimate 1996 Proposed 1.0 0.8 0.7 0.3 0.9 0.6 0.7 0.7 0.4 0.8 1.0 0.9 0.7 0.4 1.2 3.8 3.2 4.4 0.2 0.2 0.1 0.4 0.2 0.1 0.1 0.4 0.4 0.4 0.2 0.6 Subtotal, information technology .................................................... Other asset acquisitions: General Services Administration .................................................... Veterans hospital equipment ......................................................... Coast Guard ................................................................................... Other ............................................................................................... 0.9 0.9 1.6 0.4 0.4 0.2 0.4 0.5 0.4 0.3 0.4 0.6 0.5 0.3 0.3 Subtotal, other asset acquisition ................................................... 1.5 1.6 1.8 Total ................................................................................................ 6.2 5.7 7.7 Federal Bureau of Investigation.—The 1996 Budget request includes $0.2 billion in budget authority for information technology for the FBI. This includes equipment for basic information processing needs, digital communications intercept equipment to maintain the ability to conduct court-authorized wiretaps, and equipment for surveillance and other purposes. Other.—Other major information technology purchases include: computer technology for the Coast Guard; facilities for the Department of Commerce to improve high-speed scientific modeling, weather forecasting, and economic analysis; and an Info Share initiative in the Department of Agriculture. This initiative will improve customer service and efficiency in field offices through coordinated and improved communications, ADP acquisitions, and associated business processes. Other Acquisitions This category includes major equipment, such as vehicles and hospital equipment, and construction and facilities other than buildings, such as shore facilities for the Coast Guard. The budget requests $1.8 billion for the acquisitions included in this fixed assets category. General Services Administration.—Proposed obligations of $0.6 billion for the GSA supply fund are related to replacement of Interagency Fleet Management System (IFMS) vehicles and information systems supporting GSA’s wholesale distribution system. The FY 1996 Budget includes full funding of the GSA request through reimbursable charges to GSA’s client agencies. The proposed spending will enable GSA to replace vehicles on a three year/sixty thousand mile basis. Veterans hospital equipment.—This budget includes $0.5 billion for medical equipment for veterans hospitals. This equipment is for new and refurbished medical facilities, for equipment requirements at existing facilities, and for additional needed medical equipment. Coast Guard.—This budget requests $0.3 billion for the Coast Guard primarily to replace vessels and improve aircraft. These investments will improve the capabilities and flexibility of the service and its members. Additional Coast Guard expenditures included here are primarily for major rehabilitation, repair, and upgrade of existing shore facilities. Other.—Other acquisitions in this category are for the FBI, the National Science Foundation, and other agencies. 7. FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING 103 Part III: FEDERALLY FINANCED CAPITAL STOCKS Federal investment outlays, by definition, create a ‘‘stock’’ of capital that is available in the future for productive use. Each year, Federal investment spending adds to the stock of capital, while wear and tear and obsolescence reduce it. This section presents very rough measures of three different kinds of capital stocks financed by the Federal Government: public physical capital, research and development (R&D), and education. Capital stocks are not estimated for training. Federal outlays for physical assets add to the Nation’s capital stock of tangible assets, such as roads, buildings, and aircraft carriers. These assets deliver a flow of services over their lifetime. The capital depreciates as the asset is used, wears out, or becomes obsolete. Federal outlays for the conduct of research, development, and education add to an ‘‘intangible’’ asset, the Nation’s stock of knowledge. Although financed by the Federal Government, the research and development or education can be performed by Federal or State government laboratories, universities and other nonprofit organizations, or private industry. Research and development covers a wide range of endeavors, from the investigation of subatomic particles to the exploration of outer space; it can be ‘‘basic’’ research without particular applications in mind, or it can have a highly specific practical use. Similarly, education includes a wide variety of programs, assisting people of all ages with basic education through graduate studies. Like physical assets, the capital stocks of R&D and education provide services over a number of years and depreciate as they become outdated. For this analysis, physical and R&D capital stocks were estimated using the perpetual inventory method. In this method, the estimates are based on the sum of net investment in prior years. Each year’s Federal outlays are treated as gross investment, adding to the capital stock; depreciation and discards reduce the capital stock. Gross investment less depreciation and discards is net investment. One limitation of the perpetual inventory method is that investment spending is not necessarily an accurate measure of the value of the asset created. However, alternative methods for measuring asset value, such as direct surveys of current market worth or indirect estimation based on an expected rate of return, are difficult to apply to investments without a private market, such as highways or defense procurement. In contrast to physical and R&D stocks, the estimate of the education stock is based on the replacement cost method. Data on the cumulative years of education in the U.S. population are combined with data on the cost of education and the Federal share of education spending to yield the cost of replacing the Federal share of the Nation’s stock of education. Additional detail about the methods used to estimate capital stocks appears in a methodological note at the end of this section. It should be stressed that these estimates are rough approximations, and provide a basis only for making broad generalizations. Errors may arise from incomplete data for historical outlays, imprecision in the deflators used to express costs in 1987 dollars, and uncertainty about the useful lives and depreciation rates of different types of assets. The Stock of Physical Capital This section presents data on stocks of physical capital assets and estimates of the depreciation on these assets. Trends.—Table 7–5 shows the value of the total net federally financed physical capital stock since 1970, in constant fiscal year 1987 dollars. The total stock held constant through the 1970s and began rising in the early 1980s. The stock reached a high of $1,383 billion in 1994 and is estimated to decline slightly to $1,370 billion in 1996. In 1994, the national defense capital stock accounted for $670 billion, or 48 percent of the total, and nondefense stocks for $713 billion, or 52 percent of the total. Real stocks of defense and nondefense capital show very different trends. Nondefense stocks have grown consistently since 1970, increasing from $368 billion in 1970 to $713 billion in 1994. With the investments proposed in the budget, nondefense stocks are estimated to grow further to $746 billion in 1996. During the 1970s, the nondefense capital stock grew at an average annual rate of 3.9 percent. In the 1980s, however, the growth rate slowed to just over half that rate, or 2.0 percent annually, with growth slightly above that rate since then. National defense stocks began in 1970 at a relatively high level, and declined steadily throughout the decade, as depreciation from the Vietnam era exceeded new investment in military construction and weapons procurement. Starting in 1982, however, a large defense buildup began to increase the stock of defense capital. By 1992, the defense stock had nearly equalled its level at the height of the Vietnam War. In the last few years, reduced defense investments due to the end of the Cold War and the recognition of other pressing national needs have once again begun to reduce the defense stock. The stock will decline by an estimated 4.0 percent in the 1996 budget. Another trend in the Federal physical capital stocks is the shift from direct Federal assets to grant-financed assets. In 1960, 56 percent of federally financed nondefense capital was owned by the Federal Government, and 44 percent was owned by State and local governments but financed by Federal grants. Expansion in Federal grants for highways and other state and 104 ANALYTICAL PERSPECTIVES TABLE 7–5. NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL (In billions of constant 1987 dollars) Direct Federal Capital Fiscal Year Total National Defense Total Nondefense Total Water and Power Capital Financed by Federal Grants Other Total Transportation Community and Regional Natural Resources Other 1970 1971 1972 1973 1974 ........................................................ ........................................................ ........................................................ ........................................................ ........................................................ 1,063 1,065 1,062 1,051 1,037 696 682 662 637 609 368 383 399 414 428 152 154 156 158 160 92 94 96 97 99 60 60 60 61 61 215 229 243 256 268 164 172 179 186 191 26 30 35 39 43 11 12 13 15 18 15 15 16 17 17 1975 1976 1977 1978 1979 ........................................................ ........................................................ ........................................................ ........................................................ ........................................................ 1,023 1,013 1,005 1,003 1,006 583 557 525 502 485 441 457 480 501 521 162 164 167 170 174 101 103 106 109 111 61 61 61 62 62 278 292 313 331 347 195 201 208 213 219 45 49 55 63 69 21 25 32 37 42 17 18 18 18 17 1980 1981 1982 1983 1984 ........................................................ ........................................................ ........................................................ ........................................................ ........................................................ 1,009 1,014 1,020 1,035 1,062 470 460 456 462 477 539 554 564 573 585 176 179 180 181 183 113 114 114 115 114 63 65 66 66 69 363 375 384 392 402 225 230 233 238 244 74 78 81 84 86 46 50 53 55 57 17 16 16 15 15 1985 1986 1987 1988 1989 ........................................................ ........................................................ ........................................................ ........................................................ ........................................................ 1,100 1,143 1,189 1,231 1,271 501 531 566 595 625 599 613 624 636 646 187 189 193 199 203 114 114 114 114 114 72 76 79 84 89 413 423 430 437 443 250 258 263 269 273 89 90 91 92 92 59 61 62 64 64 14 14 13 13 14 1990 1991 1992 1993 1994 1995 1996 ........................................................ ........................................................ ........................................................ ........................................................ ........................................................ est .................................................. est .................................................. 1,306 1,339 1,365 1,380 1,383 1,381 1,370 649 670 680 681 670 650 624 657 669 684 699 713 731 746 207 212 221 228 232 239 243 114 114 115 115 114 113 113 93 98 106 113 118 125 131 450 457 464 471 481 492 502 278 283 288 294 300 306 311 92 92 92 92 92 93 93 65 66 66 67 67 67 67 14 15 17 19 22 26 31 local capital, coupled with relatively slow growth in direct Federal investments in agencies such as the Bureau of Reclamation and Corps of Engineers, shifted the composition of the stock substantially. In 1994, 33 percent of the nondefense stock was owned by the Federal Government and 67 percent by State and local governments. The growth in the stock of physical capital financed by grants has come in several areas. The growth in the stock for transportation is largely grants for highways, including the Interstate Highway System. The growth in community and regional development stocks occurred largely with the enactment of the community development block grant in the early 1970s. The value of this capital stock has been unchanged in the past few years. The growth in the natural resources area occurred primarily because of construction grants for sewage treatment facilities. The value of this federally financed stock has also been relatively stable since the mid-1980s. Table 7–6 shows nondefense physical capital outlays both gross and net of depreciation for selected years from 1960 to 1990 and annually from 1990 to 1996. The net capital outlays in this table are the change in the net nondefense physical capital stock displayed in Table 7–5. 7. 105 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING TABLE 7–6. COMPOSITION OF GROSS AND NET FEDERAL AND FEDERALLY FINANCED NONDEFENSE PUBLIC PHYSICAL INVESTMENT (In billions of constant 1987 dollars) Total nondefense investment Direct Federal investment Investment financed by Federal grants Composition of net investment Fiscal Year Gross Five year intervals: 1960 ......................... 1965 ......................... 1970 ......................... 1975 ......................... 1980 ......................... 1985 ......................... Annual data: 1990 ......................... 1991 ......................... 1992 ......................... 1993 ......................... 1994 ......................... 1995 est .................. 1996 est .................. Depreciation Net Gross Depreciation Net Composition of net investment Gross Water and power Depreciation Net Other Transportation (mainly highways) Community and regional development Natural resources and environment Other 21.0 30.0 29.2 29.9 37.6 37.8 8.3 11.1 14.5 17.6 20.1 23.6 12.7 18.9 14.7 12.3 17.6 14.2 7.3 10.5 7.3 9.3 10.0 12.1 4.6 5.6 6.6 7.3 7.6 8.3 2.7 4.9 0.7 2.0 2.4 3.7 1.4 2.1 1.0 2.0 1.4 0.1 1.3 2.8 –0.3 –* 1.0 3.6 13.7 19.5 21.9 20.6 27.6 25.7 3.7 5.5 7.9 10.3 12.5 15.3 10.0 14.0 14.0 10.3 15.2 10.5 10.2 12.4 8.6 3.8 6.1 6.7 –0.3 1.4 3.8 2.9 4.8 2.3 –0.2 –* 0.4 3.3 4.8 1.9 0.3 0.3 1.2 0.3 –0.5 –0.4 38.9 40.7 45.4 45.7 46.3 50.5 49.2 27.8 28.7 29.8 31.0 32.0 33.2 34.3 11.0 11.8 15.5 14.8 14.2 17.3 14.9 14.1 15.3 19.3 18.2 16.0 18.4 17.2 9.7 10.1 10.6 11.2 11.6 12.1 12.5 4.3 5.1 8.6 7.1 4.4 6.3 4.7 0.2 –0.2 1.1 –0.1 –1.1 –0.3 –0.9 4.1 5.4 7.5 7.1 5.5 6.6 5.6 24.8 25.4 26.1 27.5 30.3 32.1 32.0 18.1 18.6 19.2 19.8 20.4 21.1 21.8 6.7 6.7 6.9 7.7 9.9 11.0 10.2 5.1 5.0 5.1 5.9 6.2 6.0 4.5 * –0.1 –0.1 –0.4 0.1 0.7 0.8 0.7 0.8 0.7 0.3 0.1 0.2 –* 0.8 1.0 1.3 1.8 3.5 4.2 4.8 * $50 million or less. The Stock of Research and Development Capital This section presents data on the stock of research and development, taking into account adjustments for its depreciation. Trends.—As shown in Table 7–7, the R&D capital stock financed by Federal outlays is estimated to be $643 billion in 1994 in constant 1987 dollars. About two-fifths is the stock of basic research knowledge; about three-fifths is the stock of applied research and development. The total federally financed R&D stock in 1994 was about evenly divided between defense and nondefense. TABLE 7–7. Although investment in defense R&D has exceeded that of nondefense R&D in every year since 1979, the two stocks are much closer in size because of the different emphasis between basic research and applied R&D. Defense R&D outlays are heavily concentrated in applied research and development, which depreciates much more quickly than basic research. Applied research and development is assumed to depreciate at a ten percent geometric rate, while basic research is assumed not to depreciate at all. NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT 1 (In billions of constant 1987 dollars) National Defense Fiscal Year Basic Research Total Nondefense Applied Research and Development Basic Research Total Total Federal Applied Research and Development Basic Research Total Applied Research and Development 1970 1971 1972 1973 1974 ............................................................................. ............................................................................. ............................................................................. ............................................................................. ............................................................................. 207 210 213 216 217 13 13 14 15 16 195 196 199 201 201 170 179 186 193 200 54 58 63 68 72 117 121 123 126 127 378 389 399 409 417 66 72 77 83 88 311 317 322 326 329 1975 1976 1977 1978 1979 ............................................................................. ............................................................................. ............................................................................. ............................................................................. ............................................................................. 217 216 216 216 216 16 17 18 18 19 201 199 198 198 197 206 214 221 228 235 77 82 87 92 97 129 132 134 136 137 423 430 437 444 450 93 99 105 110 116 330 331 332 333 334 1980 1981 1982 1983 1984 ............................................................................. ............................................................................. ............................................................................. ............................................................................. ............................................................................. 217 219 222 229 235 20 20 21 22 23 197 198 201 207 212 241 248 251 254 257 103 109 115 121 128 138 139 137 133 129 458 466 474 482 492 123 129 136 143 151 335 337 338 339 341 1985 ............................................................................. 1986 ............................................................................. 1987 ............................................................................. 244 258 270 24 25 25 221 233 245 260 264 268 135 142 149 126 122 119 505 522 538 158 167 175 346 355 363 106 ANALYTICAL PERSPECTIVES TABLE 7–7. NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT 1—Continued (In billions of constant 1987 dollars) National Defense Fiscal Year Basic Research Total Nondefense Applied Research and Development Basic Research Total Total Federal Applied Research and Development Basic Research Total Applied Research and Development 1988 ............................................................................. 1989 ............................................................................. 281 291 26 27 255 264 274 281 157 166 117 115 555 572 183 193 371 379 1990 1991 1992 1993 1994 ............................................................................. ............................................................................. ............................................................................. ............................................................................. ............................................................................. 300 303 306 311 313 28 29 30 30 31 272 274 276 280 281 290 300 310 320 330 174 184 193 202 211 116 116 117 118 119 590 603 616 631 643 202 213 223 233 242 387 390 393 398 401 1995 est. ...................................................................... 1996 est. ...................................................................... 314 314 32 33 282 281 342 353 220 229 121 123 656 667 253 262 403 404 1 Excludes outlays for physical capital for research and development, which are included in Table 7–5. The defense R&D stock rose slowly during the 1970s, as gross outlays for R&D trended down in constant dollars and the stock created in the 1960s depreciated. A renewed emphasis on defense R&D spending from 1980 through 1989 led to a more rapid growth of the R&D stock. Since then, defense R&D outlays have tapered off, depreciation has grown, and, as a result, the net defense R&D stock has grown more slowly. The growth of the nondefense R&D stock slowed from the 1970s to the late 1980s, from an annual rate of 3.6 percent in the 1970s to a rate of 1.6 percent from 1980 to 1988. Gross investment in real terms fell during much of the 1980s, and about three-fourths of new outlays went to replacing depreciated R&D. Since 1988, however, nondefense R&D outlays have been on an upward trend while depreciation has edged down. As a result, the net nondefense R&D capital stock has grown more rapidly. The Stock of Education Capital This section presents estimates of the stock of education capital financed by Federal government outlays. As shown in Table 7–8, the federally financed education stock is estimated at $630 billion in 1994 in constant 1987 dollars, rising to $671 billion in 1996. The vast majority of the Nation’s education stock is financed by State and local governments, and by students and their families themselves. This federally financed portion of the stock represents about 3 percent of the Nation’s total education stock.3 Nearly three3 For estimates of the total education stock, see Table 2–3 in Chapter 2, ‘‘Stewardship.’’ quarters is for elementary and secondary education, while the remaining one quarter is for higher education. In 1970, the federally financed stock of education was only about half the size of the research and development stock, but with steady growth in the intervening decades the education stock is nearly equal to the stock of R&D. Despite a slowdown in growth during the early 1980s, the stock grew at an average annual rate of 5.1 percent from 1970 to 1994, and the expansion of the education stock is projected to continue under this budget. 7. 107 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING TABLE 7–8. NET STOCK OF FEDERALLY FINANCED EDUCATION CAPITAL (In billions of constant 1987 dollars) Total Education Stock Fiscal Year Elementary and Secondary Education Higher Education 1970 1971 1972 1973 1974 .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... 193 208 226 242 249 153 167 183 197 202 39 41 43 46 47 1975 1976 1977 1978 1979 .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... 257 278 285 305 325 209 225 227 241 256 47 53 58 64 69 1980 1981 1982 1983 1984 .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... 346 367 369 377 396 273 288 288 289 299 74 79 81 88 97 1985 1986 1987 1988 1989 .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... 423 448 468 496 526 318 337 351 371 392 105 111 117 125 134 1990 1991 1992 1993 1994 .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... .................................................................................................... 549 568 584 609 630 406 418 428 441 456 142 149 156 168 174 1995 est .............................................................................................. 1996 est .............................................................................................. 655 671 468 475 187 196 Methodological Note This note provides further technical detail in the estimation of the capital stock series presented in Tables 7–5 through 7–8. As stated previously, the capital stock estimates are very rough approximations. Sources of possible error include: The historical outlay series.—The historical outlay series for physical capital was based on budget records since 1940 and was extended back to 1915 using data from selected sources. There are no consistent outlay data on physical capital for this earlier period, and the estimates are approximations. In addition, the historical outlay series in the budget for physical capital extending back to 1940 may be incomplete. The historical outlay series for the conduct of research and development began in the early 1950s and required selected sources to be extended back to 1940. In addition, separate outlay data for basic research and applied R&D were not available for any years and had to be estimated from obligations and budget authority. For education, data for Federal outlays from the budget were combined with data for non-Federal spending from the institution or jurisdiction receiving Federal funds, which may introduce error because of differing fiscal years and confusion about whether the Federal Government was the original source of funding. Price adjustments.—The prices for the components of the Federal stock of physical, R&D, and education capital have increased through time, but the rates of increase are not accurately known. Estimates of costs in fiscal year 1987 prices were made through the application of the National Income and Product Accounts deflator series, but these should be considered only approximations of the costs of these assets in 1987 prices. Depreciation.—The useful lives of physical, R&D, and education capital, as well as the pattern by which they depreciate, are very uncertain. This is compounded by using depreciation rates for broad classes of assets, which do not apply uniformly to all the components of each group. As a result, the depreciation estimates should also be considered approximations. Research continues on the best methods to estimate these capital stocks. The estimates presented in the text could change as better information becomes available on the underlying investment data and as improved methods are developed for estimating the stocks based on those data. Physical Capital Stocks For many years, current and constant-cost data on the value of most forms of public and private physical capital—e.g., roads, factories, and housing—have been estimated annually by the Bureau of Economic Analysis 108 (BEA) in the Department of Commerce.4 However, the BEA data are not directly linked to the Federal budget, do not include estimates for the years covered by the budget, and do not classify as Federal the capital financed but not owned by the Federal Government. For budgetary purposes, OMB prepares separate estimates. Method of estimation.—The estimates were developed from the OMB historical data base for physical capital outlays and grants to State and local governments for physical capital. These are the same major public physical capital outlays presented in Part I. This data base extends back to 1940 and was supplemented by rough estimates for 1915–1939. The deflators for Federal, State, and local purchases of durables and structures were used going back to 1940. Specific deflators were not used for subdivisions of durables and structures. There are no specific price indices for public purchases of durables and structures for 1915 through 1939, and estimates were made on the basis of Census Bureau historical statistics on constant price public capital formation. Using these deflators, the outlays were converted to constant fiscal year 1987 dollars. The resulting series was adjusted for depreciation. The data were depreciated on a straight-line basis over the following assumed useful lives: 46 years for water and power projects; 40 years for other direct Federal construction and capital financed by grants (primarily highways); and 16 years for defense procurement and major nondefense equipment. Research and Development Capital Stocks Method of estimation.—The estimates were developed from a data base for the conduct of research and development largely consistent with the data in the Historical Tables. Although there is not a consistent time series on basic and applied R&D for defense and nondefense outlays back to 1940, it was possible to estimate the data using obligations and budget authority. The data are for the conduct of R&D only and exclude outlays for physical capital for research and development, because those are included in the esti- ANALYTICAL PERSPECTIVES mates of physical capital. Nominal outlays were deflated by the implicit price deflator for gross domestic product (GDP) in fiscal 1987 dollars to obtain estimates of constant dollar R&D spending. The appropriate depreciation rate of intangible R&D capital is even more uncertain than that of physical capital. Empirical evidence is inconclusive. It was assumed that basic research capital does not depreciate and that applied research and development capital has a ten percent geometric depreciation rate. These are the same assumptions used in a study published by the Bureau of Labor Statistics estimating the R&D stock financed by private industry.5 Recent experimental work at the Bureau of Economic Analysis, extending estimates of tangible capital stocks to R&D, used slightly different assumptions. This work assumed straight-line depreciation for all R&D over a useful life of 18 years, which is roughly equivalent to a geometric depreciation rate of 11 percent. The slightly higher depreciation rate and its extension to basic research would result in smaller stocks than the method used here.6 Education Capital Stocks Method of estimation.—The estimates of the federally financed education capital stock in Table 7–8 were calculated by first estimating the Nation’s total stock of education capital, based on the current replacement cost of the total years of education of the population. To derive the Federal share of this total stock, the Federal share of total educational expenditures was applied to the total amount. The percent in any year was estimated by averaging the prior years’ share of Federal education outlays in total education costs. For more information, refer to the technical note in Chapter 2, ‘‘Stewardship.’’ The stock of capital estimated in Table 7–8 is based only on outlays for education. Stocks created by other human capital investment outlays included in Table 7–1, such as job training and vocational rehabilitation, were not calculated because of the lack of historical data prior to 1962 and the absence of estimates of depreciation rates. Part IV: ALTERNATIVE CAPITAL BUDGET AND CAPITAL EXPENDITURE PRESENTATIONS A capital budget would separate Federal expenditures into two categories: spending for investment and all other spending. In this sense, Part I of the present chapter provides a capital budget for the Federal Government, distinguishing outlays that yield long-term benefits from all others. But alternative capital budget presentations have also been suggested. The Federal budget finances investment for two quite different types of reasons. It invests in capital—such as office buildings, computers, and weapons systems— that primarily contributes to its ability to provide governmental services to the public; some of these services, in turn, are designed to increase economic growth. And it invests in capital—such as highways, education, and research—that contributes more directly to the economic growth of the Nation. Most of the capital in the second category, unlike the first, is not owned or controlled by the Federal Government. In the discussion that follows, the first is called ‘‘Federal capital’’ and the second is called ‘‘national capital.’’ Table 7–9 com- 4 See ‘‘Fixed Reproducible Tangible Wealth in the United States’’, Survey of Current Business, August 1994, pp. 54–62. 5 See U.S. Department of Labor, Bureau of Labor Statistics, The Impact of Research and Development on Productivity Growth, Bulletin 2331, September 1989. 6 See ‘‘A Satellite Account for Research and Development’’, Survey of Current Business, November 1994, pp. 37–71. 7. 109 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING pares total Federal investment as defined in this chapter with investment in national capital and with that part of investment in Federal capital which was defined as ‘‘fixed assets’’ in Part II of this chapter. Capital budgets and other changes in Federal budgeting have been suggested from time to time for the Government’s investment in both Federal and national capital. These proposals differ widely in coverage, depending on the rationale for the suggestion. Some would include all the investment shown in table 7–1, or more, whereas others would be narrower in various ways. TABLE 7–9. These proposals also differ in other respects, such as whether investment would be financed by borrowing and whether the non-investment budget would necessarily be balanced. Some of these proposals are discussed below and illustrated by alternative capital budget and other capital expenditure presentations, although the discussion does not address matters of implementation such as the effect on the Budget Enforcement Act. The planning and budgeting process for fixed assets, which is a different subject, is discussed in Part II of this chapter together with the steps this Administration is taking to improve it. ALTERNATIVE DEFINITIONS OF INVESTMENT OUTLAYS, 1996 (In millions of dollars) All Federal investment Construction and rehabilitation: Grants: Transportation ........................................................................................................ Natural resources and environment ..................................................................... Community and regional development ................................................................. Housing assistance ............................................................................................... Other grants .......................................................................................................... Direct Federal: National defense ................................................................................................... General science, space, and technology ............................................................. Natural resources and environment ..................................................................... Energy ................................................................................................................... Transportation ........................................................................................................ Veterans and other health facilities ...................................................................... Postal Service ....................................................................................................... GSA real property activities .................................................................................. Other construction ................................................................................................. Fixed assets National capital 22,853 2,527 5,839 7,101 972 ................ ................ ................ ................ ................ 22,853 2,517 1,018 ................ 70 4,890 491 3,546 2,399 536 1,345 809 1,622 2,778 706 168 86 274 79 1,085 ................ 770 1,138 ................ 491 3,275 2,399 536 1,345 809 ................ 492 Total construction and rehabilitation ................................................................ Acquisition of major equipment (direct): National defense ........................................................................................................ Postal Service ............................................................................................................ Air transportation ....................................................................................................... Other .......................................................................................................................... 57,707 4,306 35,804 48,840 511 2,059 3,785 ................ ................ ................ 3,088 ................ 511 2,059 2,723 Total major equipment .......................................................................................... Purchase or sale of land and structures ...................................................................... 55,195 –350 3,088 ................ 5,293 ................ Total physical investment .......................................................................................... Research and development: Defense ...................................................................................................................... Nondefense ................................................................................................................ 112,552 7,394 41,097 37,688 31,717 ................ ................ 1,205 31,132 Total research and development .......................................................................... Education and training ................................................................................................... 69,405 47,336 ................ ................ 32,337 46,761 Total investment outlays ................................................................................................ 229,293 7,394 120,195 Investment in Federal Capital The goal of investment in Federal capital is to deliver Government services as efficiently and effectively as possible. The Congress allocates resources to Federal agencies to accomplish a wide variety of programmatic goals. Because these goals are diverse and most are not measured in dollars, they are difficult to compare with each other. Policy judgments must be made as to their relative importance. Once amounts have been allocated for one of these goals, however, analysis may be able to assist in choosing the most efficient and effective means of delivering service. This is the context in which decisions are made on the amount of investment in Federal capital. For example, budget proposals for the Department of Justice must consider whether to increase the number of FBI agents, the amount of justice assistance grants to State and local governments, or the number of pris- 110 ANALYTICAL PERSPECTIVES ons in order to accomplish the department’s objectives. The optimal amount of investment in Federal capital derives from these decisions. There is no efficient target for total investment in Federal capital as such. The universe of Federal capital encompasses federally owned fixed assets. It excludes Federal grants to States for infrastructure, such as highways, and it excludes intangible investment, such as education and research. Investment in Federal capital in 1996 is estimated to be $73.3 billion, or 32 percent of the total Federal investment outlays shown in table 7–1. Of the investment in Federal capital, 73 percent is for defense and 27 percent for nondefense purposes. A Capital Budget for Fixed Assets Discussion of a capital budget has often centered on the part of Federal capital called ‘‘fixed assets’’ in Part II of this chapter—buildings and equipment commonly available from the commercial sector that support the delivery of Federal services, such as office buildings, computers, military family housing, veterans hospitals, research and development facilities, and associated equipment. This definition excludes Federal capital for weapons systems and military bases, non-defense special purpose capital such as space stations and dams, and capital that the Federal Government has financed but does not own. Some capital budget proposals would partition the unified budget into a capital budget, an operating budget, and a total budget. Table 7–10 illustrates such a capital budget for fixed assets as defined above. It is accompanied by an operating budget and a total budget. The operating budget consists of all expenditures except those included in the capital budget, plus depreciation on the stock of assets that corresponds to those purchased through the capital budget. The capital budget consists of expenditures for fixed assets and, on the income side of the account, depreciation. The total budget is the present unified budget, largely cash based and often called a ‘‘cash budget,’’ which records all outlays and receipts of the Federal Government. It consolidates the operating and capital budgets by adding them together and netting out depreciation as an intragovernmental transaction. The difference between the operating budget deficit and the unified budget deficit is small, reflecting both the relatively small Federal investment in new fixed assets and the offsetting effect of depreciation on the existing stock. The figures in table 7–10 and the subsequent tables of this section are rough estimates and intended to be illustrative. Budget Discipline and a Capital Budget Many proposals for a capital budget, though not all, would effectively dispense with the unified budget and make expenditure decisions on fixed asset acquisitions in terms of the operating budget instead. The operating budget would include only the depreciation on the proposed purchase of a fixed asset. For example, suppose that an agency proposed to buy a $50 million building at the beginning of the year with an estimated life TABLE 7–10. CAPITAL, OPERATING, AND UNIFIED (CASH) BUDGETS: FIXED ASSETS, 1996 1 (In billions of dollars) Operating Budget Receipts .......................................................................................................... Expenses: Depreciation ............................................................................................... Other .......................................................................................................... 1,415 Subtotal, expenses ................................................................................ 1,610 Surplus or deficit (–) .................................................................................. –194 5 1,605 Capital Budget Income: depreciation ...................................................................................... Capital expenditures ...................................................................................... 5 7 Surplus or deficit (–) .................................................................................. –2 Unified (Cash) Budget Receipts .......................................................................................................... Outlays ........................................................................................................... 1,415 1,612 Surplus or deficit (–) .................................................................................. –197 1 Historical data to estimate the capital stocks and calculate depreciation are not readily available for fixed assets. Depreciation estimates were based on the assumption that such outlays were a constant percentage of their larger categories over time. They are also subject to the limitations discussed in Part III of this chapter. of 25 years and with depreciation calculated according to the straightline method. Operating expense in the budget year would increase by only $2 million, or 4 percent of the asset cost. The same amount of depreciation would be recorded as an increase in operating expense for each year of the asset’s life. Recording the annual depreciation in the operating budget each year would provide little control over the decision about whether to invest in the first place. Most Federal investments are sunk costs and as a practical matter cannot be recovered by selling or renting the asset. At the same time, there is a significant risk that the need for a fixed asset may change over a period of years, because either the need was not permanent, it was initially misjudged, or other needs became more important. Since the cost is sunk, however, control cannot be exercised later on by comparing the annual benefit of the asset services with depreciation and interest and then selling the asset if its annual services are not worth this expense. Control can only be exercised when the Government commits itself up-front to the full sunk cost. By spreading the real cost of the project over time, however, use of the operating budget for expenditure decisions would make the budgetary cost of the fixed asset appear very cheap when decisions were being made that compared it to alternative expenditures. As a result, there would be an incentive to purchase fixed assets with little regard for need, and also with little regard for the least-cost method of acquisition. A budget is a financial plan for allocating resources— deciding how much the Federal Government should spend in total, program by program, and for the parts of each program. The budgetary system provides a process for proposing policies, making decisions, implement- 7. FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING ing them, and reporting the results. The budget needs to measure costs accurately so that decision makers can compare the cost of a program with its benefit, the cost of one program with another, and the cost of alternative methods of reaching a specified goal. These costs need to be fully included in the budget up front, when the spending decision is made, so that executive and congressional decision makers have the information and the incentive to take the total costs into account. The unified budget does this for investment. By recording investment on a cash basis, it causes the total cost to be compared up front in a rough and ready way with the total expected future net benefits. Since the budget measures only cost, the benefits with which these costs are compared, based on policy makers’ judgment, must be presented in supplementary materials. Such a comparison of total cost with benefits is consistent with the formal method of cost-benefit analysis of capital projects in government, in which the full cost of a fixed asset as the cash is paid out is compared with the full stream of future benefits (all in terms of present values).7 This comparison is also consistent with common business practice, in which capital budgeting decisions for the most part are made by comparing cash flows. The cash outflow for the full purchase price is compared with expected future cash inflows, either through a relatively sophisticated technique of discounted cash flows—such as net present value or internal rate of return—or through cruder methods such as payback periods.8 Regardless of the specific technique adopted, it usually requires comparing future returns with the entire cost of the asset up front— not spread over time through annual depreciation.9 Practice Outside the Federal Government The proponents of making investment decisions on the basis of an operating budget with depreciation have sometimes claimed that this is the common practice outside the Federal Government. However, while the practice of others may differ from the Federal budget and the terms ‘‘capital budget’’ and ‘‘capital budgeting’’ are often used, these terms do not normally mean that fixed asset acquisitions are decided on the basis of annual depreciation cost. The use of these terms in business and State government also does not mean that businesses and States finance all their investment by 7 For example, see Edward M. Gramlich, A Guide to Benefit-Cost Analysis (2nd ed.; Englewood Cliffs: Prentice Hall, 1990), chap. 6; or Joseph E. Stiglitz, Economics of the Public Sector (New York: Norton, 1986), chap. 10. This theory is applied in formal OMB instructions to Federal agencies in OMB Circular No. A–94, Guidelines and Discount Rates for BenefitCost Analysis of Federal Programs (October 29, 1992). GAO, Discount Rate Policy, GAO/ OCE-17.1.1 (May 1991) discusses the appropriate discount rate for such analysis but not the foundation of the analysis itself, which is implicitly assumed. 8 For a full textbook analysis of capital budgeting techniques in business, see Harold Bierman, Jr., and Seymour Smidt, The Capital Budgeting Decision (7th ed.; New York: Macmillan, 1988). Shorter analyses may be found, for example, in Charles T. Horngren and George Foster, Cost Accounting (6th ed.; Englewood Cliffs: Prentice-Hall, 1987), chap. 19 and 20; and in Surendra S. Singhvi, ‘‘The Capital Budgeting Process’’ and ‘‘The Capital Expenditure Evaluation Methods,’’ chap. 19 and 20 in Robert Rachlin and H.W. Allen Sweeny, Handbook of Budgeting (3rd ed.; New York: Wiley, 1993). 9 A recent survey of business practice found that such techniques are predominant. See Glenn H. Petry and James Sprow, ‘‘The Theory and Practice of Finance in the 1990s,’’ The Quarterly Review of Economics and Finance, vol. 33 (Winter 1993), pp. 359–82. Petry and Sprow also found that such techniques are recommended by the most widely used textbooks in managerial finance. 111 borrowing. Nor does it mean that under a capital budget the extent of borrowing by the Federal Government to finance investment would be limited by the same forces that constrain business and State borrowing for investment. Private business firms call their investment decision making process ‘‘capital budgeting,’’ and they record the resulting planned expenditures in a ‘‘capital budget.’’ However, decisions are normally based on upfront comparisons of cash outflows with cash inflows, and the capital budget records the period-by-period amounts of cash outflows for capital projects.10 This supports the business’s goal of deciding upon and controlling the use of its resources. The cash-based focus of business budgeting for capital is in contrast to business financial statements—the income statement and balance sheet—which use accrual accounting for a different purpose, namely to record how well the business is meeting its objectives of earning profit and accumulating wealth for its owners. For this purpose, the income statement shows the profit in a year from earning revenue net of the expenses incurred. These expenses include depreciation, which is an allocation of the cost of fixed assets over their estimated useful life. With similar objectives in mind, the Federal Accounting Standards Advisory Board (FASAB) is considering the appropriate use of depreciation as a measure of expense in financial statements and cost accounting for Federal agencies. Businesses finance investment from net income as well as borrowing. When they borrow to finance investment, they are constrained in ways that Federal borrowing is not. The amount that a business borrows is limited by its own profit motive and the market’s assessment of its capacity to repay. The greater a business’s indebtedness, other things equal, the more risky is any additional borrowing and the higher is the cost of funds it must pay. Since the profit motive ensures that a business will not want to borrow unless the expected return is at least as high as the cost of funds, the amount of investment that a business will want to finance is limited; and it has an incentive to borrow only for projects where the expected return is as high or higher than the cost of funds. Furthermore, if the risk is great enough, a business may not be able to find a lender. No such constraint limits the Federal Government— either in the total amount of its borrowing for investment, or in its choice of which assets to buy—because of its sovereign power to tax. It can tax to pay for investment; and, if it borrows, its power to tax ensures that the credit market will judge U.S. Treasury securities free from any risk of default even if it borrows ‘‘excessively’’ or for projects that do not seem worthwhile. Most States also have a ‘‘capital budget,’’ but the operating budget is not like the operating budget envisaged by proponents of making Federal investment deci10A business capital budget is depicted in Glenn A. Welsch et al., Budgeting: Profit Planning and Control (5th ed.; Englewood Cliffs: Prentice Hall, 1988), pp. 396–99. 112 ANALYTICAL PERSPECTIVES sions on the basis of depreciation. State capital budgets differ widely in many respects but generally relate some of the State’s purchases of fixed assets to borrowing and other earmarked means of financing. For the debtfinanced portion of investment, the interest and repayment of principal are usually recorded in the operating budget. State operating budgets are not charged for assets purchased in the capital budget but financed by Federal grants or by taxes, which may be substantial. No State operating budget is charged for depreciation.11 State borrowing to finance investment, like business borrowing, is subject to limitations that do not apply to Federal borrowing. Like business borrowing, it is constrained by the credit market’s assessment of the State’s capacity to repay. Furthermore, it is usually designated for specified investments, and it is almost always subject to constitutional limits or referendum requirements. Other developed nations tend to show a more systematic breakdown between investment and operating expenditures within their budgets than does the United States, even while they record capital expenditures on a cash basis within the same budget totals. For example, the United Kingdom shows the capital spending within each agency total and displays the sum of capital spending for the government as a whole. However, a survey by the Congressional Budget Office found that all developed nations except Chile and New Zealand budget on a cash basis;12 and New Zealand requires the equivalent of appropriations for the full cost up front before a department can make net additions to its fixed assets. Some countries—including Sweden, Denmark, and Finland—formerly had separate capital budgets but abandoned them a number of years ago.13 Conclusions It is for reasons such as these that the General Accounting Office issued a report about a year ago that criticized budgeting for capital in terms of depreciation. Although the criticisms were in the context of what is termed ‘‘national capital’’ in this chapter, they apply equally to ‘‘Federal capital.’’ ‘‘Depreciation is not a practical alternative for the Congress and the administration to use in making decisions on the appropriate level of spending intended to enhance the nation’s long-term economic growth for several reasons. Currently, the law requires agencies to have budget authority before they can obligate or spend funds. Unless the full amount of budget authority is appropriated up front, the ability to control decisions when total resources are committed to a particular use is reduced. Appropriating only annual depreciation, which is only a fraction of the total cost of an investment, raises this control issue.’’14 Investment in National Capital A Target for National Investment The Federal Government’s investment in national capital has a much broader and more varied form than its investment in Federal capital. The Government’s goal is to support and accelerate sustainable economic growth for the Nation as a whole and in some instances for specific regions or groups of people. The Government’s investment concerns for the Nation are two-fold: • The effect of its own investment in national capital on the output and income that the economy can produce. Reducing expenditure on consumption and increasing expenditure on investment that supports economic growth are a major priority for the Administration. It has reordered priorities in its budgets by proposing increases in selected investments. • The effect of Federal taxation, borrowing, and other policies on private investment. The Adminis- tration’s deficit reduction policy has brought about an expansion of private investment, most notably in producers’ durable equipment. In its recent report, Incorporating an Investment Component in the Federal Budget, the General Accounting Office recommends establishing an investment component within the unified budget—but not a separate capital budget or the use of depreciation—for this type of investment.15 GAO defines this investment as ‘‘federal spending, either direct or through grants, that is directly intended to enhance the private sector’s longterm productivity.’’16 To increase investment—both public and private—GAO recommends establishing targets for the level of Federal investment and for a declining path of unified budget deficits over time.17 Such a target for investment in national capital would focus attention on policies for growth, encourage a conscious decision about the overall level of growth-enhancing invest- 11 The characteristics of State capital budgets were examined in a survey of State budget officers for all 50 States in 1986. See Lawrence W. Hush and Kathleen Peroff, ‘‘The Variety of State Capital Budgets: A Survey,’’ Public Budgeting and Finance (Summer 1988), pp. 67–79. More detailed results are available in an unpublished OMB document, ‘‘State Capital Budgets’’ (July 7, 1987). Two GAO reports examined some of the same issues and reached similar conclusions on the issues in question. See Budget Issues: Capital Budgeting Practices in the States, GAO/AFMD–86–63FS (July 1986) and Budget Issues: State Practices for Financing Capital Projects, GAO/AFMD–89–64 (July 1989). 12 Robert W. Hartman, Statement before the Subcommittee on Economic Development, Committee on Public Works and Transportation, U.S. House of Representatives (May 26, 1993). Hartman stated: ‘‘to our knowledge, only two developed countries, Chile and New Zealand, recognize depreciation in their budgets.’’ 13 The budgets in Sweden, Great Britain, Germany, and France are described in GAO, Budget Issues: Budgeting Practices in West Germany, France, Sweden, and Great Britain, GAO/AFMD–87–8FS (November 1986). Sweden had separate capital and operating budgets from 1937 to 1981 and a total combined budget from 1956 onwards. The reasons for abandoning the capital budget are discussed briefly in the GAO report and more extensively by a government commission established to recommend changes in the Swedish budget system. See Sweden, Ministry of Finance, Proposal for a Reform of the Swedish Budget System: A Summary of the Report of the Budget Commission Published by the Ministry of Finance (Stockholm, 1974), chapter 10. 14 Budget Issues: Incorporating an Investment Component in the Federal Budget, GAO/ AIMD–94–40 (November 1993), p. 11. GAO had made the same recommendation in earlier reports but with less extensive analysis than in this report. 15 Ibid., pp. 1–2, 9–10, and 15. 16 Ibid., pp. 1 and 5. 17 Ibid., pp. 2 and 13–16. 7. 113 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING ment, and make it easier to set spending priorities in terms of policy goals for aggregate formation of national capital. Table 7–11 illustrates the unified budget reorganized as GAO recommends to have a separate component for investment in national capital. This component is roughly estimated to be $120 billion in 1996. It includes infrastructure outlays financed by Federal grants to State and local governments, such as highways and sewer projects, as well as direct Federal purchases of infrastructure, such as electric power generation equipment. It also includes intangible investment for nondefense research and development, for basic research financed through defense, and for education and training. Much of this consists of grants and credit assistance to other governments, nonprofit organizations, or individuals. Only 12 percent of national investment consists of assets owned by the Federal Government. Military investment and most ‘‘fixed assets’’ as defined previously are excluded, because that investment does not primarily enhance economic growth. TABLE 7–11. UNIFIED (CASH) BUDGET WITH NATIONAL INVESTMENT COMPONENT, 1996 budget would record all or only a small part of the cost of a decision when policy makers were comparing the budgetary cost of a project with their judgment of its benefits. The process of reaching an answer with a capital budget would open the door to manipulation, because there would be an incentive to make the operating expenses and deficit look smaller by classifying outlays as investment and using low depreciation rates. This would ‘‘justify’’ more spending by the program or the Government overall.18 TABLE 7–12. CAPITAL, OPERATING, AND UNIFIED (CASH) BUDGETS: NATIONAL CAPITAL, 1996 1 (In billions of dollars) Operating Budget Receipts .......................................................................................................... Expenses: Depreciation 2 ............................................................................................. Other .......................................................................................................... 1,387 Subtotal, expenses ................................................................................ Surplus or deficit (–) .................................................................................. 1,565 –178 73 1,492 Capital Budget (In billions of dollars) Receipts ............................................................................................................ Outlays: National investment ..................................................................................... Other ............................................................................................................ 1,415 Subtotal, outlays ...................................................................................... 1,612 Surplus or deficit (–) .................................................................................... –197 120 1,492 A Capital Budget for National Investment Table 7–12 roughly illustrates what a capital budget and operating budget would look like under this definition of investment—although it must be emphasized that this is not GAO’s recommendation. Some proponents of a capital budget would make spending decisions within the framework of such a capital budget and operating budget. But the limitations that apply to the use of depreciation in deciding on investment decisions for Federal capital apply even more strongly in deciding on investment decisions for national capital. Most national capital is neither owned nor controlled by the Federal Government. Such investments are sunk costs completely and can be controlled only by decisions made up front when the Government commits itself to the expenditure. In addition to those basic limitations, the definition of investment is more malleable for national capital than Federal capital. Many programs promise long-term intangible benefits to the Nation, and depreciation rates are much harder to determine for intangible investment such as research and education than they are for physical investment such as highways and office buildings. These and other definitional questions are hard to resolve. The answers could significantly affect budget decisions, because they would determine whether the Income: Depreciation 2 ............................................................................................. Earmarked tax receipts 3 ........................................................................... 73 29 Subtotal, income .................................................................................... Capital expenditures ...................................................................................... 102 120 Surplus or deficit (–) .................................................................................. –19 Unified (Cash) Budget Receipts ..................................................................................................... Outlays ....................................................................................................... 1,415 1,612 Surplus or deficit (–) ............................................................................. –197 1 For the purpose of this illustrative table only, education and training outlays are arbitrarily depreciated over 30 years by the straight-line method. This differs from the treatment of education and training elsewhere in this chapter and in Chapter 2. All depreciation estimates are subject to the limitations discussed in Part III of this chapter. 2 Excludes depreciation on capital financed by earmarked tax receipts allocated to the capital budget. 3 Consists of tax receipts of the highway and airport and airways trust funds, which are user charges earmarked for financing capital expenditures. Borrowing to Finance a Capital Budget A further issue raised by a capital budget for national investment is the financing of capital expenditures. Some have argued that the Government ought to balance the operating budget and borrow to finance the capital budget—capital expenditures less depreciation. The rationale is that if the Government borrows for net investment and the rate of return exceeds the interest rate, the additional debt does not add a burden onto future generations. Instead, the burden of paying interest on the debt and repaying its principal is spread over the generations that will benefit from the investment. The additional debt is ‘‘justified’’ by the additional assets. This argument is at best a justification to borrow to finance net investment, after depreciation is subtracted from gross outlays, not to borrow to finance gross investment. To the extent that capital is used 18 These problems are also pointed out in ibid., pp. 11–12. 114 ANALYTICAL PERSPECTIVES up during the year, there are no additional assets to justify additional debt. If the Government borrows to finance gross investment, the additional debt exceeds the additional capital assets. The Government is thus adding onto the amount of future debt service without providing the additional capital that would produce the additional income needed to service that debt. This justification, furthermore, requires that depreciation be measured in terms of current cost, not historical cost. When prices change, historical cost depreciation does not measure the extent to which the capital stock is used up each year. Table 7–12 shows that the operating deficit, defined to be net of current cost depreciation, would not be a great deal less than the unified budget deficit—$178 billion in 1996 compared to $197 billion. Depreciation (plus the excise taxes earmarked to finance capital expenditures for highways and airports and airways19) is high relative to gross new capital outlays, because the stock of national capital has not been growing very fast. This justification for borrowing would not justify the Federal Government borrowing very much. Even with depreciation calculated in current cost, the rationale for borrowing to finance net investment is not persuasive. The Federal Government, unlike a business or household, is responsible not only for its own affairs but also for the general welfare of the Nation. To maintain and accelerate national economic growth and development, the Government needs to sustain private investment as well as its own national investment. For more than the last decade, however, net national saving and investment have been low, both by historical standards and in comparison to the amounts needed to achieve the Administration’s goals for accelerated growth. To the extent that the Government finances its national investment in a way that results in lower private investment, the net increase of total investment in the economy is less than the increase from the additional Federal capital outlays alone. The net increase in total investment is significantly less if the Federal investment is financed by borrowing than if it is financed by taxation, because borrowing primarily draws upon the saving available for private (and State and local) investment whereas much of taxation instead comes out of private consumption. Therefore, the net effect of Federal investment on economic growth would be reduced if it were financed by borrowing. This would be the result even if the rate of return on Federal investment in national capital was higher than the rate of return on private investment. For example, if a Federal investment that yielded a 15 percent rate of return crowded out private investment that yielded 10 percent, the net social return would still be positive but it would only be 5 percent.20 The 1994 budget was a bold step to increase the saving available for private investment while also increasing Federal investment for national capital. The present budget goes further in both directions, even with its focus on sharing the benefits of economic growth with the middle class. Nevertheless, current deficits still exceed net Federal investment for national capital, and balancing the operating budget in 1996 would require additional deficit reduction of $178 billion—not a great deal less than balancing the unified budget. A capital budget is not a justification to relax current budget constraints. Any easing would undo the gains from the deficit reduction achieved in the Omnibus Budget Reconciliation Act of 1993. Part V: SUPPLEMENTAL PHYSICAL CAPITAL INFORMATION The Federal Capital Investment Program Information Act of 1984 (Title II of Public Law 98–501; hereafter referred to as the Act) requires that the budget include projections of Federal physical capital spending and information regarding recent assessments of public civil- ian physical capital needs. This section is submitted to fulfill that requirement. This section is organized in two major parts. The first part projects Federal outlays for public physical capital and the second part presents information regarding public civilian physical capital needs. Projections of Federal Outlays For Public Physical Capital Federal public physical capital spending was $119.2 billion in 1994 and is projected to increase to $131.3 billion by 2004 on a current services basis. The largest components are for national defense and for roadways and bridges, which together accounted for more than two-thirds of Federal public physical capital spending in 1994. Federal public physical capital spending is defined here to be the same as the ‘‘major public physical capital investment’’ category in Part I of this chapter. It covers spending for construction and rehabilitation, acquisition of major equipment, and other physical assets. This section excludes outlays for human capital, such as the conduct of education, training, and research. Table 7–13 shows projected current services outlays for Federal physical capital by the major categories specified in the Act. Total Federal outlays for transportation-related physical capital were $25.4 billion in 1994, and current services outlays are estimated to increase to $33.2 billion by 2004. Outlays for nondefense 19 The operating deficit would be about $15 billion less if depreciation were used instead of earmarked excise taxes for highways and airports and airways. 20 The GAO report considered deficit financing of investment but did not recommend it. See ibid., pp. 12–13. 7. 115 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING housing and buildings were $9.2 billion in 1994 and are estimated to increase to $12.8 billion by 2004. Physical capital outlays for other nondefense categories were $17.8 billion in 1994 and are projected to be $25.8 billion by 2004. For national defense, this spending was $66.7 billion in 1994 and is estimated on a current services basis to be $59.4 billion in 2004. Table 7–14 shows current services projections adjusted for inflation on a constant dollar basis, using fiscal year 1987 as the base year. For outlay details for most programs, see the items included in major public physical capital in tables 7–2 and 7–3. Public Civilian Capital Needs Assessments The Act requires information regarding the state of major Federal infrastructure programs, including highways and bridges, airports and airway facilities, mass transit, railroads, federally assisted housing, hospitals, water resources projects, and space and communications investments. Funding levels, long-term projections, policy issues, needs assessments, and critiques, are required for each category. Capital needs assessments change little from year to year, in part due to the long-term nature of the facilities themselves, and in part due to the consistency of the analytical techniques used to develop the assess- TABLE 7–13. ments and the comparatively steady but slow changes in underlying demographics. As a result, the practice has arisen in reports in previous years to refer to earlier discussions, where the relevant information had been carefully presented and changes had been minimal. The needs assessment material in reports of earlier years is incorporated this year largely by reference to earlier editions and by reference to other needs assessments. The needs analyses, their major components, and their critical evaluations have been fully covered in past Supplements, such as the 1990 Supplement to Special Analysis D. It should be noted that the needs assessment data referenced here have not been determined on the basis of cost-benefit analysis. Rather, the data reflect the level of investment necessary to meet a predefined standard (such as maintenance of existing highway conditions). The estimates do not address whether the benefits of each investment would actually be greater than its cost or whether there are more cost-effective alternatives to capital investment, such as initiatives to reduce demand or use existing assets more efficiently. Before investing in physical capital, it is necessary to compare the cost of each project with its estimated benefits, within the overall constraints on Federal spending. CURRENT SERVICES OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING (In billions of dollars) 1994 Actual Nondefense: Transportation-related categories: Roadways and bridges. ........................................ Airports and airway facilities ................................. Mass transportation systems ................................ Railroads ............................................................... Estimate 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 18.4 4.1 2.5 0.3 18.9 4.0 2.8 0.5 19.2 3.8 2.9 0.6 19.6 3.8 3.3 0.6 20.0 3.7 3.3 0.5 20.7 3.8 3.7 0.5 21.3 4.0 3.8 0.5 21.9 4.1 3.9 0.5 22.6 4.2 4.0 0.5 23.2 4.3 4.2 0.5 23.9 4.5 4.3 0.6 Subtotal, transportation ..................................... Housing and buildings categories: Federally assisted housing ................................... Hospitals ................................................................ Public buildings1 .................................................... 25.4 26.2 26.5 27.3 27.5 28.7 29.5 30.4 31.3 32.3 33.2 5.4 1.3 2.6 6.8 1.6 3.3 7.0 1.6 3.1 7.5 1.5 2.4 7.5 1.6 2.6 7.7 1.6 2.5 7.5 1.6 2.2 7.7 1.7 2.3 8.0 1.7 2.3 8.2 1.8 2.4 8.4 1.9 2.5 Subtotal, housing and buildings ....................... Other nondefense categories: Wastewater treatment and related facilities ......... Water resources projects. ..................................... Space and communications .................................. Energy programs ................................................... Community development programs ...................... Other nondefense ................................................. 9.2 11.7 11.7 11.5 11.7 11.8 11.4 11.7 12.0 12.4 12.8 2.3 2.1 2.5 2.2 4.3 4.4 2.7 2.5 2.7 3.1 5.2 4.6 2.8 2.2 2.3 3.0 5.6 4.7 3.1 2.2 2.5 3.0 5.9 5.0 3.5 2.3 2.2 2.9 5.8 5.2 3.8 2.3 2.1 3.1 5.9 5.3 3.9 2.4 2.2 3.1 6.0 5.3 4.1 2.5 2.2 3.2 6.2 5.5 4.2 2.6 2.3 3.2 6.4 5.7 4.3 2.7 2.4 3.3 6.6 5.8 4.4 2.7 2.4 3.4 6.8 6.0 Subtotal, other nondefense .............................. 17.8 20.7 20.7 21.6 22.0 22.5 22.9 23.6 24.3 25.1 25.8 Subtotal, nondefense. ........................................... 52.4 58.7 58.9 60.4 61.2 63.0 63.8 65.7 67.7 69.8 71.8 National defense. ....................................................... 66.7 60.0 54.5 51.7 50.9 51.7 52.8 54.4 56.0 57.7 59.4 Total ........................................................................... 119.2 118.6 113.4 112.1 112.2 114.7 116.6 120.1 123.7 127.4 131.3 1 Excludes outlays for public buildings that are included in other categories in this table. 116 ANALYTICAL PERSPECTIVES TABLE 7–14. CURRENT SERVICES OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING (In billions of constant 1987 dollars) 1994 Acutal Nondefense: Transportation-related categories: Roadways and bridges. ..................................................................................................................... Airports and airway facilities ............................................................................................................. Mass transportation systems ............................................................................................................. Railroads ............................................................................................................................................ Estimate 1995 1996 1997 1998 1999 2000 15.8 3.7 2.2 0.4 15.9 3.5 2.3 0.5 15.7 3.3 2.4 0.5 15.5 3.1 2.6 0.4 15.4 3.0 2.6 0.4 15.5 3.0 2.8 0.4 15.5 3.0 2.8 0.4 Subtotal, transportation ................................................................................................................. Housing and buildings categories: Federally assisted housing ................................................................................................................ Hospitals ............................................................................................................................................. Public buildings1 ................................................................................................................................ 22.0 22.2 21.8 21.7 21.4 21.7 21.6 4.4 1.2 2.4 5.8 1.5 3.0 5.8 1.4 2.7 6.0 1.3 2.1 5.9 1.3 2.2 5.8 1.3 2.0 5.5 1.3 1.7 Subtotal, housing and buildings .................................................................................................... Other nondefense categories: Wastewater treatment and related facilities ...................................................................................... Water resources projects .................................................................................................................. Space and communications .............................................................................................................. Energy programs ............................................................................................................................... Community development programs .................................................................................................. Other nondefense. ............................................................................................................................. 8.0 10.2 9.9 9.4 9.3 9.1 8.5 2.0 2.2 2.4 2.0 3.7 4.0 2.3 2.2 2.5 2.8 4.3 4.1 2.3 1.9 2.1 2.7 4.6 4.1 2.5 1.9 2.1 2.6 4.7 4.2 2.7 1.9 1.8 2.5 4.5 4.3 2.8 2.0 1.7 2.5 4.4 4.2 2.9 2.0 1.7 2.4 4.4 4.1 Subtotal, other nondefense ........................................................................................................... 16.4 18.1 17.6 17.9 17.7 17.6 17.4 Subtotal, nondefense. .................................................................................................................... National defense. ................................................................................................................................... 46.4 58.9 50.5 51.5 49.3 45.4 49.0 41.9 48.4 40.0 48.4 39.5 47.6 39.1 Total ........................................................................................................................................................ 105.2 102.1 94.8 90.9 88.5 87.9 86.7 1 Excludes outlays for public buildings that are included in other categories in this table. Significant Factors Affecting Infrastructure Needs Assessments Significant Factors Amount Highways 1. Projected annual growth in travel to the year 2011 ...... 2. Annual cost to maintain overall 1991 conditions and performance on highways eligible for Federal-aid .......... 3. Annual cost to maintain overall 1991 conditions on bridges ................................................................................ 2.5 percent $48.4 billion (1991 dollars) $5.2 billion (1991 dollars) Airports and Airway Facilities 1. Airports in the National Plan of Integrated Airport Systems with scheduled passenger traffic ...................... 2. Air traffic control towers .................................................. 3. Airport development eligible under airport improvement program for period 1993–1997 ............................... 554 454 $29.7 billion ($9.4 billion for capacity) (1992 dollars) Mass Transportation Systems 1. Yearly cost to maintain condition and performance of rail facilities over a period of 10 years ............................ 2. Yearly cost to replace and maintain the urban, rural, and special services bus fleet ........................................... $1.7 billion (1991 dollars) $2.2 billion (1992 dollars) Wastewater Treatment 1. Total needs of sewage treatment facilities ..................... 2. Total Federal expenditures under the Clean Water Act of 1972 ................................................................................ $127.1 billion (1992 dollars) $57 billion 7. 117 FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING Significant Factors Affecting Infrastructure Needs Assessments—Continued Significant Factors Amount 3. Percent of population served by centralized treatment facilities that benefits from at least secondary sewage treatment systems ............................................................. 4. States and territories served by State Revolving Funds 88 percent 51 Housing 1. Total unsubsidized very low income renter families and elderly (3.8 million*): A. In severely substandard units ..................................... B. With a rent burden greater than 50 percent ............. * The total is less than the sum because some renter families have both problems. 0.4 million 3.6 million Indian Health (IHS) Care Facilities 1. 2. 3. 4. 5. IHS hospital occupancy rates (1993) ............................... Average length of stay, IHS hospitals (days) (1993) ...... Hospital admissions (1993) .............................................. Outpatient visits (1993) ................................................... Population (1993) .............................................................. 45.8 percent 4.4 60,597 4,079,655 1,192,537 Department of Veterans Affairs (VA) Hospitals (1995) 1. 2. 3. 4. 5. Hospitals ............................................................................ Outpatient clinics ............................................................. Domiciliaries ..................................................................... Centers for veterans ......................................................... VA owned nursing home beds ......................................... 173 376 39 202 15,674 Water Resources 1. 2. 3. 4. 5. 6. 7. Navigation (deepwater ports and inland waterway) Flood and storm damage protection. Irrigation. Hydropower. Municipal and industrial water supply. Recreation. Fish and wildlife mitigation, enhancement, and restoration. 8. Soil conservation. Potential water resources investment needs typically consist of the set of projects that pass a benefit-cost test for economic feasibility. In the case of fish and wildlife mitigation or restoration projects, the needs consist of those projects that pass a cost-effectiveness test. Current quantitative needs estimates must be re-evaluated in light of the Administration’s reinventing government initiative for the Army Corps of Engineers. Under this initiative, the Corps will focus on feasible projects of national significance. Also, a task force is completing an assessment of the current Federal, State, and local roles in flood damages reduction and floodplain management. Investment Needs Assessment References General U.S. Advisory Commission on Intergovernmental Relations (ACIR). High Performance Public Works: A New Federal Infrastructure Investment Strategy for America, Washington, D.C., 1993. U.S. Advisory Commission on Intergovernmental Relations (ACIR). Toward a Federal Infrastructure Strategy: Issues and Options, A–120, Washington, D.C., 1992. U.S. Army Corps of Engineers, Living Within Constraints: An Emerging Vision for High Performance Public Works. Concluding Report of the Federal Infrastructure Strategy Programs. Draft Report, Institute for Water Resources, Alexandria, VA, 1995 U.S. Army Corps of Engineers, A Consolidated Performance Report on the Nation’s Public Works: An Update. Draft Report of the Federal Infrastructure 118 Strategy Program. Institute for Water Resources, Alexandria, VA, 1995. Highways and Bridges Report of the Secretary of Transportation to the U.S. Congress. The Status of the Nation’s Highways and Bridges: Conditions and Performance and Highway Replacement and Rehabilitation Program 1989. June, 1989. Airports and Airways Facilities Federal Aviation Administration. The National Plan of Integrated Airport Systems Report, March 4, 1991. Mass Transportation Systems Federal Transit Administration. Public Transportation in the United States: Performance and Conditions. June 1992. Federally Assisted Housing U.S. Department of Housing and Urban Development, Worst Case Needs for Housing Assistance in the United States in 1990 and 1991: A Report to Congress, Table 5, HUD 1481–PDR, June 1994. Indian Health Care Facilities Indian Health Service. Priority System for Health Facility Construction (Document Number 0820B or 2046T). September 19, 1981. Office of Audit, Office of Inspector General, U.S. Department of Health and Human Services. Review of Health Facilities Construction Program. Indian Health Service Proposed Replacement Hospital at ANALYTICAL PERSPECTIVES Shiprock, New Mexico (CIN A–09–88–00008). June, 1989. Office of Audit, Office of Inspector General, U.S. Department of Health and Human Services. Review of Health Facilities Construction Program. Indian Health Service Proposed Construction Project for the Alaska Native Medical Center at Anchorage Alaska (CIN A–09–89–00096). July, 1989. Office of Technology Assessment. Indian Health Care (OTA 09H 09290). April, 1986. Wastewater Treatment Environmental Protection Agency, Office of Wastewater Enforcement and Compliance. Assessment of Needed Publicly Owned Wastewater Treatment Facilities in the United States-Including Federally-Recognized Indian Tribes and Alaska Native Villages (EPA 430/09 0991 09024). November 1991. Water Resources National Council on Public Works Improvement. The Nation’s Public Works, Washington, D.C., May, 1987. See ‘‘Defining the Issues—Needs Studies,’’ Chapter II; Report on Water Resources, Shilling et al., and Report on Water Supply, Miller Associates. Frederick, Kenneth D., Balancing Water Demands with Supplies: The Role of Demand Management in a World of Increasing Scarcity, Report for the International Bank of Reconstruction and Development, Washington, D.C. 1992. 8. RESEARCH AND DEVELOPMENT EXPENDITURES The Administration is proposing $72 billion (including facilities) in research and development (R&D) investments in 1996. Civilian R&D will increase $902 million or three percent to $34 billion. Civilian R&D will increase nearly 17 percent since 1993. In 1996, university-based research will increase to roughly $12 billion, a $881 million or eight percent increase over 1995. Chapter 4 of the Budget includes a discussion of science and technology that contains more information on R&D activities. Table 8–1. FUNDING OF RESEARCH AND DEVELOPMENT ACTIVITIES (Outlays (including facilities), in millions of dollars) 1993 Actual By Agency: Defense ...................................................................................................................................................... Health and Human Services ...................................................................................................................... National Aeronautics and Space Administration ....................................................................................... Energy ........................................................................................................................................................ National Science Foundation ..................................................................................................................... Agriculture ................................................................................................................................................... Commerce .................................................................................................................................................. Interior ......................................................................................................................................................... Environmental Protection Agency .............................................................................................................. Other ........................................................................................................................................................... Total ....................................................................................................................................................... By R&D Theme: Basic ........................................................................................................................................................... Applied ........................................................................................................................................................ Development ............................................................................................................................................... Facilities ...................................................................................................................................................... Total ....................................................................................................................................................... Civilian: Basic ........................................................................................................................................................... Applied ........................................................................................................................................................ Development ............................................................................................................................................... Facilities ...................................................................................................................................................... Change: 1995 to 1996 Percentage Change: 1995 to 1996 1995 Estimate 1 1996 Proposed 38,035 9,660 8,885 6,946 1,842 1,455 607 636 519 1,734 36,014 11,272 9,561 7,115 2,123 1,546 904 645 552 1,972 35,407 11,793 9,179 7,363 2,357 1,567 1,096 676 616 2,060 –607 521 –382 249 234 21 192 31 64 88 –1.7 4.6 –4.0 3.5 11.0 1.4 21.3 4.8 11.6 4.5 70,320 71,705 72,115 411 0.6 12,625 12,437 42,625 2,634 13,527 13,972 41,781 2,425 13,834 14,166 41,879 2,235 308 194 99 –189 2.3 1.4 0.2 –7.8 70,320 71,705 72,115 411 0.6 11,370 8,511 7,375 1,749 12,384 10,214 8,424 1,985 12,654 10,449 9,008 1,797 271 235 584 –187 2.2 2.3 6.9 –9.4 Subtotal ................................................................................................................................................. Defense: Basic ........................................................................................................................................................... Applied ........................................................................................................................................................ Development ............................................................................................................................................... Facilities ...................................................................................................................................................... 29,004 33,006 33,909 902 2.7 1,255 3,926 35,251 885 1,143 3,758 33,357 440 1,180 3,717 32,872 438 37 –41 –485 –2 3.2 –1.1 –1.5 –0.5 Subtotal ................................................................................................................................................. 41,317 38,698 38,207 –492 –1.3 R&D Support to University Researchers .................................................................................................. 10,463 10,949 11,830 881 8.0 1 Includes proposed supplementals and rescissions. 119 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE In a period of tight budgetary constraints and program reinvention, the Administration has been reexamining the role and design of Federal credit and insurance programs. In most lines of credit and insurance, the private market is capable of meeting societal demands and Federal intervention is unnecessary. However, there are situations where Federal intervention can improve on the market outcome. (Figure 9–2 at the end of the chapter text describes six common justifications for Federal intervention in credit markets.) The goal of the Administration’s review of Federal credit and insurance programs has been to ensure that each program efficiently meets the needs left unaddressed by the private market. As part of this review, the Administration is investigating whether the direct and indirect benefits to the economy from each program exceed all direct and indirect costs, including costs associated with redirecting scarce taxpayer resources away from other investments. In some situations, the market recently has become capable of providing the service and older Federal credit and insurance programs may be modified or sunset to make room for private markets to develop. In other instances, Federal programs may be redesigned to target Federal assistance more efficiently to groups unable to obtain credit and insurance in the private market, while encouraging the emergence and development of private credit market institutions. This section discusses the role of the Federal Government in credit and insurance markets, highlights important Administration initiatives to improve the effectiveness of Federal credit and insurance programs, discusses credit reform and the tools required to manage Federal risk, and lays the foundation for future program evaluations designed to improve Federal credit and insurance markets. Estimated Costs of Federal Credit and Insurance Programs Table 9–1 presents the face value and estimated costs of the largest Federal credit and insurance programs. The Federal Government continues to be the largest creditor institution in the United States, with over $5.8 trillion in outstanding direct loans ($155 billion), loan guarantees ($699 billion), and insurance ($5.0 trillion) at the end of 1994. Including activity from Governmentsponsored enterprises pushes the total to $7.3 trillion. If indirect assistance to the issuance of credit through deposit insurance is included, the Federal Government directly or indirectly assisted over 35 percent of the total private domestic borrowing in the United States in 1994.1 Furthermore, as shown in Chart 9–1, the face value of Federal credit outstanding is expected to rise at an accelerated pace over the next five years. 1 Excludes the influence of tax expenditures on borrowing. Total subsidy costs over the next five years associated with direct loans and loan guarantees are expected to be $27–$59 billion, an increase of about a third from last year. The bulk of this increase is in the student loan programs where, because student interest rates are capped at 8.25 percent, higher market interest rates increase the cost of direct loans and cause the Federal Government to pay a special allowance to lenders in the guarantee program. In addition, based on recent analysis, the Department of Education is using a higher expected default rate for cost estimating. For insurance, estimates of total subsidy costs over the next five years have fallen to $17–$27 billion, a decrease of about twothirds from last year’s estimates. For the Pension Benefit Guaranty Corporation (PBGC), the decline results from reforms enacted last year. For financial institutions, it is due mainly to economic recovery. 121 122 ANALYTICAL PERSPECTIVES TABLE 9–1. FACE VALUE AND ESTIMATED COST OF FEDERAL CREDIT AND INSURANCE PROGRAMS (In billions of dollars) Program Face Value 1993 1 Direct Loans: 3 Farm Service Agency (excl.CCC), Rural Devlpmt., Rural Housing ......................... Rural Electrification Admin. and Rural Telephone Bank .......................................... Federal Direct Student Loan Program ...................................................................... Export-Import Bank .................................................................................................... Agency for International Development ...................................................................... Public Law 480 .......................................................................................................... Foreign Military Financing ......................................................................................... Small Business .......................................................................................................... Other Direct ............................................................................................................... 49 36 ...................... 9 14 12 9 6 16 1995 Budget Estim. Present Value of Future Costs 1, 2 Face Value 1994 Current Estimates Present Value of Future Costs 2 Subsidy Outlays 1995–2000 18–24 3–5 7–10 3–5 5–7 7–9 0–2 2–3 2–4 49 38 * 8 14 12 8 9 17 15–21 2–4 11–15 3–5 0–1 2–3 0–1 2–3 2–4 3–5 1–4 6–7 0–1 0–1 1–2 0–1 0–2 0–1 151 47–69 155 37–57 11–24 Guaranteed FHA Single-Family ..................................................................................................... VA Mortgage .............................................................................................................. FHA Multi-Family ....................................................................................................... Federal Family Education Loan Program ................................................................. Small Business .......................................................................................................... Farm Service Agency and Rural Housing ................................................................ Export-Import Bank .................................................................................................... CCC Export Credits ................................................................................................... Other Guaranteed ...................................................................................................... 292 161 81 85 20 7 12 9 26 (18)–0 3–6 4–6 8–11 2–4 1–4 4–5 4–5 1–3 303 155 79 75 25 9 17 12 23 (13)–0 4–6 5–6 13–23 4–5 1–2 6–8 4–5 2–3 (10)–0 2–3 0–1 17–18 1–3 0–1 2–3 2–3 2–3 9–44 699 26–58 16–35 (5)–15 5–15 ...................... Total Direct Loans ..................................................................................................... Loans 3 : Total Guaranteed Loans ............................................................................................ 693 Federal Insurance: Banks ......................................................................................................................... Thrifts ......................................................................................................................... Credit Unions ............................................................................................................. 1,889 707 237 30–45 15–25 ...................... 1,885 691 253 (5)–15 15–25 ...................... Subtotal, Deposit Insurance ...................................................................................... 2,833 45–70 2,829 10–40 0–30 PBGC ......................................................................................................................... Disaster Insurance ..................................................................................................... Other Insurance ......................................................................................................... 950 722 511 60–90 10–16 9–10 950 723 484 20–40 14–15 13–14 2–10 7–8 8–9 Total Federal Insurance ............................................................................................ 5,016 124–186 4,986 57–109 17–57 ...................... ...................... ...................... ...................... 0–1 ...................... ...................... ...................... ...................... 0–1 GSEs: 4 Freddie Mac ............................................................................................................... Fannie Mae ................................................................................................................ Federal Home Loan Banks ....................................................................................... Sallie Mae 5 ............................................................................................................... Farm Credit System .................................................................................................. 474 622 107 ...................... 52 ...................... ...................... ...................... ...................... 0–1 567 744 140 ...................... 51 Total GSEs ................................................................................................................ 1,255 0–1 1,502 0–1 0–1 Total .................................................................................................................. 7,115 180–300 7,342 120–225 44–117 1 Costs are as they were displayed in the 1995 budget, uncorrected for errors; face values for 1994 have been updated. 2Direct loan future costs are program account outlays projected into the future plus the embedded loss from outstanding loans. Loan guarantee costs are program account outlays plus liquidating account outlays (and outlays from defaulted guarantees that result in loans receivable) projected into the future. Future insurance costs are the equivalent of program plus liquidating costs through 2000, plus the accrued liability remaining at the end of 2000. 3 Exclude loans and guarantees by deposit insurance agencies and programs not included under credit reform, such as CCC farm supports. Defaulted guarantees which become loans receivable are accounted for in guaranteed loans. 4 Net of borrowing from Federal sources, other GSEs, and federally guaranteed loans. 5 The face value and Federal costs of Federal Family Education loans in Sallie Mae’s portfolio are included in that account above. 123 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE Federal Insurance Federal insurance programs typically exist to provide insurance coverage for risks not covered by the private market. That is, Federal insurance is targeted to correct incomplete markets where private insurance does not provide services even though the private cost of providing them is less than the price that consumers are willing to pay. The two most common causes of incomplete markets in insurance are catastrophe risk and moral hazard-agent problems. This section discusses the Administration’s proposals both to improve the Federal Government’s ability to respond to these shortcomings in the insurance market in an efficient manner and to limit the exposure of the Federal Government to these insured risks. Federal Disaster Insurance In the wake of Hurricane Andrew in Florida, the Northridge earthquake, and the earthquake in Japan, catastrophic risk has attracted considerable attention. The Federal Government maintains an array of programs designed to address catastrophe risk 2 not borne by the private market. The Federal Government provides insurance against natural disasters, such as flood and crop insurance. The Federal Government also provides post-disaster loans and grants to help individuals, businesses, and communities rebuild in the wake of a disaster. The Federal Government provides flood insurance through the National Flood Insurance Program (NFIP) administered by the Federal Emergency Management Agency (FEMA). The NFIP provides flood insurance to property owners living in communities that have adopted and enforced appropriate flood plain management measures. Structures built before a community joined the flood insurance program are by law subsidized, while structures built after a community joins the NFIP are actuarially rated. The Administration is proposing increasing the premium for subsidized policy holders to generate $36 million in 1996. Federal crop insurance is provided by the Federal Crop Insurance Corporation (FCIC). The FCIC administers a subsidized insurance program for farmers to protect against unavoidable agricultural production losses. The program, originally authorized in the 1930’s, was created to alleviate a lack of privately available crop insurance. Since the 1980’s the program has been structured as a cooperative effort between the Federal Government and the private insurance industry. The Federal Government reimburses private insurance companies for the administrative expenses (except for catastrophic insurance policies) and reinsures the private companies through a reinsurance agreement for excess insurance losses on all policies. Private companies sell and adjust crop insurance policies, including catastrophic insurance policies. 2 Catastrophes are risks that have a low probability of occurrence, but for which the losses associated with the event will cause widespread disruption and/or firm insolvency. In re-examining the Federal Government’s role in the provision of insurance, it is important to recognize the problems that private insurers may face in providing coverage. In general, insurer problems can be split into two types. The first type represents difficulties in pricing the insured risk for all levels of coverage. The second area of difficulty is overexposure to catastrophic losses. In the case of flood insurance, a Federal program was deemed necessary principally because flooding was seen as uninsurable across all layers of loss. Private insurance companies had very little information on the risks of flooding in each geographic area, and therefore, did not provide coverage. To address this concern, the NFIP was established in the early 1970s to provide insurance coverage, to require loss mitigation efforts designed to reduce flood damage, and to begin a flood hazard mapping project to quantify the risk of flooding in each geographic area. The Federal flood program has been relatively successful in meeting these goals. In fact, given that the mapping of flood hazard zones is virtually complete, the success of the flood insurance program has raised the possibility of investigating ways to privatize non-catastrophic portions of the program. The Federal crop insurance program also was established to cover a risk—crop production losses—from events that were considered uninsurable. The problem with crop insurance, however, has been the availability of Federal ad hoc disaster payments. Over the past fourteen years, participation in the crop insurance program was kept artificially low by the availability of post-event disaster aid from the Federal Government. Because disaster payments were grants to affected individuals, farmers had little incentive to purchase Federal crop insurance. As a result, the cost of ad hoc disaster payments rose over the past seven years, and the crop insurance program accumulated an $8 billion actuarial deficit. To correct for farmers’ reliance on these ad hoc payments, major crop insurance reforms were enacted last year pursuant to the 1995 budget. The reforms repealed existing agricultural disaster payment authorities and authorized a new catastrophic insurance policy that indemnifies farmers at a rate roughly equal to the previously free disaster payment. The catastrophic insurance policy is free to the farmer except for an administrative fee. Private companies may sell and adjust the catastrophic portion of the crop insurance policy. Also, consistent with the flood insurance program, future evaluations of the crop insurance program can explore further opportunities for increasing the private sector’s share of risk for non-catastrophic coverage. In providing insurance for floods, crop losses, or other natural disasters, it is important to recognize the potential shortfall that can occur in the private market provision of catastrophe insurance. In most private credit and insurance markets, firms can reserve against future losses and incorporate an element of catastrophe 124 ANALYTICAL PERSPECTIVES risk. For certain risks, however, the losses associated with private insurance would be large enough to threaten the bankruptcy of the insuring firm. Even if actuarially sound rates were charged and fully reserved, the insurer could be bankrupt by a large loss if that loss occurred before sufficient reserves were accumulated. To compensate, the insurer could levy an additional premium to fund over a shorter period of time. Unfortunately, such a premium could make the insurance overly expensive. Moreover, the legal and regulatory structure of insurance companies make it unlikely that a very large reserve for catastrophes would be retained over a long period of time. Unlike private firms, the Federal Government is relatively free of insolvency risk and has a greater ability to spread large claims over time. Thus, the Federal Government may be able to improve on the market’s ability to handle risk by creating well defined insurance programs for these catastrophic risks. To structure such a catastrophe insurance program properly, however, the Federal Government should ensure that where possible the risks insured are: • truly catastrophic in nature and not insurable in the private market; • defined within an insurable band and priced using risk-based premiums that accurately reflect the risk transferred to the Federal Government from each insured property or event; • controlled by Federal regulation of the insured entities or of the insurance mechanism; and • combined with incentives for the insured to undertake risk-mitigating activities to reduce overall losses (e.g. deductibles or cost-shares). Restructuring Federal disaster programs along these lines will complement other forms of private insurance, minimize risk-shifting to the taxpayer, and encourage loss mitigation efforts. The natural disaster proposals currently being discussed with Congress highlight the Administration’s efforts to redesign the Federal Government’s role in the provision of natural disaster insurance. These proposals provide an integrated approach for dealing with the societal losses created by large natural disasters like hurricanes and earthquakes. The proposals are designed to reduce the Federal and societal costs of disasters; increase personal security in the aftermath of a disaster; and increase the extent to which the risks of natural disaster losses are internalized in the private sector—creating incentives to moderate future disaster losses. These proposals also aim to encourage cost-effective loss mitigation, improve the effectiveness of private insurance markets, and reduce any disincentives for insurance or loss mitigation created by overgenerous Federal post-disaster assistance. Pension Insurance For some types of insurance, the private market simply does not provide coverage against certain risks because private insurers have inadequate control over the size of the risk insured. Pension insurance is a classic example. Before the establishment of a Federal pension insurance program in the Employee Retirement Income Security Act of 1974 (ERISA), when a sponsor of a defined benefit pension plan entered bankruptcy and terminated an underfunded plan, the employees in that plan were at risk of losing promised benefits. Private insurance firms could not provide private pension insurance because they could not control the pension funding decisions of the firm sponsoring the plan. To counteract this problem, ERISA established the Pension Benefit Guaranty Corporation (PBGC) to insure beneficiaries against this loss, covering the gap between promised benefits and assets in the terminated plan, and established new rules for pension funding. Pension insurance was made available for both multi-employer and singleemployer plans. The Federal pension insurance program, however, also proved weak in managing the risks associated with pension underfunding. Despite regulations governing plan sponsor pension contributions, PBGC’s controls over firm funding requirements and actuarial assumptions were insufficiently stringent. Furthermore, the PBGC was prevented by law from charging risk-based insurance premiums.3 As a result, PBGC experienced a large accumulation of underfunding in a small, but high-risk, segment of its insured portfolio, increasing Federal exposure markedly between 1989 and 1993. To reverse this rise in exposure, the Administration proposed and Congress enacted the Retirement Protection Act of 1994 (RPA) to increase funding requirements on underfunded pension plans and assure workers of the value of promised benefits. The RPA, which was passed in the enabling legislation for the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), amends ERISA by: • requiring companies to accelerate their contributions to underfunded, defined-benefit pension plans; • increasing the variable rate insurance premium that companies with severely underfunded, defined-benefit pension plans are required to pay to PBGC by eliminating the cap on the variable rate premium; • requiring privately-held companies with seriously underfunded plans to give PBGC advance notice of any transactions potentially harmful to their plans (publicly traded companies already must make such information available); and • standardizing the interest rates and mortality tables used to calculate the degree of underfunding and therefore both the companies’ premiums and their required contributions to the plans. The impact of these reforms is expected to be significant. As shown in Table 9–1, the exposure of the PBGC is expected to drop considerably from $60–90 billion to $20–40 billion. As the new ERISA funding rules 3 The PBGC premium is comprised of both a fixed rate premium and a variable rate premium. All pension plans pay the fixed premium of $19 per participant. Underfunded pension plans pay an additional variable rate premium equal to $9 per thousand dollars of underfunding. Prior to the RPA, this variable rate premium was capped at a maximum of $53 per participant. 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE take effect, this exposure could decrease further. Given the recent success in restructuring the PBGC insurance program, no additional pension insurance reforms are included in the budget. However, the Administration will continue to explore better methods for quantifying and pricing the Federal costs of pension insurance. Deposit Insurance Like pension insurance, Federal deposit insurance provides insurance protection against losses that were previously deemed uninsurable in the private market due to an inability to control the riskiness of the insured institution—in this case, a bank or thrift. Through the Federal Deposit Insurance Corporation (FDIC) (and before 1988, the Federal Savings and Loan Insurance Corporation or FSLIC), the Federal Government provides insurance for deposits held at U.S. commercial banks and thrifts against losses arising from the failure of an individual bank or thrift, up to the current limit of $100,000 per account. In addition, Federal deposit insurance and the Federal Reserve help protect against financial contagion—the risk that failure of one financial institution will lead to a cascade of failures in other institutions.4 Thus, deposit insurance both provides coverage against depositor losses from individual bank failures and serves as a form of catastrophic risk protection against widespread disruption in the financial markets. Even more than pension insurance, weaknesses in the Federal Government’s ability to manage its deposit insurance exposure became apparent over the 1980s and early 1990s. During this period over 1,400 banks and 1,100 thrifts failed, leading to $135 billion in taxpayer losses. In 1989 and 1991, the Federal Government took action to stem the tide of these losses and create a stricter regulatory environment for insured institutions in the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the Federal Deposit Insurance Corporation Improvement Act (FDICIA). These legislative reforms and the turnaround in the economy helped restore the health of both depository institutions and the deposit insurance system over the past few years. As reflected in the expected costs for deposit insurance shown in Table 9–1, both the bank and thrift industries have experience a strong cyclical upturn in earnings that has allowed these institutions to recapitalize. • For banks, record earnings over the past two years have enabled capital positions to rise quickly to regulatory levels. This renewed health has enabled banks to recapitalize the Bank Insurance Fund (BIF) toward the 1.25 reserve ratio (i.e., its net worth equals 1.25 percent of total insured deposits) at a rate faster than originally predicted. Current estimates put the timing of the BIF recapitalization at some time late this calendar year. Once recapitalized, the FDIC is empowered to 4 Through discount window lending, the Federal Reserve can respond to shocks to the interbank system by providing short-term loans to financial institutions in need of liquidity funds. 125 lower the BIF deposit insurance premium for banks to a level sufficient to keep the BIF reserve at the 1.25 level. Over the next few quarters, rising interest rates and narrowing interest margins will likely reduce bank earnings from their recent record pace. In fact, several large banks have already reported significant pressure on interest earnings. Nevertheless, the future prospects for the banking industry remain strong. • The thrift industry also showed strong improvement in earnings over the past three years, largely due to the favorable interest rate environment, better credit quality, and improvement in economic conditions. The thrift industry reported net losses of $3.8 billion in 1990; followed by net income of $1.2 billion in 1991, $5.1 billion in 1992, and $4.9 billion in 1993. However, the long-term prospects for the thrift industry are more uncertain than for banks. While ameliorated by prompt regulatory action, the thrift industry remains vulnerable to geographic asset concentration, swings in interest rates, and competition from banks and nonbank financial institutions—competition that continues to increase. Despite the financial recovery and recent deposit insurance reforms, several issues concerning the longterm health of the banking and thrift systems remain. First, the impending reduction in the BIF premium could create additional earnings pressure for the thrift industry and further aggravate the financial condition of the thrift insurance fund, the Savings Association Insurance Fund (SAIF). The SAIF is required by law to maintain its premium rates around 23 basis points until the fund in recapitalized. Currently, the SAIF only has $2 billion in reserves to cover nearly $700 billion in insured thrift deposits—barely enough to support the failure of any one large institution. Under current law, SAIF is also obligated to cover the interest on Financing Corporation (FICO) bonds that were used to finance part of the cost associated with the recent thrift debacle. This FICO obligation currently consumes 45 percent of SAIF’s premium. The Administration currently forecasts that the net worth of SAIF will most likely remain stable with no recapitalization within the 5-year budget horizon. Other forecasts indicate that the SAIF will strengthen its financial position and build up its net worth. However, even these more optimistic forecasts do not suggest a recapitalization within the next 5 years. Given the institution-specific nature of the impact of the premium rate disparity, it is impossible to predict the complete effect of the BIF recapitalization on thrifts. Nonetheless, given normal economic variability and continued competition from other financial institutions, the downside risks to the thrift industry could be significant and deserve attention. The Administration will be monitoring and carefully examining this situation. Second, depository institutions operate in rapidly changing financial markets and face significant competition from non-banks. Depository institutions are re- 126 ANALYTICAL PERSPECTIVES sponding to these challenges by changing their products, investments, and their role in the economy. In the face of these changes, the effectiveness and efficiency of the current regulatory system will need to be continually re-examined and re-evaluated. Recognizing these issues, the Administration will continue to study the need for solutions that address the long run profitability of the bank and thrift industry and support the growth of the financial services sector. Federal Credit As with Federal insurance, Federal credit programs are intended primarily to help creditworthy borrowers who lack adequate access to private sources of finance. Federal credit programs also are used to correct for failures in competitive markets caused by foreign government subsidy programs and to provide support for education—which creates benefits for society as a whole and not just the individual. In addition, some Federal credit programs are used as a mechanism for redistributing subsidies from the general taxpayer to certain ‘‘disadvantaged’’ segments of the population. This section examines Federal credit programs and highlights the actions the Administration has taken or is proposing to improve the functioning of these markets. Small Business The Small Business Administration has been the main Federal Government vehicle for helping small businesses since 1953. The SBA operates 5 direct loan programs, 3 loan guarantee programs, 4 programs to provide or guarantee equity capital, and a disaster relief program. SBA programs are designed to help provide loans for small companies denied credit at ‘‘reasonable’’ terms by private lenders. The largest SBA program is the 7(a) program which provides over 80 percent of all SBA small business lending. Funds can be used to construct, expand, or convert facilities, to purchase equipment and material and for working capital. This program provides loan guarantees of up to 90 percent of the loan value (for a maximum guarantee of $500,000) of credit originated by private financial institutions. SBA direct disaster loans are provided to homeowners, renters, and businesses to repair real property to its pre-disaster condition. Businesses of any size are eligible, as are non-profit organizations. In addition, economic injury disaster loans (EIDLs) provide working capital for small businesses and small agricultural cooperatives. SBA disaster loans are heavily subsidized. Currently, homeowners pay 3.63 percent interest if no credit is available elsewhere, and 7.25 percent if credit is available. Business borrowers pay 4.0 percent or 7.7 percent. In addition to the low interest rate paid by most borrowers, applicants pay no application fees or points upon closing. Roughly two-thirds of the program’s subsidy results from the low interest rate charged for the loans. Given an unprecedented surge in SBA loan volume over the past three years, the Administration is in the process of reviewing the structure of the SBA 7(a) program to ensure that credit is adequately being targeted to those individuals unable to obtain credit in the pri- vate market. The rationale for the 7(a) program is that private creditors deny credit to small business borrowers because they are unable to distinguish borrowers with good investments from borrowers with unprofitable projects. Banks ration credit instead of raising the interest rate to reflect this additional risk because a higher rate will increase the percentage of speculative or risky projects in the pool of applicants, and thereby result in an even higher probability of selecting a poor risk. As a result, some investment projects that would have yielded positive economic returns for the economy are not financed and not undertaken. Unfortunately, Federal programs designed to provide credit to these rationed borrowers suffer from the same difficulties in selecting ‘‘good’’ projects from ‘‘bad’’ projects. Therefore, the SBA needs to rely on additional techniques and screening mechanisms for selecting only those borrowers that cannot obtain credit in the private market but are likely to have sound investments. This is a particularly difficult challenge for the SBA given the recent rapid increase in demand for SBA loans, and the fact that SBA certified lenders make few small business loans without an SBA guarantee. The SBA has undertaken a number of measures to ensure that its credit subsidy funds go to borrowers unable to obtain private financing and that among these eligible borrowers, the most economically viable business proposals are funded. First, SBA lowered the maximum guarantee level from the $750,000 limit to $500,000 for most loans in the 7(a) program. This change targets subsidies to smaller loans, which by definition are more costly for lenders to make. The SBA is also considering options for reducing the average Federal guarantee on loans from the current level of 77 percent. Encouraging private lenders to take on a larger share of the risk will result in improved underwriting on loans made and better targeting of funds to viable projects. An additional market-based approach is to ensure that the costs of credit to the borrower (through interest rates and fees) are priced higher than the private market and, therefore, attractive only to borrowers unable to obtain credit elsewhere. This budget proposes several reforms that move in this direction. Specifically, the budget proposes: (1) an additional annual fee of 30 basis points on the unpaid balance of all new 7(a) loans, excluding loans sold in the secondary market; (2) eliminating the existing rebate of the one percent guarantee fee for approved loans under $50,000. The Administration is also committed to eliminating the unnecessary subsidies in the SBA’s disaster program. The budget proposes raising the interest rate on disaster loans to the prevailing rate on 127 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE comparable maturity Treasury securities plus two percent. Providing subsidized loans after a disaster undermines the Administration’s position that citizens should purchase private disaster insurance. The Administration, will continue to review the SBA programs to assess whether additional measures are needed to target credit properly toward businesses denied finance in the private sector, and will explore additional methods for implementing self-selection mechanisms and monitoring tools to assist in screening loan applicants. Export Credits The Federal Government helps U.S. companies obtain credit and insurance for exporting goods overseas or managing overseas private investments when such credit is unavailable in the private market. Most of this trade finance is provided through the Export-Import Bank, the Overseas Private Investment Corporation (OPIC) and the Department of Agriculture. OPIC also provides U.S. firms with insurance against real or perceived political, expropriation, and foreign exchange inconvertibility risk associated with investing overseas. However, providing trade credit to U.S. companies unable to obtain private finance is not the only function of U.S. export credits. In the global marketplace, subsidized credit programs are often utilized to offset noncompetitive interventions by foreign governments, including foreign production and export subsidies. Operating through multilateral and regional trade negotiations, the U.S. has consistently fought to eliminate these foreign subsidy policies. However, in some instances it becomes necessary to counteract the effect of these foreign export subsidies and the competitive disadvantage that they create for U.S. firms. In such instances, the Federal Government may provide countervailing export subsidies or other forms of trade assistance to offset the impact of the foreign government support. The U.S. provides such services through a number of agencies organized under the Trade Promotion Coordinating Committee (TPCC). These trade promotion activities of the Federal Government and the TPCC are discussed fully in Chapter 10. Education The Federal Government has been helping to finance postsecondary education in the United States since the 19th century. Education yields a significant return to the individual. Holding other factors constant, college graduates earned about 50 percent more than high school graduates in the early 1990s. The benefits to society as a whole from education, however, can be greater than the sum of the benefits to all individuals, because workers derive significant benefits from the education level of their co-workers. Federal Government involvement in providing financial assistance for education is also designed to overcome the difficulty that students have in obtaining private credit without prior borrowing experience and collateral. Before 1993, most education credit was provided in the form of Guaranteed Student Loans administered through the Federal Family Education Loan Program (FFELP). In 1993, the Administration initiated an effort to transition Federal support for financing education from guaranteed loans to direct student loans through the Federal Direct Student Loan Program (FDSLP). This effort is designed to: 1) lower the student and Federal costs of financing postsecondary education, 2) provide students with an income-contingent repayment option that will permit many postsecondary school graduates to take lower paying community service jobs or work through their lower-earning years of employment without fear of defaulting on their loans, and 3) improve the Federal Government’s ability to manage and control the costs of supporting postsecondary education. The direct loan program provides a broader range of payback options for borrowers than the guaranteed program. In addition, the program is simpler for postsecondary institutions to administer and achieves major budget savings for the Federal Government. The budget proposes that the phase-in to direct lending be accelerated. Instead of 50 percent in academic year 1996–97, 80 percent would be direct loans in that year, reaching 100 percent by academic year 1997–98. This proposal results in $4 billion in outlay savings over 1996–2000. Housing Through the mortgage insurance programs of the Federal Housing Administration (FHA) in the Department of Housing and Urban Development (HUD), and the Department of Veterans Affairs (VA), the Federal Government has a long history of underwriting mortgage credit for riskier home purchases. FHA programs also provide financial support for the development of low-income multi-family housing; while the Rural Housing and Community Development Service of the U.S. Department of Agriculture (USDA) assists in financing both multi-and single-family rural housing purchases. In 1994, these programs supported over $382 billion in outstanding direct and guaranteed loans. The Government National Mortgage Association (GNMA) packages FHA and VA mortgages as securities and guarantees timely payment to investors. Meanwhile, conventional mortgages are packaged as guaranteed securities by two Government-sponsored enterprises—the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Federal programs that assist the purchase of housing are targeted to individuals that have difficulty obtaining private mortgage finance without some form of Government assistance. For example, FHA’s single-family housing guarantee program serves younger families that lack sufficient savings to meet conventional downpayment requirements: VA housing guarantees nodownpayment loans to veterans. In addition, the singlefamily rural housing direct loan program administered by the USDA, historically has provided low-income rural residents with mortgages at interest rates that 128 ANALYTICAL PERSPECTIVES are calculated based on the mortgage applicant’s ability to pay. Given the small initial equity in these mortgages, Federal mortgage portfolios carry a significantly higher risk of loss than conventional mortgage pools. Since the creation of these mortgage programs back in the 1930s and 1940s, private mortgage markets have become increasingly sophisticated and flexible. As a result, many of the original motivations for housing credit assistance have become outdated. Recognizing these changes, the Administration is in the process of a complete reinvention of HUD’s housing credit programs. Program Privatization, Termination and Restructuring In re-evaluating Federal credit and insurance programs, consideration should be given to the evolving needs of the marketplace. In some instances, the original objective of the Federal program has been overtaken by the rapidly changing economic environment. In these cases it is necessary to re-examine the justification, mission, and structure of existing Federal programs. An initial Administration review has already led to several proposals for privatization, termination, and restructuring. Privatization The argument to support the Government’s role in the extension of credit usually is associated with a lack of opportunities for credit in the private market. However, once the Government has created a profitable market for a type of credit, the time may come to transition out of the program. There are two proposals in this year’s budget that recommend such privatization. The College Construction Loan Insurance Association (Connie Lee) was created to insure and reinsure bonds and loans of educational institutions to finance the acquisition, construction, or renovation of facilities. The Administration is considering submitting legislation which would fully privatize Connie Lee by divesting the Secretary of Education’s stock ownership in the Corporation and repealing the Corporation’s enabling legislation. The Connie Lee authorizing statute anticipates the eventual termination of the Federal interest in and privatization of the Corporation. For similar reasons, including the success of the direct lending program, the Administration is also considering proposing legislation to privatize the Student Loan Marketing Association (Sallie Mae). The Rural Telephone Bank (RTB) was established in 1971 to provide an additional financing source for localexchange telephone companies operating in rural areas. At the time, a supplemental source of financing was needed to fill gaps in private sector lending. The 1971 authorizing legislation, as amended, requires that the RTB begin privatization in 1996. The budget proposes to completely privatize the RTB at the beginning of 1996, after which it would continue its mission as a private lender. No further Federal subsidies would be provided to the RTB after 1996. Program Termination Credit programs often are used as a delivery mechanism to redistribute income from the general taxpayer to certain ‘‘disadvantaged’’ groups. In some cases, the Administration has determined that Federal credit is an inappropriate vehicle for providing this assistance. As a result, the Administration is seeking to transition several credit programs into block grants to States and localities. These proposals can be found in the Departments of Transportation, Education, and Agriculture. The College housing and facilities loan program (CHAFL) provides direct low-interest-rate loans to postsecondary educational institutions for construction, reconstruction, and renovation of housing and other educational facilities. The National Performance Review recommended the elimination of the CHAFL program because providing funds to institutions of higher education for renovation and construction supplants traditional State, local, and private support. The budget incorporates this recommendation to terminate the program. The Right-Of-Way revolving fund program advances the cost of right-of-way acquisition through a loan to States. The State must repay the loan when the project goes to construction. Repayment is usually made in the form of a deduction from the grant of Federalaid Highways funds that the State would otherwise receive for the project. In an effort to improve the distribution and funding of highways, this program has been proposed for termination in the budget, to be replaced by grants. Restructuring Credit reform provides the tools for a discussion of the best mechanism for delivering program benefits. By placing the cost of credit programs on a budgetary basis equivalent to other spending, it allows for a better comparison of cost between direct loan and loan guarantee programs and between credit programs and other Federal assistance, such as grants. Proposals to alter the delivery mechanism of direct loans, guarantees, or grants are more equitably compared under credit reform. Recommendations in the budget include an increased movement from student loan guarantees to direct student loans and the use of block grants (rather than a direct loan or loan guarantee) when the grant provides additional flexibility to ensure the best delivery to the beneficiary. The Rural development insurance fund and its successor funds offer direct loans for the development of water and wastewater disposal systems in low-income rural areas and towns. Direct and guaranteed loans are available for rural areas and towns to construct, enlarge, or improve essential community facilities, such as health clinics, hospitals, and fire stations. These direct loans are offered at a range of three interest rates 129 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE depending on the borrower’s income and are available to public entities such as municipalities, counties, Indian tribes, and non-profit corporations. Assistance for rural businesses is provided by USDA through two programs, business and industry (B&I) guaranteed loans and the intermediary relending program (IRP) direct loans. The B&I guaranteed loans are available to improve, develop or finance business, industry and employment and improve the economic climate in rural communities. The IRP provides low-interest direct loans to non-profit intermediaries, such as local community development corporations, that provide loans to business facilities and community development projects in rural areas. In addition, a new B&I direct loan program is proposed to reach borrowers who cannot afford private credit terms. The 1996 budget proposes to change USDA’s rural development assistance by consolidating funding for 14 programs into one fund. This fund would be allocated between the existing programs by USDA’s Rural Economic and Community Development State Directors in consultation with State and local governments, other community-based organizations, and State Rural Development Councils. This should provide more flexibility in allocating resources among rural development programs to better meet State and local needs. Beginning in 1996, HUD proposes to reinvent the Federal Housing Administration into a Governmentowned but market-responsive enterprise to supplement the rapidly evolving private mortgage markets. FHA plans to use Federal credit enhancements to finance the development of affordable rental housing. A consolidation of existing programs into three areas—single family mortgage insurance, multifamily mortgage insurance and multifamily project portfolio restructuring— will aid in FHA’s streamlining efforts. FHA’s public corporation charter will delineate its specific objectives and associated performance goals. Reforms under consideration include proposals for various forms of publicprivate partnerships and risk-sharing in the provision of mortgage insurance. Program Reinvention and Government Risk In every loan guarantee, direct loan, or insurance policy, there is a transfer of risk from the borrowerinsured to the underwriter. In the case of loan guarantees and direct loans, this risk is typically the risk of default or prepayment. In the case of insurance, the risk is the payment of claims associated with a specified insured event. In private markets, the issuer of the credit or insurance collects a premium, fee, or interest yield that is designed to compensate for the risk assumed. That is, the creditor or insurer will expect to collect enough revenue from issuing the credit or insurance to fully offset the risk of the instrument and generate a profitable return. Of course, for any particular credit or insurance contract, the creditor may experience a loss. However, the creditor expects that the net earnings on the portfolio of all similar loans, loan guarantees, or insurance contracts will be sufficient to compensate for the risks assumed. With one major exception, this risk-transfer structure of credit and insurance applies to both privately-issued and publicly-issued credit and insurance.5 The exception is that Federal credit and insurance programs often add a subsidy component. Federal direct loans and loan guarantees are intended to provide benefits to certain borrowers or to channel additional resources to certain sectors. This is accomplished by providing more favorable terms to targeted borrowers than are available from private lenders. The subsidy component is a mechanism by which a portion of the expected loss to the Federal Government from a particular credit 5 In fact, there are many cases in the private sector where creditors or insurance companies cross subsidize one line of business with returns from another in order to maximize returns over the entire portfolio of business. or insurance instrument is paid by the general taxpayer instead of the party receiving the credit or insurance.6 Measuring the Government’s Exposure The Federal Credit Reform Act of 19907 made fundamental changes in the budgetary treatment of direct loans and loan guarantees. Before credit reform, budgetary resources were only required as cash was outlayed from the Federal Treasury. Credit reform requires an appropriation of the estimated cost of the credit instrument at the time of loan obligation, when the transfer of risk occurs. The subsidy element of a credit program is calculated as the difference between the present value of the expected cash outflows from the Government and the present value of the expected cash inflows. Each of these flows is discounted by the interest rate on marketable Treasury securities of comparable maturity at the time of loan disbursement. To make the value of this subsidy component explicit and comparable across direct loan and loan guarantee programs, the Federal Credit Reform Act of 1990 incorporated this ‘‘risk assumed’’ approach into budgeting for Federal credit programs. The two most prevalent subsidies in Federal credit programs are default subsidies and interest rate subsidies. The Federal Credit Reform Act has placed an emphasis on understanding the nature of Federal underwriting risk. Managing the Federal Government’s risk is dependent on the ability to fully measure the underlying risks of each program. These risks, defined in Figure 9–1, include: credit risk, interest rate risk, 6 Unlike privately-insured credit and insurance, Federal cost estimates (subsidies) currently measure only the expected losses from the program and not other characteristics of risk (i.e., other characteristics of the loss distribution). 7 Title V of the Congressional Budget Act of 1974, as amended by section 13201 of the Omnibus Budget Reconciliation Act of 1990. 130 ANALYTICAL PERSPECTIVES estimation risk, moral hazard risk, adverse selection risk, systemic (volatility) risk, and political risk. Managing the Federal Government’s Risk Quantifying the Federal Government’s risk involves valuing the loss inherent in loans and guarantees based on historical repayment and default patterns. Use of this estimation technique is difficult when repayment histories are unavailable; either as the result of poor data collection or if the program is relatively new. Agencies analyze and control the risk and cost of their programs by developing statistical models predictive of defaults and other possible deviations from loan contracts. Over the past year, additional focus has been placed on refining subsidy estimates and developing the tools necessary for quantifying risk. Credit reform provides the framework and the mandate for developing the tools needed for managing this risk. The following discussion outlines the proposals for managing and improving the Federal Governments risk and contingent liabilities. Reducing default risk.—The budget contains several proposals aimed at reducing the Government’s risk of borrower default. In addition to controlling Federal exposure, reducing default risk is an important tool FIGURE 9–1. for targeting Federal dollars to maximize expected program benefits. When borrowers default, program goals such as increasing homeownership, developing rural areas, or expanding small business ownership are not met. While it is impossible to eliminate default risk, when it is reduced, more resources are available for projects that generate strong returns for society. One example is the Health education assistance loan program which insures loans provided by non-federal lenders to students in health professions schools. Both principal and interest repayments are guaranteed by the Federal Government. As part of the Health Professions Education Extension amendments of 1992, the Government will soon reduce or withhold Medicare payments to doctors that have defaulted on their HEAL loans. Increasing the borrower’s stake.—Proposals have been generated to shift a portion of the Federal Government’s cost of issuing credit back to the borrower. When required to assume a greater share of the cost of the loan or loan guarantee, the borrower has more incentive to pay off the loan. These cost-sharing proposals are structured two ways: 1) as a new fee or an increase to an existing fee or, 2) raising the borrower’s interest rate to a rate equal to or greater than the current Treasury rate. The goal of these proposals is to pass CLASSIFICATION OF RISK • Credit Risk is the risk that a particular borrower will default, transferring the loss to the Federal Government. Credit Reform has focused attention on improving agency estimates of defaults for cohorts of loans, but further work is needed to improve these estimates. • Interest Rate Risk is the risk that fluctuations in the term structure of interest rates may lead to adverse changes in Federal program costs. Programs with interest supplements or that are not linked to Treasury rates provide a clear indication of the need to account for the full distribution of possible future interest rate movements. • Estimation Risk is the risk inherent in estimating the cost of the credit or insurance. There are several components to this category of risk—process, parameter, timing. Process risk is the risk represented by the use of a specific loss distribution to characterize and project the future losses associated with the exposure covered by any Federal program. Parameter risk is the risk associated with estimating the parameters specifying these loss distributions. Timing risk arises when claim payments occur either earlier or later than originally assumed. • Moral Hazard Risk arises when the probability of loss depends on the insured’s behavior, where that behavior is not observable or controllable by the insurer. There is no incentive for the fully-insured individual to undertake loss prevention measures since the benefits from the reduced probability of loss accrue to the insurance firm. As a result, the purchase of insurance and undertaking loss mitigation measures become substitutes. • Adverse Selection Risk arises when it is too difficult for the insurer to separately identify and price insurance for ‘‘good’’ risks and ‘‘bad’’ risks in a pool of insured policies. If the pool of insurance is priced for the average insured risk, this creates an incentive for higher risk individuals to purchase insurance in the pool (the price is low relative to their risk) and lower risk individuals to withdraw from the pool (the price is high relative to their risk). • Systemic Risk relates to losses in Federal credit and insurance programs caused by general trends and volatility in the economy. The bailouts of the thrift industry and the Farm Credit System graphically demonstrate how this type of risk can aggravate the credit risk in a loan or insurance portfolio. • Political Risk is the real or perceived risk that future political actions will loosen the terms and conditions under which Federal credit or insurance was written (e.g., debt forgiveness). 131 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE a portion of the cost back to the borrower, lowering the subsidy rate and providing an additional mechanism to filter borrowers with poor repayment prospects. A lower subsidy rate can allow a program with a fixed amount of budget authority to support more loans or a fixed number of loans to be made with less budget authority. The Maritime Administration Title XI program is part of the Administrations initiative to assist U.S. shipyards to compete successfully in the international market. The program provides subsidies for guaranteed loans for purchasers of ships from U.S. shipyards and for modernization of U.S. shipyards. In 1994, the program was extended to foreign buyers to encourage them to build in U.S. yards. The budget assumes enactment of a legislative proposal to increase the guarantee fees paid by borrowers by 0.5 percent. The fee increase will reduce the amount of subsidy budget authority (BA) needed to cover the risk of default. The rural housing insurance fund provides qualifying families with loans at effective interest rates as low as 1 percent. The borrower pays an effective interest rate equal to 20 percent of monthly income. This formula-driven calculation encourages borrowers to buy the most expensive allowable house to minimize the interest rate and maximize the subsidy. Regulations are being rewritten to make the program more consistent with traditional mortgage practices. Under these new regulations, a borrower’s interest will be determined by the relationship between a borrower’s income and area median income. For example, if a borrower’s income is 60–65 percent of area median, the borrower’s note rate will be fixed at 4 percent. The new system should reduce incentives to maximize the subsidy since it is no longer dependent on the price of the house. Credit Management and Debt Collection.—At the end of 1994, Federal tax and non-tax receivables to- talled an estimated $321 billion. Tax receivables totaled $79 billion, $67 billion of which were delinquent. Nontax receivables, which primarily include direct loans and loans acquired as a result of claims paid on defaulted guaranteed loans, totaled an estimated $241 billion. Of that amount, $50 billion were delinquent. For both Federal tax and non-tax receivables, delinquencies increased by approximately $9 billion during 1994. In 1995, to improve the collection of non-tax receivables and reduce the costs of delinquent debt collection, the Administration will propose a set of legislative initiatives to amend the Debt Collection Act of 1982. The proposed legislative amendments would: • authorize gain-sharing to allow agencies to retain a percentage of delinquent debt collections as an incentive to improve the administration and increase collections of delinquent debt; • expand authority for using private collection services to collect delinquent non-tax debt; • enhance Treasury’s authorities to allow for offsetting of payments to collect delinquent non-tax debt; • expand authority for Treasury to collect delinquent debt owed by employees of the three branches of Government; • expand authority for agencies to obtain Taxpayer Identification Numbers (TINs) from any business or individual attempting to conduct business with the Federal Government; and • authorize the Justice Department to streamline the litigation and enforcement processes. Over five years, estimates of savings from improving debt collection practices would exceed an estimated $155 million. Further, strengthening the Debt Collection Act of 1982 would result in consist treatment of debtors by standardizing minimum debt collection and enforcement practices across the Federal Government. Government Sponsored Enterprises Fannie Mae and Freddie Mac Both Fannie Mae and Freddie Mac continued strong financial performance in 1994, with Fannie Mae earning net income of $2.13 billion, a 13.8 percent increase from the prior year, and Freddie Mac earning $983 million, a 25 percent increase. The Enterprises used these earnings in part to increase their capital base, which stood at $9.5 billion (stockholder equity) for Fannie Mae and $5.2 billion for Freddie Mac at the end of 1994. In 1995, the Office of Federal Housing Enterprise Oversight (OFHEO), created in the 1992 Act to regulate the financial safety and soundness of the Enterprises, will promulgate specific risk-based capital requirements for both Fannie Mae and Freddie Mac. These requirements will be based on a statutorily-defined ‘‘stress test’’ which will measure the performance of the Enterprises’ mortgage portfolios under severe interest rate and credit stresses stretching 10 years into the future and determine adequate capital levels under these scenarios. The Federal Housing Enterprises Safety and Soundness Act of 1992 also requires the HUD Secretary to establish, and Fannie Mae and Freddie Mac to meet, certain affordable housing goals. These goals require the Enterprises to finance specific amounts of low- and moderate-income mortgages, central-city mortgages, and special affordable housing loans. Currently, transitional goals are in place. Encouraged by the presence of these goals, both Enterprises have undertaken new programs to help low income and underserved families. The Enterprises’ reports to the Secretary for 1993 showed that the percentage of low-income and moderate-income mortgage purchases equaled 35.6 percent for Fannie Mae and 29.2 percent for Freddie Mac. These figures exceeded the Secretary’s goals. But the companies each failed to meet the 1993 goals for 132 ANALYTICAL PERSPECTIVES central-city and other underserved areas. Fannie Mae’s figure was 26.3 percent, short of the Secretary’s 28 percent goal. Freddie Mac’s 24 percent figure was below the official 26 percent target. In the special affordable housing loan category, both Fannie Mae and Freddie Mac made progress toward meeting their targets. The transitional goals are in place for 1993 through much of 1995. They will be replaced by permanent goals which the HUD Secretary will propose during 1995. Farm Credit System The Farm Credit System (FCS) continues to show strong financial improvement since receiving Federal assistance in 1987. FCS net income for the first half of calendar year 1994 was strong, although operating income was 7 percent lower than the near-record highs of 1993. Loan volume rose slightly in the first half of 1994; but, loan growth remains much slower than agricultural loan growth in commercial banks. For example, in 1993, farm loans in commercial banks grew by 8.9 percent while Farm Credit Banks, which make about half of the FCS $80 billion in annual loan volume, experienced a 0.5 percent decline. Net interest margins narrowed from 3.27 percent in the second quarter of 1993 to 3.10 percent in the second quarter of 1994, because the FCS did not pass on to borrowers the effects of the rise in market interest rates. Over the past several years, FCS banks have used derivatives to lower funding costs. Rates charged to borrowers were usually linked to the variable rate on derivative swaps, lowering interest rate risk for the FCS bank. In 1993, several banks began investing in structured securities with derivative-like features. During 1993, these transactions were profitable. But, due to the rapid rise in interest rates in the first half of 1994, FCS institutions experienced losses of $34 million from their use. During 1994, FCS banks reduced holdings in derivative investments. Due to strong performance over the past few years, FCS’s capital base has returned to the high levels of the early 1980’s. The FCS had $8.47 billion in at-risk capital on June 30, 1994, and a capital-to-asset ratio of 13.45 percent. Nonaccruing loans dropped 16 percent during the second quarter of 1994 to $1.26 billion, or 1.6 percent of gross loan volume. Nonperforming assets, including nonaccruals, dropped to $1.94 billion, or 3 percent of assets. However, the level of nonaccruing loans remained well above that of commercial banks. The FCS continues to meet its obligations under the Agricultural Credit Act of 1987, as amended by the Farm Credit Banks and Associations Safety and Soundness Act of 1992. The 1992 Act required that FCS institutions begin to repay Federal assistance provided to the FCS in 1988 to 1990 through the Financial Assistance Corporation (FAC). The FCS received FAC assistance of $1.3 billion, that was funded through the issuance of Federally-guaranteed FAC debt to private bondholders, on which the Government shares the interest cost with the FCS. FCS banks made $91 million in voluntary assistance repayments to FAC during fiscal year 1994. Also, very favorable retained earnings— asset ratios permitted FCS to pay a higher proportion than planned of Federally shared FAC interest costs to investors in FAC bonds. Consequently, the fiscal year 1994 interest cost to the Treasury was reduced by $5.8 million. The insurance underpinning for the System, created in 1987 to avoid future bailouts, also continues to grow. At the end of fiscal year 1994, the Farm Credit System Insurance Corporation had reported a net equity of almost $725 million. Federal Home Loan Bank System The Federal Home Loan Bank System’s financial performance and condition continued to improve in 1994, indicating recovery from the detrimental effects of the recent thrift industry shrinkage. The System’s return on equity in 1994, after adjustment for payment of interest to REFCorp and other expenses, was about 5 percent. At the end of 1994, total System capital was $12.9 billion, compared to $11.5 billion and $10.6 billion in 1993 and 1992, respectively. Advances outstanding were about $116 billion at the end of 1994, compared to $99 billion at the end of 1993. System earnings on a GAAP basis in 1994 rose by about $77 million compared to 1993. System membership continued to grow strongly, with commercial banks now comprising more than half the total. At the end of 1994, the System had 5,092 members. In the last two years, studies by HUD, CBO, GAO, the Federal Housing Finance Board, and a committee made up of the System’s shareholders evaluated the System on a wide range of issues, including its capital structure, capacity to pay its REFCorp obligations, mission, and other related topics. The Administration is preparing a legislative proposal which will incorporate some of the studies’ recommendations in order to further strengthen the System’s capital structure and the overall safety and soundness of its operations. Student Loan Marketing Association The largest student loan secondary market-maker is the Student Loan Marketing Association (Sallie Mae), a Government-sponsored enterprise currently holding 35 percent of all outstanding guaranteed loans. The Administration has been actively studying options for the future of Sallie Mae, including in particular, restructuring the company into a fully private company. In any restructuring, currently outstanding Sallie Mae debt would retain the characteristics of Government sponsored enterprise debt, and customers having agreements with the GSE would be fully protected. Any new debt issued by a private company successor to Sallie Mae would not possess the characteristics of Government sponsored enterprise debt. The transition from the Federal guaranteed student loan program (Federal Family Education Loan Program) to the direct student loan program (William D. Ford Direct Loan Program), mandated by the Student 133 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE Loan Reform Act of 1993, will reduce and eventually eliminate the need for existing secondary markets for student loans. The direct loan program began operation on July 1, 1994, with 5 percent of total student loan volume, and will expand on July 1, 1995, to cover 40 percent of volume. Under the President’s proposed policy, direct loans will expand to 80 percent of loan volume on July 1, 1996, and fully replace the guaranteed program on July 1, 1997. While there will continue to be a substantial volume of outstanding guaranteed loans for many years, the volume of new guaranteed loans will steadily decline. Connie Lee Connie Lee was created to insure and reinsure bonds and loans of educational institutions which borrow funds to finance the acquisition, construction, or ren- ovation of their facilities. Connie Lee is structured to operate as a private corporation. Unlike other GSEs, it is subject to the same State laws and regulations as any other insurance company. The U.S. Government’s risk or exposure associated with Connie Lee’s operations is due to the Department of Education’s stock ownership in the Corporation. The Secretary purchased $19.1 million in Connie Lee stock with funds appropriated for this purpose in 1988. The Corporation’s financial condition, as reported to the U.S. Government annually in the Budget Appendix, shows steady growth, particularly since 1991, when the Corporation obtained the ‘‘triple-A’’ credit rating necessary to engage in the financial guaranty business as a direct writer of insurance. Chart 9-1. FACE VALUE OF FEDERAL CREDIT OUTSTANDING DOLLARS IN BILLIONS 1,300 1,200 1,100 1,000 900 800 LOAN GUARANTEES 700 600 500 400 300 200 100 DIRECT LOANS 0 1970 1975 1980 1985 1990 1995 2000 134 ANALYTICAL PERSPECTIVES FIGURE 9–2. JUSTIFICATIONS FOR FEDERAL INTERVENTION IN CREDIT MARKETS Incomplete Markets—As a result of such factors as catastrophe risk and moral hazard-agent problems, producers do not always supply the market with products even though the cost of providing them is less than the price that consumers are willing to pay. When incomplete markets exist, the private market equilibrium is not necessarily efficient, and government action could potentially make some people better off without harming others. Failure of Competition—As a result of such factors as increasing returns to scale, foreign government intervention, and barriers to entry, an overconcentration of market power can create a noncompetitive market equilibrium. In such a situation, output is artificially constrained, and a small number of market participants enjoy abnormally high returns. Government intervention may lead to a more efficient market outcome, where output is greater and the returns are more efficiently distributed throughout the economy. Externalities—In other instances, producers do not pay the full cost (or receive the full return ) of producing their products (positive externalities) or pay the cost of negative returns generated by their product. Goods with positive externalities (e.g. research and development) tend to be undersupplied in a market economy, and goods with negative externalities (e.g. pollution) are oversupplied—a situation that Government may improve through regulation or other means. Pure Public Goods—Public goods are goods or services that are unlikely to be supplied by the market because once the good or service is produced, it is difficult or impossible to exclude people from sharing the benefits of consuming the good. In addition, the cost of supplying pure public goods to one additional individual is zero. It is economically efficient for the Government to supply such goods, of which the classic example is national defense. Information Failures—An inefficient market equilibrium can arise if there is an asymmetry in the amount of information available to different agents in the marketplace. The most common example of an information failure is when consumers do not have enough quality information concerning products to make informed resource allocation decisions. Government intervention in these cases (e.g., product labelling standards) may improve the economic welfare of the society as a whole. Economic Disequilibrium—The economy is subject to unanticipated shocks. The market response to such disturbances can lead to a disequilibrium situation in which the economy is driven away from its normal levels of resource utilization. If such circumstances persist, government intervention may help stabilize employment and output—although it is not universally accepted that such circumstances can persist. TABLE 9–2. REESTIMATES OF CREDIT SUBSIDIES ON LOANS DISBURSED IN 1992, 1993, AND 1994 1 (In millions of dollars) Program Direct Loans: Agriculture credit insurance fund .............................................................................. Agricultural conservation ........................................................................................... Rural electrification and telephone loans ................................................................. Rural telephone bank ................................................................................................ Rural housing insurance fund ................................................................................... VA-Guaranty and indemnity ...................................................................................... VA-Loan guaranty direct loans .................................................................................. Export-Import Bank direct loans ................................................................................ 1994 –72 –1 * 1 2 7 –46 –28 Loan Guarantees: AID housing guaranty ................................................................................................ P.L. 480 Title I Food for Progress credits ................................................................ Agriculture credit insurance ....................................................................................... Commodity Credit Corporation export guarantees ................................................... Rural development insurance fund ........................................................................... Federal family education (formerly GSL)* ................................................................ FHA-General and special risk ................................................................................... VA-Guaranty and indemnity program ....................................................................... Export-Import bank guarantees ................................................................................. ................ ................ 5 3 –6 97 –175 1 –11 Total ............................................................................................................................... –260 1 Additional 1996. 1995 ................ ................ ................ ................ ................ 290 ................ –76 –3 81 ................ 103 ................ 421 ................ 53 ................ 869 information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to the budget for 135 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–3. ESTIMATED 1996 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR DIRECT LOANS 1 (In millions of dollars) Agency and Program Funds Appropriated to the President: Micro and small enterprise development .................................................................. Regional peace and security (formerly FMF) ........................................................... Overseas Private Investment Corporation ................................................................ Agriculture: Agricultural credit insurance fund .............................................................................. Self-help housing ....................................................................................................... Rural housing insurance fund ................................................................................... Rural economic development loans .......................................................................... Rural electrification and telephone ............................................................................ Public Law 480 direct loans ...................................................................................... Distance learning and medical link loan program .................................................... Rural telecommunication partnership loan program ................................................. Rural community facility loan program ..................................................................... Rural business and industry loans ........................................................................... Alternative agricultural research and commercialization .......................................... Rural development loan fund .................................................................................... Rural water and waste disposal loan program 3 ..................................................... Education: Federal direct student loan program ........................................................................ Interior: Bureau of Reclamation loans .................................................................................... State Department: Repatriation loans ........................................................................... Transportation: Minority business resource center program ............................................................. Veterans Affairs: Transitional housing loans ......................................................................................... Direct loan .................................................................................................................. Loan guarantee fund ................................................................................................. Guaranty and indemnity fund .................................................................................... Education loan fund ................................................................................................... Vocational rehabilitation ............................................................................................. Native american veteran housing loan program ...................................................... Other Independent Agencies: Community development financial institutions fund ................................................. Export-Import Bank 2 ................................................................................................. Federal Emergency Management Agency: Disaster assistance ............................................................................................... Small Business Administration: Business Loans ..................................................................................................... Disaster loans ........................................................................................................ Total 3 ........................................................................................................................ 1 Additional 1996 Weighted average subsidy as a percent of disbursements 1996 Subsidy budget authority 1996 Estimated loan levels 5.65 11.75 5.03 ........................ 90 4 4 765 80 17.30 5.18 26.43 28.99 6.64 81.61 3.92 3.96 17.44 7.01 28.55 56.65 22.69 132 ........................ 409 4 104 132 4 1 40 2 7 50 192 762 1 1,547 14 1,570 162 100 15 227 21 25 83 847 7.63 1,498 19,149 43.90 80.00 16 1 37 1 10.00 ........................ 15 10.00 28.13 3.11 1.46 26.53 2.77 7.72 ........................ ........................ 23 15 ........................ ........................ 1 ........................ ........................ 734 1,047 ........................ 2 18 34.95 3.66 20 198 56 5,407 8.62 2 25 27.49 8.46 12 34 45 407 9.02 2,991 33,163 information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to the budget for 1996. 2 Includes FY 1993 and 1994 carryover budget authority. 3 Does not include REGO proposal for USDA’s Rural Development Partnerships Initiative. This would reduce total subsidy BA to $2,680 million. 136 ANALYTICAL PERSPECTIVES TABLE 9–4. ESTIMATED 1996 SUBSIDY RATES, BUDGET AUTHORITY, AND LOAN LEVELS FOR LOAN GUARANTEES 1 (In millions of dollars) 1996 Weighted-average subsidy as a percent of disbursements Agency and Program Funds Appropriated to the President: Micro and small enterprise development ............................................................. AID housing and other credit guarantees ............................................................ Overseas Private Investment Corporation ............................................................ Agriculture: Agricultural credit insurance fund .............................................................................. Commodity Credit Corporation: Export credits ......................................................... Rural housing insurance fund ................................................................................... Rural business and cooperative development service ............................................. Rural community facility loan program ..................................................................... Commerce: Fishing vessel obligations ......................................................................................... Education: Federal family education loan program .................................................................... Health and Human Services: Health professions graduate student loan program ................................................. Housing and Urban Development: Community development (Sec. 108) ......................................................................... Federal Housing Administration general and special risk ........................................ Federal Housing Administration mutual mortgage 2 ................................................. GNMA secondary mortgage guarantees .................................................................. Indian housing guarantee .......................................................................................... Interior: Indian loan guaranty and insurance fund ................................................................. Transportation: Title XI maritime guaranteed loans ........................................................................... Veterans Affairs: Guaranty and indemnity fund .................................................................................... Loan guaranty fund ................................................................................................... Other Independent Agencies: Export-Import Bank 3 ................................................................................................. Small Business Administration: Business Loans ..................................................................................................... Total 2 .................................................................................................................... 1996 Subsidy budget authority 1996 Estimated loan levels 8.50 11.87 5.03 12 17 75 139 142 1,491 2.29 6.57 0.17 0.91 4.74 56 374 2 7 5 2,442 5,700 1,300 750 100 1.00 ........................ 25 15.67 1,620 10,248 6.44 18 280 2.10 0.55 –2.77 ........................ 8.10 21 188 ........................ ........................ 3 543 34,469 110,000 110,000 37 12.53 10 70 5.22 48 920 1.58 12.32 489 ........................ 31 1 4.33 658 15,210 2.03 252 11,647 4.51 3,855 305,545 1 Additional information on credit reform subsidy rates is contained in the Federal Credit and Insurance Supplement to the budget for Fiscal Year 1996. 2 Subsidies shown are for positive subsidy risk categories only. Negative subsidy BA is not included in totals. 3 Includes FY 1993 and 1994 carryover budget authority. TABLE 9–5. SUMMARY OF FEDERAL DIRECT LOANS AND LOAN GUARANTEES (In billions of dollars) Actual 1993 Estimate 1994 1995 1996 1997 1998 1999 2000 Direct Loans: Obligations ................................................................................ Disbursements .......................................................................... Subsidy budget authority ......................................................... 22.1 27.1 2.1 22.7 19.3 2.8 32.1 29.6 2.4 42.3 38.3 2.7 52.4 48.8 2.9 56.9 55.1 3.4 59.4 59.1 3.6 62.6 61.9 3.6 Loan Guarantees: Commitments ............................................................................ Lender Disbursements ............................................................. Subsidy budget authority ......................................................... 169.9 144.3 4.1 204.1 194.2 2.6 185.8 155.7 4.9 194.4 156.3 2.2 187.5 148.9 0.5 187.1 144.6 * 210.3 156.4 * 234.5 1 72.0 * 137 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–6. NEW DIRECT LOAN OBLIGATIONS AND GUARANTEED LOAN COMMITMENTS BY FUNCTION (In millions of dollars) Direct loan obligations Function Guaranteed loan commitments 1994 actual 1995 estimate 1996 estimate 1994 actual 1995 estimate 1996 estimate National Defense ........................................................................................................ International affairs ..................................................................................................... Energy ......................................................................................................................... Natural resources and environment ........................................................................... Agriculture ................................................................................................................... Commerce and housing credit 1 ................................................................................. Transportation ............................................................................................................. Community and regional development ...................................................................... Education, training, employment, and social services .............................................. Health .......................................................................................................................... Income security ........................................................................................................... Veterans benefits and services .................................................................................. General government ................................................................................................... .............. 4,362 1,116 10 7,400 2,393 55 5,011 813 .............. .............. 1,487 .............. .............. 5,802 1,116 24 11,457 1,938 208 2,638 7,092 .............. .............. 1,725 .............. .............. 6,417 1,599 37 9,641 1,914 15 1,913 19,150 .............. .............. 1,801 .............. 286 15,542 .............. .............. 6,786 113,405 .............. 704 23,292 260 7 43,859 .............. 1,658 18,197 .............. .............. 8,409 108,262 .............. 1,127 20,403 375 22 27,399 .............. 920 18,980 .............. .............. 8,142 122,531 .............. 1,920 10,240 280 37 31,336 .............. Total .................................................................................................................................. 22,647 32,000 42,487 204,141 185,852 194,386 .............. .............. .............. 185,000 142,000 110,000 050 150 270 300 350 370 400 450 500 550 600 700 800 ADDENDUM Secondary guaranteed loans ................................................................................................ 1 Commitments by GNMA to guarantee securities that are backed by loans previously insured or guaranteed by the Federal Housing Administration, Department of Veterans Affairs, or Farmers Home Administration (secondary guarantees) are excluded from the totals and shown in the addendum. 138 ANALYTICAL PERSPECTIVES TABLE 9–7. DIRECT LOAN WRITE-OFFS AND GUARANTEED LOAN TERMINATIONS FOR DEFAULTS In millions of dollars Agency or Program As percentage of outstanding loans 1 1994 actual 1995 estimate 1996 estimate 1994 actual 1995 estimate 1996 estimate Direct loans: Overseas Private Investment Corporation ....................................................................... Economic assistance loans .............................................................................................. Private sector revolving fund ............................................................................................ Foreign military loans ....................................................................................................... Rural electrification and telephone revolving fund .......................................................... Rural development insurance fund .................................................................................. Commodity Credit Corporation ......................................................................................... Agricultural credit insurance fund ..................................................................................... Rural housing insurance fund .......................................................................................... Public Law 480 Food Aid ................................................................................................. Federal direct student loan .............................................................................................. Economic development revolving fund (EDA) ................................................................. Bureau of Indian affairs direct loans ................................................................................ MARAD ship financing fund ............................................................................................. Veteran’s housing programs ............................................................................................ Small Business Administration ......................................................................................... Export-Import Bank ........................................................................................................... 6 150 3 .............. 419 3 316 776 29 70 39 4 18 437 112 329 124 1 46 1 107 19 3 159 572 71 119 81 .............. 19 .............. 17 276 130 1 139 .............. 40 21 3 118 408 35 1 142 .............. 9 .............. 17 181 260 14.26 1.07 30.64 .............. 1.19 0.05 7.45 6.14 0.11 0.91 0.48 5.29 12.29 77.67 4.20 4.32 1.66 2.67 0.33 13.77 1.40 0.05 0.06 4.34 7.11 0.68 1.11 2.09 .............. 14.94 .............. 8.21 3.12 2.06 2.95 1.12 1.32 0.59 0.06 0.06 2.91 5.42 0.61 0.01 1.22 .............. 15.92 .............. 8.20 2.02 4.69 Total ......................................................................................................................... 2,830 1,619 1,372 .............. .............. .............. Guaranteed loans: Housing and other credit guaranty programs .................................................................. Overseas Private Investment Corporation ....................................................................... Agricultural credit insurance fund ..................................................................................... CCC export credit guarantees ......................................................................................... Rural development insurance fund .................................................................................. Rural housing insurance ................................................................................................... Rural electrification and telephone revolving fund .......................................................... Federal family education loans ........................................................................................ FHA -General and special risk guaranteed loan ............................................................. FHA -mutual mortgage amd cooperative housing ........................................................... Health professions guaranteed student loan ................................................................... MARAD ship financing fund ............................................................................................. Veteran’s housing programs ............................................................................................ Small business administration .......................................................................................... Export-Import Bank ........................................................................................................... 25 12 37 6,303 62 1 232 2,754 74 4,319 37 9 1,783 702 48 25 19 38 1,176 41 6 .............. 2,710 331 4,548 36 74 2,304 745 12 25 14 37 349 30 10 .............. 2,724 589 4,487 35 74 2,476 754 15 1.22 3.77 1.87 32.61 0.10 0.22 24.40 3.66 0.14 2.14 2.08 0.89 1.55 3.13 0.39 1.22 2.67 2.44 39.44 0.06 0.46 .............. 3.37 1.02 4.10 2.10 .............. 2.13 2.80 0.09 1.23 2.95 4.40 8.15 0.06 0.54 .............. 3.19 1.33 4.00 2.11 .............. 2.43 2.43 0.09 Total ......................................................................................................................... 16,397 12,064 11,620 .............. .............. .............. Defaulted guaranteed loans that result in loans receivable: CCC guaranteed loan ....................................................................................................... CCC export loans ............................................................................................................. Foreign military loan ......................................................................................................... Federal students loans ..................................................................................................... FHA -mutual mortgage and cooperative housing ............................................................ FHA -general and special risk guaranteed loan ............................................................. Federal Housing Administration ....................................................................................... Health professions guaranteed student loan ................................................................... Veterans housing programs ............................................................................................. Small Business Administration ......................................................................................... 438 24 .............. 268 153 3 .............. 19 517 17 .............. .............. 152 487 151 .............. 3 15 578 49 .............. .............. .............. 649 1,147 .............. 59 15 634 167 9.19 4.41 .............. 1.76 4.18 7.38 .............. 5.43 51.23 1.45 .............. .............. 22.57 3.20 4.30 .............. 0.58 3.84 44.56 3.21 .............. .............. .............. 4.27 61.46 .............. 13.99 3.31 41.00 7.89 Total ......................................................................................................................... 1,440 1,434 2,670 .............. .............. .............. Grand Total ............................................................................................................. 20,667 15,117 15,663 .............. .............. .............. 1 Average of loans outstanding over year. 139 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS (In millions of dollars) Estimate Agency or Program 1994 Actual 1995 1996 LIMITATIONS ON DIRECT LOAN OBLIGATIONS Funds Appropriated to the President: Foreign military financing .......................................................................................... 770 620 765 Agriculture: Farm Service Agency: Agricultural credit insurance fund ......................................................................... 950 679 762 Rural Utitities Service: Rural electric and telephone ................................................................................. Rural telephone bank ............................................................................................ Distance learning and medical link loans ............................................................ Rural telecommunication partnership loans ......................................................... Rural development insurance fund ....................................................................... Rural water and waste disposal loans ................................................................. 1,116 200 .................. .................. 1,059 .................. 1,116 175 .................. .................. .................. 906 1,570 1 100 15 .................. 847 Rural Housing and Community Development: Rural housing insurance fund ............................................................................... Self-help housing land development loans .......................................................... Rural community facility loans .............................................................................. 2,525 1 .................. 1,472 1 225 1,547 1 227 Rural Business and Community Development: Rural development loan fund ................................................................................ Rural economic development loans ..................................................................... Alternative agricultural research and commercialization ...................................... Rural business and industry loans ....................................................................... 77 13 .................. .................. 85 13 .................. .................. 83 14 25 21 Foreign Assistance Programs: Public Law 480 direct credit ................................................................................. 377 303 162 Energy: Bonneville Power Administration conservation loans ............................................... .................. .................. 29 Housing and Urban Development: FHA-General and special risk ................................................................................... FHA-Mutual mortgage insurance .............................................................................. .................. .................. 220 180 120 200 Interior: Bureau of Reclamation direct loans ......................................................................... Indian direct loan ....................................................................................................... 21 11 23 11 37 .................. State Department: Repatriation Loans ..................................................................................................... 1 1 1 Transportation: High priority corridors ................................................................................................ Orange County (CA) toll road ................................................................................... Railroad rehabilitation and improvement .................................................................. Minority business resource center ............................................................................ .................. .................. 5 8 40 120 .................. 15 .................. .................. .................. 15 Veterans Affairs: Direct loans ................................................................................................................ Vocational rehabilitation ............................................................................................. FEMA—Disaster assistance .......................................................................................... Community development financial institutions fund ...................................................... 1 2 25 .................. 1 2 175 76 .................. 2 25 .................. Total, limitations on direct loan obligations ............................................... 7,162 6,383 6,568 2,000 2,000 2,000 1,844 6 515 .................. 750 .................. 2,709 .................. .................. 500 1,049 75 2,442 .................. .................. 750 1,300 100 357 357 .................. 260 375 280 LIMITATIONS ON GUARANTEED LOAN COMMITMENTS Funds Appropriated to the President: Loan guarantees to Israel ......................................................................................... Agriculture: Agricultural credit insurance fund .............................................................................. Agricultural resource conservation demonstration .................................................... Rural development insurance fund ........................................................................... Rural business and industry loan fund ..................................................................... Rural housing insurance fund ................................................................................... Rural community facility loan fund ............................................................................ Education: Historically black colleges/universities ...................................................................... Health and Human Services: Health professions graduate student ........................................................................ 140 ANALYTICAL PERSPECTIVES TABLE 9–8. APPROPRIATIONS ACTS LIMITATIONS ON CREDIT LOAN LEVELS—Continued (In millions of dollars) Estimate Agency or Program Housing and Urban Development: FHA—General and special risk ................................................................................. FHA—Mututal mortgage insurance ........................................................................... Community opportunity performance funds .............................................................. Indian Housing loan guarantee ................................................................................. Interior: Indian loan guaranty and insurance ......................................................................... Total, limitations on guaranteed loan commitments ..................................... 1994 Actual 1995 1996 20,550 119,565 2,054 7 20,885 100,000 2,054 22 17,400 110,000 2,000 37 69 47 70 147,977 130,073 136,379 185,000 142,000 110,000 ADDENDUM Secondary guaranteed loan commitment limitations: GNMA, mortgage-backed securities ......................................................................... 141 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Foreign military loan liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 468 –328 8,022 .................... 333 –834 7,187 .................... 100 –858 6,330 .................... .................... –856 5,473 .................... .................... –790 4,684 .................... .................... –641 4,042 .................... .................... –533 3,510 Foreign military financing direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 770 273 273 273 620 570 570 843 765 666 666 1,509 742 730 707 2,216 727 829 669 2,885 711 765 502 3,387 696 596 292 3, 679 Military debt reduction financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... .................... 4 4 4 .................... 17 17 20 .................... .................... .................... 20 .................... .................... .................... 20 .................... .................... .................... 20 .................... .................... .................... 20 .................... .................... –2 38 .................... .................... –2 36 .................... .................... –2 35 .................... .................... –2 33 .................... .................... –2 31 .................... .................... –2 29 .................... .................... –2 27 Economic assistance loans—liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 10 –670 13,765 .................... 11 –603 13,161 .................... 8 –727 12,434 .................... .................... –743 11,691 .................... .................... –612 11,079 .................... .................... –616 10,463 .................... .................... –603 9,860 Debt reduction, financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –54 500 .................... 1 1 501 .................... 9 9 510 .................... 34 34 544 .................... .................... .................... 544 .................... .................... .................... 544 .................... .................... .................... 544 Private sector revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 2 –5 7 .................... 2 –1 6 .................... .................... –2 4 .................... .................... –* 4 .................... .................... –* 4 .................... .................... –* 3 .................... .................... –* 3 Microenterprise and other development credit direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 1 1 1 2 2 2 3 4 4 3 6 3 3 2 8 3 3 2 10 3 3 1 11 3 3 * 11 Overseas Private Investment Corporation liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 4 –11 39 .................... .................... –3 36 .................... .................... –4 32 .................... .................... –5 27 .................... .................... –5 23 .................... .................... –5 18 .................... .................... –5 14 Overseas private investment corporation direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 63 4 4 8 86 27 27 35 80 63 61 96 80 79 71 167 80 80 60 227 80 75 50 277 80 80 30 307 Agency or Program Funds Appropriated to the President International Security Assistance Multilateral Assistance International organizations and programs: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Agency for International Development Overseas Private Investment Corporation 142 ANALYTICAL PERSPECTIVES TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Agricultural credit insurance fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 3 –1,697 11,508 .................... 1 –1,390 10,118 .................... 1 –1,146 8,972 .................... * –952 8,020 .................... * –798 7,222 .................... * –673 6,5 49 .................... * –571 5,978 Agricultural credit insurance fund direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 970 920 527 1,512 679 639 117 1,630 762 754 230 1,859 778 777 145 2,004 764 765 176 2,180 748 749 132 2,313 732 733 119 2,432 Commodity credit corporation fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 6,430 6,430 –282 3,129 10,778 10,778 1,054 4,183 8,879 8,879 –264 3,919 9,464 9,464 –328 3,591 8,757 8,757 –1,130 2,461 8,998 8,998 –347 2,114 8 ,798 8,798 –129 1,985 Rural communication development fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –1 11 .................... * –1 10 .................... .................... –1 10 .................... .................... –1 9 .................... .................... –1 8 .................... .................... –1 7 .................... .................... –1 7 Rural telecommunication partnership direct loan financing: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... .................... .................... .................... .................... 15 2 2 2 16 8 7 10 15 15 14 24 15 15 12 36 15 15 10 46 Distance learning and medical link direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... .................... .................... .................... .................... 100 30 30 30 98 79 109 109 96 98 205 205 94 96 290 290 92 94 362 362 Rural development insurance fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 132 –126 4,598 .................... 63 –193 4,405 .................... 35 –210 4,195 .................... 24 –209 3,986 .................... 3 –219 3,767 .................... * –209 3,558 .................... .................... –198 3,360 Rural electrification and telephone direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1,116 505 466 1,953 1,116 863 820 2,774 1,570 1,007 956 3,729 1,540 1,252 1,186 4,916 1,502 1,466 1,385 6,300 1,455 1,441 1,341 7,641 1, 404 1,320 1,197 8,838 Rural telephone bank direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 200 57 57 85 175 94 92 177 .................... .................... –177 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Rural development insurance fund direct loan financing account 1: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 879 418 413 625 1,004 647 639 1,265 1,181 895 879 2,144 1,166 1,046 1,017 3,160 1,143 1,103 1,058 4,219 1,119 1,137 1,074 5,293 1,09 5 1,146 1,063 6,356 Rural electrification and telephone revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 574 –460 34,104 .................... 464 –1,085 33,018 .................... 472 –705 32,313 .................... 144 –1,034 31,279 .................... 106 –1,099 30,180 .................... 66 –1,133 29,047 .................... 42 –1,221 27,826 Agency or Program Department of Agriculture Farm Service Agency Rural Utilities Service 143 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 .................... 55 –248 1,458 .................... 50 –51 1,407 .................... .................... –1,407 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Rural housing insurance fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 25 –1,804 24,838 .................... 9 –1,348 23,490 .................... 6 –1,314 22,176 .................... 1 –1,283 20,892 .................... 1 –1,250 19,642 .................... * –1,220 18,422 .................... * –1, 190 17,232 Self-help housing land development direct loan fund financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1 * –* * 1 .................... –* .................... 1 * * * 1 1 * 1 1 1 * 1 1 1 –* 1 1 1 –* 1 Rural housing insurance fund direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 2,335 2,242 2,173 5,306 1,472 1,550 1,480 6,786 1,547 1,606 1,492 8,278 1,655 1,648 1,474 9,752 1,633 1,627 1,413 11,165 1,599 1,594 1,331 12,4 96 1, 565 1,560 1,248 13,745 Rural economic development grants: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... * –1 9 .................... 1 –1 9 .................... * –1 8 .................... .................... –2 6 .................... .................... –2 5 .................... .................... –2 3 .................... .................... –2 2 Rural economic development loan direct financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 13 14 14 20 12 12 9 30 14 13 9 39 14 14 9 47 14 14 8 55 14 14 6 61 14 14 5 66 Rural development loan fund direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 77 18 18 27 85 40 40 68 90 62 61 129 87 74 73 202 86 85 84 286 84 87 83 369 82 86 80 449 Alternative Agricultural research and commercialization direct financing: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... .................... .................... .................... .................... 25 5 5 5 24 12 12 17 24 20 20 37 .................... 19 19 56 .................... 12 12 68 Rural development loan fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 8 6 85 .................... 5 2 87 .................... 2 –1 86 .................... 1 –2 85 .................... 2 –1 83 .................... .................... –3 81 .................... .................... –3 78 Expenses, Public Law 480, foreign assistance programs, Agriculture liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –299 10,815 .................... .................... –412 10,404 .................... .................... –269 10,135 .................... .................... –297 9,839 .................... .................... –290 9,549 .................... .................... –310 9, 239 .................... .................... –310 8,928 P.L. 480 Direct credit financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 377 287 299 849 303 310 310 1,159 162 175 175 1,334 157 159 159 1,492 153 154 154 1,646 150 151 134 1,780 147 147 115 1,896 Agency or Program Rural telephone bank liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Rural Housing and Community Development Service Rural Business and Cooperative Development Service Foreign Agricultural Service 144 ANALYTICAL PERSPECTIVES TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 P.L. 480 Title I Food for Progress Credits, financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 135 437 437 437 124 72 72 509 .................... .................... .................... 509 .................... .................... .................... 509 .................... .................... .................... 509 .................... .................... .................... 509 .................... .................... .................... 509 Debt reduction—financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –* 67 .................... 13 12 79 .................... * –1 78 .................... 3 1 79 .................... .................... –3 76 .................... .................... –4 72 .................... .................... –4 68 Economic development revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –17 75 .................... .................... –7 68 .................... .................... –7 61 .................... .................... –6 55 .................... .................... –5 50 .................... .................... –5 45 .................... .................... –4 40 Miscellaneous appropriations : Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –2 58 .................... .................... –2 57 .................... .................... –2 55 .................... .................... –2 53 .................... .................... –2 52 .................... .................... –2 50 .................... .................... –2 49 .................... .................... –49 1,480 .................... .................... –47 1,432 .................... .................... –49 1,383 .................... .................... –75 1,308 .................... .................... –83 1,225 .................... .................... –86 1,139 .................... .................... –91 1,047 Student financial assistance: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... 4 323 .................... .................... 11 334 .................... .................... 9 342 .................... .................... 8 350 .................... .................... 7 356 .................... .................... 6 362 .................... .................... 6 368 Higher education facilities loans: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –7 62 .................... .................... –5 57 .................... .................... –5 52 .................... .................... –4 47 .................... .................... –4 43 .................... .................... –4 40 .................... .................... –3 36 College housing and academic facilities loans liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 19 15 136 .................... 2 –5 130 .................... 4 –1 129 .................... 4 –1 128 .................... .................... –6 122 .................... .................... –4 118 .................... .................... –4 113 College housing loans: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 1 –36 519 .................... 4 –45 474 .................... .................... –46 428 .................... .................... –44 384 .................... .................... –41 343 .................... .................... –39 304 .................... .................... –25 279 College housing and academic facilities direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 1 1 1 .................... 2 2 3 .................... 14 14 16 .................... 14 14 30 .................... 11 11 41 .................... 6 6 46 .................... 5 4 50 Federal direct student loan program, financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 813 311 311 311 7,092 5,171 5,075 5,386 19,150 16,237 15,810 21,196 28,423 25,609 24,496 45,692 33,752 32,008 29,655 75,347 36,211 35,771 31,550 106, 897 39,934 39,047 32,349 139,245 Department of Commerce Economic Development Administration Department of Defense—Military Revolving and Management Funds Defense business operations fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Department of Education Office of Postsecondary Education 145 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 .................... .................... .................... .................... .................... .................... .................... .................... 29 29 29 29 33 33 27 56 28 28 16 72 28 28 10 82 28 28 4 86 Health Resources and Services: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 16 10 531 .................... 17 11 543 .................... 17 12 555 .................... 18 14 569 .................... 19 15 583 .................... 20 16 599 .................... 21 17 616 Health loan funds: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 1 –18 64 .................... 1 –8 56 .................... 1 –8 48 .................... 1 –8 40 .................... 1 –8 32 .................... * –8 24 .................... * –8 16 .................... .................... –54 1,747 .................... .................... –58 1,689 .................... .................... –62 1,627 .................... .................... –65 1,561 .................... .................... –69 1,492 .................... .................... –73 1,419 .................... .................... .................... 1,419 Revolving fund (liquidating programs): Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –55 450 .................... .................... –51 399 .................... .................... –49 350 .................... .................... –40 310 .................... .................... –38 272 .................... .................... –36 236 .................... .................... –34 202 Community opportunity performance funds liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –21 110 .................... .................... –23 87 .................... .................... –20 67 .................... .................... –10 57 .................... .................... –10 47 .................... .................... –10 37 .................... .................... –10 27 Flexible Subsidy Fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 98 93 459 .................... 199 197 656 .................... 90 87 743 .................... 101 97 840 .................... 16 12 852 .................... 2 –3 849 .................... * * 849 FHA mutual mortgage and cooperative housing insurance funds liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –4 17 .................... .................... –4 13 .................... .................... –1 12 .................... .................... .................... 12 .................... .................... .................... 12 .................... .................... .................... 12 .................... .................... .................... 12 FHA general and special risk insurance funds liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –9 112 .................... .................... –5 107 .................... .................... –5 102 .................... .................... –5 97 .................... .................... –4 93 .................... .................... –4 88 .................... .................... –4 84 Agency or Program 1996 1997 1998 1999 2000 Department of Energy Energy Programs Power Marketing Administration Bonneville Power Administration Conservation direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Department of Health and Human Services Health Resources and Services Administration Department of Housing and Urban Development Public and Indian Housing Programs Low-rent public housing—loans and other expenses: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Community Planning and Development Housing Programs 146 ANALYTICAL PERSPECTIVES TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 FHA-General and special risk direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... 220 220 219 219 120 120 117 336 120 120 115 451 120 120 112 563 120 120 110 673 120 120 108 781 Housing for the elderly or handicapped fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 15 –36 8,462 .................... 204 143 8,605 .................... .................... –63 8,542 .................... .................... –63 8,479 .................... .................... –64 8,415 .................... .................... –64 8,351 .................... .................... .................... 8,351 FHA-Mutual mortgage insurance direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... 180 180 179 179 200 200 196 375 200 200 194 569 200 200 192 761 200 200 188 949 200 200 187 1,136 .................... 596 –128 349 .................... 647 8 357 .................... 688 128 485 .................... 616 180 665 .................... 590 225 889 .................... 563 260 1,150 .................... 525 284 1,434 Loan program liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 9 9 104 .................... * –3 101 .................... .................... –4 98 .................... .................... –4 94 .................... .................... –4 90 .................... .................... –4 86 .................... .................... –5 81 Bureau of Reclamation direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 10 10 10 19 24 16 16 36 37 33 33 69 36 39 39 108 35 40 40 149 34 41 41 190 34 42 42 232 Revolving fund for loans liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... * –4 76 .................... * –7 69 .................... .................... –7 62 .................... * –8 54 .................... * –6 48 .................... .................... –4 45 .................... .................... –2 42 Indian loan guaranty and insurance fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 4 –8 37 .................... 5 –* 37 .................... 4 * 37 .................... 4 –1 36 .................... 4 –1 35 .................... .................... .................... 35 .................... .................... .................... 35 Indian direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 11 –3 7 27 11 –14 –5 22 .................... .................... –2 20 .................... .................... –2 18 .................... .................... –2 16 .................... .................... –2 14 .................... .................... –2 11 .................... .................... –1 22 .................... .................... –1 21 .................... .................... –1 20 .................... .................... –1 19 .................... .................... –1 17 .................... .................... –1 16 .................... .................... –1 15 Government National Mortgage Association Guarantees of mortgage-backed securities liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Department of the Interior Bureau of Reclamation Bureau of Indian Affairs Territorial and International Affairs Assistance to territories: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 147 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Department of State Administration of Foreign Affairs Repatriation loans financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1 * * 1 1 1 * 2 1 1 * 2 1 1 * 3 1 1 * 3 1 1 * 4 1 1 * 4 Orange County (CA) toll road demonstration project direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... 120 .................... .................... .................... .................... .................... .................... .................... 24 24 24 24 24 24 24 48 24 24 24 72 24 24 24 96 High priority corridors loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... 30 30 31 31 .................... .................... 1 32 .................... .................... –32 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Right-of-way revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 42 27 12 151 42 1 –43 108 .................... 3 –28 80 .................... 3 –23 58 .................... 11 –8 49 .................... 4 –12 37 .................... 15 –18 19 Amtrak corridor improvement loans liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... 7 .................... .................... –* 7 .................... .................... –* 6 .................... .................... –1 6 .................... .................... –1 5 .................... .................... –1 5 .................... .................... –1 4 Amtrak corridor improvement direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... 3 .................... 2 2 5 .................... .................... .................... 5 .................... .................... –* 5 .................... .................... –* 5 .................... .................... –* 4 .................... .................... –* 4 Railroad rehabilitation and improvement liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –12 70 .................... .................... –3 67 .................... .................... –3 63 .................... .................... –3 60 .................... .................... –4 56 .................... .................... –4 53 .................... .................... –5 47 Railroad rehabilitation and improvement direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 5 .................... * 4 .................... 5 4 8 .................... .................... –* 8 .................... .................... –* 8 .................... .................... –* 8 .................... .................... –* 7 .................... .................... –* 7 .................... .................... –167 218 .................... 75 64 282 .................... 75 64 346 .................... 50 39 385 .................... 50 39 424 .................... 50 39 463 .................... 50 39 502 8 4 4 7 15 19 11 19 15 15 –4 15 15 15 .................... 15 15 15 .................... 15 14 14 –1 14 14 14 .................... 14 Department of Transportation Federal Highway Administration Federal Railroad Administration Maritime Administration Federal ship financing fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Office of the Secretary Minority business resource center direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 148 ANALYTICAL PERSPECTIVES TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 .................... .................... –30 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Guaranty and indemnity fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 19 2 22 .................... .................... –9 13 .................... .................... –5 9 .................... .................... –2 7 .................... .................... –1 5 .................... .................... –1 5 .................... .................... –* 4 Guaranty and indemnity direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 377 357 95 150 787 787 215 365 1,047 1,047 214 579 1,225 1,225 216 795 1,438 1,438 246 1,041 1,691 1,691 281 1,322 1,858 1,858 275 1,597 Direct loan revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –7 17 .................... .................... –5 12 .................... .................... –4 8 .................... .................... –2 5 .................... .................... –2 4 .................... .................... –1 3 .................... .................... –1 2 Agency or Program Department of the Treasury Financial Management Service Emergency assistance to Rhode Island direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Department of Veterans Affairs Veterans Health Administration Veterans Benefits Administration Direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Loan guaranty revolving fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... * * * * * * * * * * * * * * * 1 * * * 1 * * * 1 * * * 1 .................... 48 –162 628 .................... 37 –16 613 .................... 28 –23 590 .................... 22 –27 562 .................... 17 –30 532 .................... 13 –31 501 .................... 10 –32 469 Loan guaranty direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1,107 1,136 137 428 923 923 190 618 734 734 146 764 574 565 104 868 414 414 71 939 253 253 24 963 135 135 –3 960 Vocational rehabilitation direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 2 2 * 1 2 2 –* 1 2 2 * 1 2 2 * 1 2 2 * 1 2 2 * 1 2 2 * 1 Education loan fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –* 3 .................... .................... –* 3 .................... .................... –* 3 .................... .................... –* 2 .................... .................... –* 2 .................... .................... –* 2 .................... .................... –* 2 Native american veteran housing direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1 * 1 1 13 13 13 14 18 18 17 31 26 26 26 57 .................... .................... –* 57 .................... .................... –1 56 .................... .................... –1 56 149 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Abatement, control, and compliance direct loan liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 3 –6 111 .................... 3 –6 105 .................... 3 –6 99 .................... .................... –9 89 .................... .................... –9 80 .................... .................... –9 71 .................... .................... –11 60 Abatement, control, and compliance direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 22 21 42 .................... 16 12 54 .................... 14 9 62 .................... 15 10 73 .................... 5 –* 72 .................... 1 –4 68 .................... .................... –5 63 Business direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 56 62 44 139 65 58 29 167 45 51 13 180 47 45 2 182 46 44 –3 179 45 43 –6 173 44 42 –9 164 Disaster direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 3,806 2,549 2,277 3,586 1,153 2,241 1,628 5,213 407 906 136 5,349 461 508 –265 5,084 454 452 –442 4,642 445 450 –463 4,179 435 441 –543 3,636 Disaster loan fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 10 –335 2,196 .................... .................... –342 1,854 .................... .................... –289 1,565 .................... .................... –244 1,322 .................... .................... –206 1,116 .................... .................... –174 942 .................... .................... –147 796 Business loan fund liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 334 –330 2,566 .................... 335 –624 1,943 .................... 225 –313 1,629 .................... 159 –290 1,339 .................... 107 –230 1,109 .................... 60 –217 892 .................... .................... –221 671 .................... .................... –12 87 .................... .................... –12 75 .................... .................... –12 62 .................... .................... –12 50 .................... .................... –12 37 .................... .................... –12 25 .................... .................... –12 13 Export-Import Bank of the United States liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 139 –1,208 6,658 .................... 120 –742 5,916 .................... 103 –755 5,161 .................... 88 –740 4,421 .................... 76 –483 3,938 .................... 65 –402 3,536 .................... 56 –374 3,162 Debt reduction financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... .................... 33 33 33 .................... 59 59 93 .................... 34 34 127 .................... 3 3 130 .................... * * 130 .................... * * 130 Export-Import Bank direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 3,016 509 483 827 4,667 1,397 1,118 1,945 5,407 2,634 2,043 3,988 5,245 3,505 2,449 6,437 5,137 4,049 2,470 8,907 5,029 4,311 2,214 11,121 4, 920 4,506 1,882 13,004 Agency or Program Environmental Protection Agency Environmental Protection Agency Small Business Administration Small Business Administration Other Independent Agencies District of Columbia Loans to the District of Columbia for capital projects: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Export-Import Bank of the United States 150 ANALYTICAL PERSPECTIVES TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 .................... .................... –124 1,058 .................... .................... –48 1,010 .................... .................... –41 970 .................... .................... –42 927 .................... .................... –45 882 .................... .................... –48 833 .................... .................... –52 781 .................... .................... –4 132 .................... .................... –20 112 .................... .................... .................... 112 .................... .................... .................... 112 .................... .................... .................... 112 .................... .................... .................... 112 .................... .................... .................... 112 .................... .................... –22 138 .................... .................... –32 106 .................... .................... –32 75 .................... .................... .................... 75 .................... .................... .................... 75 .................... .................... .................... 75 .................... .................... .................... 75 Disaster assistance direct loan liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... * –* 59 .................... .................... –23 36 .................... .................... –21 15 .................... .................... –* 15 .................... .................... –7 8 .................... .................... –8 * .................... .................... –* .................... Disaster assistance direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 25 32 29 75 175 175 163 238 25 25 –26 212 27 27 16 227 27 27 3 231 26 26 1 231 26 26 –103 128 Credit union share insurance fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 3 2 –4 3 1 1 –2 1 1 * .................... 1 1 * .................... 1 1 * .................... 1 1 * .................... 1 1 * .................... 1 Community development credit union revolving loan fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 2 1 6 .................... 2 .................... 6 .................... 2 * 6 .................... 2 * 7 .................... 2 * 7 .................... 2 * 7 .................... 2 * 7 55 55 –10 156 76 76 7 163 83 83 12 175 99 99 16 191 112 112 15 206 118 118 14 220 131 131 13 233 .................... .................... –177 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... 24 12 12 12 56 40 39 51 55 56 52 103 57 56 48 151 .................... 28 17 167 .................... .................... –14 153 Agency or Program Farm Credit System Financial Assistance Corporation Financial assistance corporation assistance fund, liquidating account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Bank Insurance Bank insurance fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... FSLIC Resolution FSLIC resolution fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Federal Emergency Management Agency National Credit Union Administration Tennessee Valley Authority Tennessee Valley Authority fund: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Washington Metropolitan Area Transit Authority Interest payments: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Community Development Financial Institutions Community development financial institutions fund direct loan financing account: Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 151 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–9. DIRECT LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Total, Direct loan Obligations ........................................................................................... Loan disbursements ............................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1994 Actual Estimate 1995 1996 1997 32,076 29,575 6,515 165,725 42,571 38,317 14,803 180,528 52,438 48,786 25,430 205,928 1998 1999 2000 59,3 69 59,122 32,865 268,893 62,631 61 ,949 33,249 301,852 transactions 1: 22,702 19,281 –800 159,211 56,918 55,071 30,414 236, 233 * $500 thousand or less. 1 Does not include REGO proposal for USDA’s Rural Development Partnerships Initiative. This would reduce total loan levels by approximately $80 million in 1996 through 2000. Rural water and waste disposal loans, Rural Community facility loans, and Rural business and industry loans are included in Rural development insurance fund financing account. 152 ANALYTICAL PERSPECTIVES TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 .................... .................... –549 7,146 .................... .................... –526 6,621 .................... .................... –491 6,129 .................... .................... –438 5,691 .................... .................... –387 5,304 .................... .................... –380 4,924 .................... .................... –373 4,551 Loan guarantees to Israel financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1,563 1,563 1,563 3,563 1,783 1,783 1,783 5,346 2,000 2,000 2,000 7,346 2,000 2,000 2,000 9,346 .................... .................... .................... 9,346 .................... .................... .................... 9,346 .................... .................... .................... 9,346 Housing and other credit guaranty programs liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 61 –9 2,037 .................... 63 –7 2,030 .................... 55 –17 2,013 .................... 50 –24 1,989 .................... 50 –25 1,964 .................... .................... –75 1,889 .................... .................... –75 1,814 Private sector revolving fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 1 * 19 .................... 1 1 20 .................... .................... –1 20 .................... .................... –17 2 .................... .................... –2 .................... .................... .................... .................... .................... .................... .................... .................... .................... Microenterprise and other development guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 25 10 10 22 27 16 16 38 137 21 20 58 136 53 51 108 133 83 80 189 130 110 103 292 127 129 121 413 Housing and other credit guaranty programs guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 165 26 26 59 156 126 126 185 142 132 131 316 137 136 136 452 134 140 139 591 131 142 140 731 128 129 127 858 Overseas Private Investment Corporation liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 40 –67 356 .................... .................... –89 267 .................... .................... –69 198 .................... .................... –61 136 .................... .................... –46 90 .................... .................... –54 36 .................... .................... –36 .................... Overseas private investment corporation guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1,918 244 239 387 1,891 575 562 949 1,491 1,411 1,386 2,335 1,471 1,701 1,643 3,978 1,392 1,590 1,190 5,168 1,392 1,469 869 6,037 1, 392 1,413 513 6, 550 Agricultural credit insurance fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 6 –1,024 1,990 .................... .................... –898 1,091 .................... .................... –494 597 .................... .................... –291 306 .................... .................... –89 217 .................... .................... –61 157 .................... .................... –48 109 Agricultural credit insurance fund guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1,079 1,796 1,376 3,950 2,709 2,507 1,717 5,667 2,442 2,542 1,342 7,009 2,346 2,383 949 7,958 2,297 2,330 546 8,504 2,249 2,284 359 8,863 2, 201 2,083 302 9,165 Agency or Program Funds Appropriated to the President International Security Assistance Foreign military loan liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Agency for International Development Overseas Private Investment Corporation Department of Agriculture Farm Service Agency 153 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Commodity credit corporation export guarantee financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 5,700 3,164 4,058 10,762 5,700 5,700 –1,519 9,243 5,700 5,700 417 9,660 5,700 5,700 489 10,148 5,700 5,700 –284 9,865 5,700 5,700 –293 9,5 71 5, 700 5,700 –296 9,275 Commodity credit corporation guaranteed loans liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –159 1,929 .................... .................... –1,196 733 .................... .................... –406 326 .................... .................... –268 59 .................... .................... –58 1 .................... .................... –1 .................... .................... .................... .................... .................... 6 7 7 24 .................... .................... .................... 24 .................... .................... .................... 24 .................... .................... .................... 24 .................... .................... .................... 24 .................... .................... .................... 24 .................... .................... .................... 24 Rural communication development fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –* 5 .................... * –* 5 .................... .................... –* 5 .................... .................... –* 5 .................... .................... –* 4 .................... .................... –* 4 .................... .................... –* 4 Rural development insurance fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 9 –193 704 .................... 6 –155 549 .................... 2 –125 424 .................... .................... –97 327 .................... .................... –77 250 .................... .................... –58 192 .................... .................... –44 148 Rural development insurance fund guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 285 180 180 384 580 283 277 661 850 501 492 1,154 816 686 671 1,825 800 762 741 2,566 783 791 767 3,333 766 790 764 4,–7 Rural electrification and telephone revolving fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –234 705 .................... .................... –17 688 .................... .................... –19 669 .................... .................... –22 648 .................... .................... –24 624 .................... .................... –27 597 .................... .................... –30 568 Rural housing insurance fund liquidating account : Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... * –6 41 .................... .................... –4 37 .................... .................... –4 33 .................... .................... –3 30 .................... .................... –3 27 .................... .................... –3 24 .................... .................... –2 22 Rural housing insurance fund guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 726 726 702 1,276 1,049 831 796 2,072 1,300 1,218 1,134 3,206 1,128 1,175 1,044 4,250 1,105 1,116 935 5,186 1,082 1,089 857 6,043 1,05 8 1,066 782 6,825 .................... .................... –1 30 .................... .................... –2 28 .................... .................... –2 26 .................... .................... –2 25 .................... .................... –2 23 .................... .................... –2 22 .................... .................... –2 20 Natural Resources Conservation Service Agricultural resource conservation demonstration guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Rural Utilities Service Rural Housing and Community Development Service Department of Commerce Economic Development Administration Economic development revolving fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 154 ANALYTICAL PERSPECTIVES TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 National Oceanic and Atmospheric Administration Fishing vessel obligations guarantees financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 66 48 47 49 25 25 21 70 25 25 19 89 .................... .................... –6 83 .................... .................... –6 77 .................... .................... –6 71 .................... .................... –6 66 Federal ship financing fund, fishing vessels liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –35 163 .................... .................... .................... 163 .................... .................... .................... 163 .................... .................... .................... 163 .................... .................... .................... 163 .................... .................... .................... 163 .................... .................... .................... 163 Federal family education loan liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 30 –7,592 36,374 .................... 19 –6,801 29,573 .................... 10 –6,021 23,552 .................... 5 –5,188 18,364 .................... 3 –4,311 14,054 .................... 2 –3,470 10,584 .................... 2 –3, 470 7,114 Historically Black College and University Capital financing—Financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... .................... .................... 357 170 170 170 .................... 187 181 351 .................... .................... –12 339 .................... .................... –15 325 .................... .................... –16 309 .................... .................... –16 293 Federal family education loan program, financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 23,292 20,064 17,086 38,661 20,046 20,019 16,966 55,626 10,240 11,615 5,718 61,345 2,603 4,419 –1,966 59,379 .................... 724 –6,224 53,155 .................... * –7,221 45,933 .................... –* –7,5 52 38,382 Health Resources and Services: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... * 12 .................... .................... –1 11 .................... .................... –1 10 .................... .................... –1 9 .................... .................... –1 8 .................... .................... –1 6 .................... .................... –1 5 Health professions graduate student loan guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 260 260 259 889 375 375 375 1,264 280 280 277 1,541 187 187 179 1,720 94 94 78 1,799 .................... .................... –28 1,771 .................... .................... –43 1,728 Health professions graduate student loan insurance fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –73 1,773 .................... .................... –76 1,697 .................... .................... –78 1,619 .................... .................... –81 1,538 .................... .................... –85 1,453 .................... .................... –92 1,361 .................... .................... –103 1,259 Health loan funds: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –66 309 .................... .................... –40 269 .................... .................... –39 230 .................... .................... –30 199 .................... .................... –30 169 .................... .................... –30 139 .................... .................... –30 109 .................... .................... –277 4,413 .................... .................... –300 4,113 .................... .................... –325 3,788 .................... .................... –350 3,438 .................... .................... –350 3,088 .................... .................... –375 2,713 .................... .................... –400 2,313 Department of Education Office of Postsecondary Education Department of Health and Human Services Health Resources and Services Administration Department of Housing and Urban Development Public and Indian Housing Programs Low-rent public housing—loans and other expenses: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 155 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Indian housing loan guarantee—financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 7 .................... .................... .................... 22 18 18 18 37 33 33 51 37 19 16 67 37 19 15 82 37 19 15 97 37 19 15 112 Community opportunity performance funds financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 351 139 130 219 500 425 411 630 1,000 750 720 1,350 1,000 500 450 1,800 1,000 500 450 2,250 1,000 500 450 2,700 1,000 500 450 3, 150 Community opportunity performance funds liquidating account : Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 42 –13 297 .................... 30 –43 254 .................... 15 –38 216 .................... 10 –40 176 .................... 10 –40 136 .................... 10 –30 106 .................... 10 –30 76 FHA mutual mortgage and cooperative housing insurance funds liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –72,467 118,688 .................... .................... –4,976 113,712 .................... .................... –3,343 110,369 .................... .................... –4,241 106,128 .................... .................... –4,934 101, 194 .................... .................... –5,460 95,734 .................... .................... –5 ,498 90,236 FHA general and special risk insurance funds liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –10,376 52,754 .................... .................... –1,883 50,871 .................... .................... –2,340 48,531 .................... .................... –2,205 46,326 .................... .................... –2,281 44,045 .................... .................... –2,342 41,703 .................... .................... –2 ,262 39,441 FHA-General and special risk guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 14,039 11,857 11,473 26,228 15,694 14,173 12,232 38,460 14,343 12,307 11,186 49,646 14,700 12,334 11,004 60,650 16,801 12,623 10,932 71,582 17,2 23 13,202 9,714 81,296 17,670 13,195 10,3 14 91,611 Mutual mortgage insurance guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 89,143 91,813 89,859 184,190 81,816 59,195 49,902 234,092 95,216 62,825 55,116 289,208 103,740 69,300 62,438 351,646 110,000 73,500 66,931 418, 577 13 5,000 87,196 79,607 498,184 160,000 103,744 95, 675 593,859 Guarantees of mortgage-backed securities liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 140,411 29,700 444,990 .................... 94,440 28,507 473,498 .................... 81,575 11,704 485,202 .................... 73,531 2,278 487,479 .................... 70,528 30,653 518, 132 .................... 70,289 27,906 546,038 .................... 70,808 26,1 42 572,180 Guarantees of mortgage-backed securities financing account : Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 185,000 .................... .................... .................... 142,000 .................... .................... .................... 110,000 .................... .................... .................... 110,000 .................... .................... .................... 110,000 .................... .................... .................... 110,000 .................... .................... .................... 110,000 .................... .................... .................... Indian loan guaranty and insurance fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –12 146 .................... .................... –11 134 .................... .................... –10 124 .................... .................... –10 114 .................... .................... –9 105 .................... .................... .................... 105 .................... .................... .................... 105 Indian guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 69 12 2 54 47 38 26 79 70 42 27 106 70 50 31 137 70 64 42 178 70 66 41 219 70 62 38 257 Community Planning and Development Housing Programs Government National Mortgage Association Department of the Interior Bureau of Indian Affairs 156 ANALYTICAL PERSPECTIVES TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Estimate 1994 Actual 1995 1996 1997 1998 1999 2000 Federal ship financing fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –699 1,147 .................... .................... –244 903 .................... .................... –224 679 .................... .................... –179 500 .................... .................... –159 340 .................... .................... –139 201 .................... .................... –119 81 Maritime guaranteed loan (Title XI) financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 286 286 269 314 1,658 1,658 1,559 1,873 920 920 774 2,647 .................... .................... –146 2,501 .................... .................... –148 2,353 .................... .................... –161 2,192 .................... .................... –154 2,038 Guaranty and indemnity fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –1,204 17,666 .................... .................... –986 16,680 .................... .................... –900 15,780 .................... .................... –846 14,933 .................... .................... –797 14,136 .................... .................... –751 13,386 .................... .................... –707 12,679 Loan guaranty revolving fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –44,552 38,665 .................... .................... –21,038 17,626 .................... .................... –9,827 7,799 .................... .................... –4,536 3,263 .................... .................... –2,032 1,231 .................... .................... –823 408 .................... .................... –30 5 103 Loan guaranty guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... * * * 2 1 1 1 3 1 1 1 4 1 1 1 5 1 1 1 6 1 1 1 6 1 1 1 7 Guaranty and indemnity guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 43,858 43,858 42,591 98,696 27,398 27,398 24,312 123,008 31,335 31,335 27,307 150,316 24,985 24,985 20,217 170,533 21,602 21,602 15,934 186,4 66 20,1 33 20,133 13,851 200,317 19,645 19,645 12, 862 213,179 Pollution control equipment fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –9 105 .................... .................... –8 98 .................... .................... –7 91 .................... .................... –6 85 .................... .................... –6 79 .................... .................... –5 75 .................... .................... –4 70 Business guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 9,432 8,069 5,904 14,992 9,679 8,935 5,709 20,700 11,647 10,248 6,030 26,730 11,340 10,749 5,441 32,171 11,151 10,587 4,348 36,519 10,916 10,377 3,436 39,955 10,549 10,195 2,706 42,662 Business loan fund liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... 55 –2,254 9,479 .................... .................... –1,678 7,801 .................... .................... –1,302 6,499 .................... .................... –1,030 5,469 .................... .................... –812 4,657 .................... .................... –655 4,002 .................... .................... –535 3,467 .................... 1,080 36 5,020 .................... 642 –391 4,629 .................... 282 –878 3,751 .................... 174 –837 2,914 .................... 128 –684 2,230 .................... 128 –501 1,729 .................... 128 –416 1,314 Agency or Program Department of Transportation Maritime Administration Department of Veterans Affairs Veterans Benefits Administration Small Business Administration Small Business Administration Other Independent Agencies Export-Import Bank of the United States Export-Import Bank of the United States liquidating account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 157 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–10. GUARANTEED LOAN TRANSACTIONS OF THE FEDERAL GOVERNMENT—Continued (in millions of dollars) Agency or Program Export-Import Bank guaranteed loan financing account: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 11,871 8,774 5,599 11,746 14,340 10,649 2,807 14,552 15,210 11,863 2,604 17,156 15,065 12,287 1,805 18,961 14,753 12,957 1,361 20,323 14,4 41 13,229 784 21,106 14,134 13,330 712 21,818 FSLIC resolution fund: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... .................... .................... –40 360 .................... .................... –360 .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... .................... Subtotal, Guaranteed loans (gross): Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 389,142 334,632 68,378 1,143,803 327,852 250,103 105,034 1,248,837 304,385 237,897 101,656 1,350,494 297,461 222,436 87,908 1,438,4 01 297,070 215,111 110,454 1,548,855 320,287 226,738 115,841 1,664,696 344,478 242, 951 128,968 1,793,664 GNMA guarantees of FmHA/VA/FHA pools: Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... –185,000 –140,411 –29,700 –444,990 –142,000 –94,440 –28,507 –473,498 –110,000 –81,575 –11,704 –485,202 –110,000 –73,531 –2,278 –487,479 –110 ,000 –70,528 –30,653 –518,132 –110,000 –70,289 –27,906 –546,038 –110,000 –70 ,808 .................... –572,180 Total, primary guaranteed loans: 2 Commitments ....................................................................................... New guaranteed loans ........................................................................ Change in outstandings ...................................................................... Outstandings ...................................................................................... 204,142 194,221 38,678 698,813 185,852 155,663 76,527 775,339 194,385 156,322 89,953 865,292 187,461 148,904 85,630 950,922 187,070 144,582 79,801 1,03 0,723 210,287 156,449 87,935 1,118,658 234,478 172, 143 102 ,826 1,221,484 FSLIC Resolution Less, secondary guaranteed loans: 1 * $500 thousand or less. 1 Loans guaranteed by FHA, VA, or FmHA are included above. GNMA places a secondary guarantee on these loans, so they are deducted here to avoid double counting. 2 When guaranteed loans result in loans receivable, they are shown in the direct loan table. 158 ANALYTICAL PERSPECTIVES TABLE 9–11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs) (In millions of dollars) Estimate Enterprise 1994 actual 1995 LENDING Student Loan Marketing Association ................................................. Federal National Mortgage Association: Corporation Accounts ..................................................................... Mortgage-backed securities ........................................................... Farm Credit System: Banks for cooperatives .................................................................. Farm Credit Banks ......................................................................... Federal Home Loan Bank system: Federal home loan banks .............................................................. Federal Home Loan Mortgage Corporation: Corporation accounts ..................................................................... Participation certificate pools ......................................................... Subtotal, lending (gross) ............................................................ Less secondary funds advanced from Federal sources: Student Loan Marketing Association from FFB 1 .......................... Less guaranteed loans held as direct loans by: Federal National Mortgage Association ......................................... Student Loan Marketing Association 1 ........................................... Other ............................................................................................... Total GSE lending (net) ............................................................. BORROWING Student Loan Marketing Association 1 ............................................... Federal National Mortgage Association ............................................. Farm Credit System: Banks for cooperatives .................................................................. Farm credit banks .......................................................................... Federal Housing Finance Board: Federal home loan banks .............................................................. The Financing Corporation ............................................................ Resolution Funding Corporation .................................................... 1996 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 11,259 11,259 3,486 38,071 12,168 12,168 2,345 40,417 11,556 11,556 175 40,592 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 68,573 76,610 35,815 221,766 159,548 180,863 41,632 523,512 57,176 58,610 32,194 253,960 101,224 101,224 39,028 562,540 61,401 61,847 32,847 286,808 121,472 121,472 54,147 616,688 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 46,622 46,457 560 13,007 20,965 20,782 173 37,712 42,939 42,939 2,139 15,146 20,803 19,943 –1,228 36,484 44,153 44,152 1,018 16,164 20,988 20,008 520 37,004 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 712,902 712,902 17,201 116,567 725,000 725,000 –567 116,000 725,000 725,000 .................... 116,000 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 26,740 26,740 18,833 65,893 168,957 168,957 33,583 463,672 1,215,566 1,244,570 151,283 1,480,200 28,712 28,712 20,019 85,912 84,206 84,206 25,262 488,934 1,072,228 1,072,802 119,192 1,599,393 30,634 30,634 19,380 105,292 100,019 100,019 36,596 525,530 1,115,223 1,114,688 144,683 1,744,078 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... .................. .................. –4,790 .................. .................... .................... .................... .................... .................... .................... .................... .................... Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... –68 20,780 8,276 38,071 –1,383 3,395 .................... 20,780 2,346 40,417 .................... 3,395 .................... 20,780 175 40,592 .................... 3,395 Obligations .................................. New transactions ........................ Net change ................................. Outstandings ............................... 1,215,566 151,283 144,458 1,417,954 1,072,228 119,192 116,846 1,534,801 1,115,223 144,683 144,508 1,679,311 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... 6,106 49,691 85,166 762,832 2,253 51,944 82,195 845,027 189 52,133 88,380 933,407 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... 1,521 13,924 –290 39,829 2,667 16,591 –442 39,387 1,124 17,715 300 39,687 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... 39,364 169,814 1 8,140 –2 30,079 12,186 182,000 1 8,141 –3 30,076 .................... 182,000 1 8,142 –2 30,074 159 9. UNDERWRITING FEDERAL CREDIT AND INSURANCE TABLE 9–11. LENDING AND BORROWING BY GOVERNMENT-SPONSORED ENTERPRISES (GSEs)—Continued (In millions of dollars) Estimate Enterprise Federal Home Loan Mortgage Corporation ....................................... Subtotal, borrowing (gross) ....................................................... Less borrowing from other GSEs ...................................................... Less borrowing from Federal sources: Student Loan Marketing Association from FFB 1 .......................... Less investment in Federal Securities ............................................... Less borrowing for guaranteed loans held as direct loans by: Federal National Mortgage Association ......................................... Student Loan Marketing Association 1 ........................................... Other ............................................................................................... Total GSE borrowing (net) ........................................................ 1994 actual 1995 1996 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... 31,244 514,035 163,110 1,588,344 –4,557 13,977 60,871 574,906 159,728 1,748,072 .................... 13,977 51,733 626,639 141,725 1,889,797 .................... 13,977 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... –4,790 .................. –679 10,049 .................... .................... 73 10,122 .................... .................... 478 10,600 Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... Net change ................................. Outstandings ............................... –68 20,780 8,276 38,071 –1,383 3,395 .................... 20,780 2,346 40,417 .................... 3,395 .................... 20,780 175 40,592 .................... 3,395 Net change ................................. Outstandings ............................... 166,311 1,502,072 157,309 1,659,381 141,072 1,800,453 1 FAC was reclassified from a GSE to a Federal agency as of October 1, 1992. Its loans and debt were accordingly reclassified as Federal loans and Federal debt. This reclassification does not constitute repayment of GSE loans or GSE debt. 2 All SLMA lending financed through the FFB is counted as direct loans. All SLMA loans shown in the table above are guaranteed by the Federal Government and therefore the portion not financed by the FFB is counted as guaranteed loans. To avoid double counting, two deductions were made in this table: one for the amount financed through the FFB, and the other for the remainder. 10. IMPLEMENTING THE NATIONAL EXPORT STRATEGY As part of its policy of promoting freer trade on a reciprocal basis, the Clinton Administration has been working closely with the private sector and with our trading partners to open foreign markets through bilateral, regional, and multilateral trade agreements. The goal is to encourage American exports by reducing trade barriers and by improving the efficiency of our export promotion programs. Significant progress has already been made on all fronts. • During the last two years, the Administration successfully concluded negotiations—and passed through Congress with strong bipartisan support—two of the largest trade agreements ever completed: the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), and the North American Free Trade Agreement (NAFTA) establishing a free trade area among the United States, Mexico, and Canada. The Administration also is working to attain freer trade in the Western Hemisphere and the Asia-Pacific region. • On a bilateral level, the Administration concluded a number of agreements, including several under the Framework for a New Economic Partnership with Japan concluded in Tokyo in 1993. In addition to negotiating multilateral and regional trade agreements, the Administration has taken other important steps to help U.S. exporters. Under the auspices of the Trade Promotion Coordinating Committee (TPCC), the Administration developed America’s first ‘‘National Export Strategy’’ to improve and coordinate the Federal Government’s trade promotion services for U.S. firms seeking opportunities abroad. This strategy, elaborated in the 1994 TPCC Annual Report, seeks to tailor trade promotion services to the needs of U.S. exporters in each geographic and sectoral market—giving U.S. firms equal opportunities to compete with foreign firms in world export markets. This Chapter examines the progress made by the Administration through the TPCC and explains the President’s recommended funding levels in 1996 for each trade promotion activity. The Importance of Trade With the globalization of trade over the past several decades, the strength of the United States economy has become increasingly dependent on providing our firms with opportunities in the global marketplace. • By one estimate over 10 million jobs in the United States in 1992 were directly related to merchandise or service exports, while another 5 million jobs provided upstream or downstream support for export firms. • Export-related jobs typically pay, on average, 13–17 percent more than the average wage earned by U.S. workers. Furthermore, export opportunities for U.S. firms are expected to grow rapidly over the next two decades. By the year 2010, world import demand excluding the United States is expected to reach $5.2 trillion, up from the current level of $3.2 trillion. Competition in foreign markets, however, will be fierce. Therefore, the Administration has been working to provide the necessary support for U.S. businesses as they attempt to capitalize on opportunities in these markets and expand sales overseas. By increasing the opportunities of U.S. exporters in the world market, the United States is able to further increase its economic base and the number of quality high-paying jobs in the economy—providing a higher standard of living for all Americans. The Trade Promotion Coordinating Committee (TPCC) The trade promotion activities of the U.S. Government historically have been diffused and disjointed. The Clinton Administration has moved to reverse this weakness and engender consistency across all trade promotion programs by coordinating the export assistance efforts of the Federal Government through the Trade Promotion Coordinating Committee (TPCC). Established in a 1992 amendment to the Export Enhancement Act of 1988, the TPCC is an interagency committee, chaired by the Secretary of Commerce, that consists of all Federal agencies engaged in trade promotion. The purpose of the TPCC is to provide a unifying framework for coordinating and developing U.S. export promotion activities under a government-wide strategic plan. The TPCC published its first statement of trade promotion policy in its 1993 Annual Report entitled ‘‘Toward a National Export Strategy.’’ This Report outlined 65 immediate steps designed to improve U.S. export performance. At the end of 1994, almost all of these steps have been implemented, with especially strong progress having been made in: • supporting U.S. bidders in global competitions through an aggressive advocacy campaign established to counteract foreign advocacy efforts and allow U.S. firms equal opportunities to compete and win foreign contracts; • improving trade finance support for U.S. exporters through a number of new initiatives, including the establishment of a tied-aid capital projects fund (which enabled the Export-Import Bank to match foreign tied-aid offers for projects worth over $842 million in potential U.S. exports), and the development of new partnerships with the private sector and state and local governments; • reducing foreign regulatory obstacles faced by U.S. exports such as unnecessary and ineffective export 161 162 controls, proprietary or exclusive product standards, and foreign company bribery tactics; • improving the availability of trade finance and information services for firms that are unable to obtain such services in the private market or for firms that are new to exporting. • promoting U.S. exports of environmental technologies and services. In the second Annual Report of the TPCC in 1994, the Administration went further and established a government-wide ‘‘National Export Strategy’’ for improving U.S. export opportunities in world markets. This strategy is to tailor trade promotion support to the needs of U.S. exporters in each geographic or sectoral market. Instituting this strategy will take considerable work over the next year. However, as a first step in implementing this strategy, the TPCC Report identified six fast-growing export sectors where private demand for U.S. export assistance is expected to be strong and issued a recommendation for increased attention in these areas. These sectors include: • the ten big emerging markets of Mexico, Brazil, Argentina, the Chinese Economic Area (including the People’s Republic of China, Taiwan, and Hong Kong), India, Indonesia, South Korea, Poland, Turkey, and South Africa, which are expected to account for over 40 percent of the growth in world import demand over the next two decades; • the fast-growing regions of Latin America and Asia, where barriers to trade have continued to fall and demand for U.S. exports rose to over $170 billion in 1993; • the traditional U.S. export markets of Canada, Japan, and Western Europe that represent over 50 percent of total U.S. export sales; • the economies in transition (e.g., Russia) where emerging economic structures promise strong opportunities for U.S. capital exports; • the service sector, where trade promotion support has lagged support for manufactured goods; and • the growing area of trade and project finance. In establishing this framework for expanding U.S. trade, the TPCC raised its goal of increasing U.S. exports ($640 billion in 1993) to $1.2 trillion by the year 2000, up from the $1.0 trillion target established in 1993. Unified Trade Promotion Budget In coordinating the planning and implementation of this strategy, the 1994 TPCC Annual Report also developed a comprehensive unified trade promotion budget. This unified budget presented, for the first time, a decomposition of Federal trade promotion funding by agency, activity classification, region, industrial sector, and business size over the past three budget years. By providing a comprehensive summary of the Federal allocation of trade promotion funding, this unified budget led to the following TPCC recommendations for reallocating Federal trade promotion funding in 1996: • Big Emerging Markets (BEMs).—For a diverse and competitive nation like the United States, export ANALYTICAL PERSPECTIVES opportunities will materialize everywhere and the U.S. Government will continue to provide the necessary trade promotion assistance to support U.S. exporters in every market. However, almost threequarters of the expected growth in world trade over the next two decades is projected to come from the developing world, and ten developing countries are likely to account for 40 percent of this growth. Thus, Federal efforts should target resources to the BEMs to support U.S. exporters as opportunities arise for increases in exports and export-related jobs. • High-Growth Sectors.—No effective export strategy can focus on geography alone. To expand this strategy, we must respond to the needs of U.S. exporters in specific product markets and specific countries. As part of this strategy, the Federal Government should be prepared to support fastgrowing sectors of the U.S. economy in the area of exports, including the services sector where Federal support has lagged behind industry growth. • Small and Medium-Sized Business.—In the area of exports, small and medium-sized businesses often face unique barriers that government is wellplaced to correct. The export success of smaller firms has been limited by unfamiliarity with the mechanics of exporting, insufficient export-finance information and resources, and a scarcity of information about foreign markets. While it is not economical to expect all small and medium-sized firms to export, helping export-ready firms overcome these barriers is an important function for the U.S. Government. Implementing The National Export Strategy: The Administration’s 1996 Trade Budget In the current tight fiscal environment, the challenge in implementing this ‘‘National Export Strategy’’ is to focus scarce Federal resources to the programs that are the most productive in expanding U.S. trade. The Administration’s trade promotion proposals attain this objective by concentrating scarce additional resources in the three trade promotion activities with the most promise for boosting U.S. exports: Combating Foreign Export Subsidies ($1.3 billion), Financing and Insuring U.S. Trade and Investment ($1.2 billion), and Providing Information Counseling and Export Assistance Services ($276 million). Overall, the President’s Budget proposes to increase funding for trade promotion activities to $3.2 billion in 1996, up from the $3.0 billion enacted in 1995. Table 10–1 provides an updated description of the unified trade promotion budget along with the President’s requested funding levels for 1996, demonstrating the relationship between the President’s proposals and past funding levels. • In acknowledgement of the TPCC’s recommendation to focus additional resources in high growth sectors where the demand for export assistance is expected to be high (i.e., the Big Emerging Markets), the President proposes considerable in- 10. 163 IMPLEMENTING THE NATIONAL EXPORT STRATEGY creases in funding for programs designed to combat foreign export subsidies, finance and insure U.S. trade and investment, fund feasibility studies, and provide information services. • Funding for programs defined as Government-toGovernment Advocacy and Developing Foreign Markets for Goods and Services also increase. TABLE 10–1. • Funding for programs designed to Negotiate Open Markets and Lower Trade Barriers is reduced slightly as most of these programs enter the implementation phase for the historic NAFTA and GATT agreements. U.S. GOVERNMENT TRADE PROMOTION EXPENDITURES BY CLASSIFICATION 1 (Budget authority in thousands) Actual Activity Negotiating Open Markets and Lowering/Removing Trade Barriers ......................... Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... Combating Foreign Export Subsidies ............................................................................ Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... Financing and Insuring U.S Trade and In Commerce ................................................. Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation (Not included in Totals) .............................. Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... Providing Information/Counseling/Export-Assistance Services .................................. Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... 1996 Budget 1993 1994 1995 132,227 39,218 .................. .................. .................. .................. 62,114 .................. 6,524 20,492 .................. 2,000 .................. 248 1,631 1,135,326 .................. 1,092 110,504 .................. .................. .................. .................. 1,023,730 .................. .................. .................. .................. .................. .................. 1,341,213 .................. .................. 562,259 –132,000 13,618 .................. .................. 755,189 .................. .................. .................. .................. 10,147 .................. 196,058 138,178 .................. 2,450 .................. .................. .................. 25,689 28,288 .................. .................. .................. .................. 1,453 149,910 43,443 .................. .................. .................. .................. 74,312 .................. 6,585 21,150 .................. 2,000 .................. 704 1,716 1,423,072 .................. 1,307 212,300 .................. .................. .................. .................. 1,209,465 .................. .................. .................. .................. .................. .................. 1,489,418 .................. .................. 766,845 –98,000 8,385 .................. .................. 696,302 .................. 16,000 .................. .................. 1,886 .................. 228,937 165,613 .................. 2,450 .................. .................. .................. 28,618 29,905 .................. .................. .................. .................. 2,351 147,835 42,386 .................. .................. .................. .................. 72,906 .................. 6,673 20,949 .................. 2,000 .................. 1,116 1,805 1,123,740 .................. 1,350 208,286 .................. .................. .................. .................. 914,104 .................. .................. .................. .................. .................. .................. 1,190,066 .................. .................. 563,142 –115,000 11,508 .................. .................. 592,532 .................. 21,000 .................. .................. 1,884 .................. 248,173 182,866 .................. 2,450 .................. 3,200 .................. 28,432 30,619 .................. .................. .................. .................. 606 147,207 38,905 .................. .................. .................. .................. 74,687 .................. 7,530 20,949 .................. 1,400 .................. 1,868 1,868 1,323,829 .................. .................. 245,903 .................. .................. .................. .................. 1,077,926 .................. .................. .................. .................. .................. .................. 1,207,701 .................. .................. 664,848 –96,500 9,300 .................. .................. 511,675 .................. 20,000 .................. .................. 1,878 .................. 275,951 197,195 .................. 2,450 .................. 3,200 .................. 28,069 36,398 .................. .................. .................. .................. 8,639 164 ANALYTICAL PERSPECTIVES TABLE 10–1. U.S. GOVERNMENT TRADE PROMOTION EXPENDITURES BY CLASSIFICATION 1— Continued (Budget authority in thousands) Actual Activity 1996 Budget 1993 1994 1995 Department of Labor ....................................................................................................... Providing Government-to-Government Advocacy on behalf of U.S. Business ........ Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... Funding Feasibility Studies on Major Infrastructure and Development Projects .... Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... Developing Foreign Markets ............................................................................................ Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... .................. 26,859 14,844 .................. .................. .................. .................. 12,015 .................. .................. .................. .................. .................. .................. .................. .................. 32,439 .................. 32,439 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 257,434 8,796 9,210 .................. .................. .................. .................. .................. 237,975 .................. .................. .................. .................. 1,453 .................. .................. 34,108 15,780 .................. .................. .................. .................. 18,328 .................. .................. .................. .................. .................. .................. .................. .................. 40,717 .................. 40,717 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 233,928 8,533 11,990 .................. .................. .................. .................. .................. 210,255 .................. .................. .................. .................. 3,150 .................. .................. 36,471 17,969 .................. .................. .................. .................. 18,502 .................. .................. .................. .................. .................. .................. .................. .................. 33,750 .................. 33,750 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 190,714 9,282 9,900 .................. .................. .................. .................. .................. 163,144 .................. .................. .................. .................. 8,388 .................. .................. 37,958 18,950 .................. .................. .................. .................. 19,008 .................. .................. .................. .................. .................. .................. .................. .................. 41,000 .................. 41,000 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 206,570 10,200 9,000 .................. .................. .................. .................. .................. 165,467 .................. .................. .................. .................. 21,903 .................. Total 2 .................................................................................................................................. Department of Commerce .............................................................................................. Trade Development Agency ........................................................................................... Export-Import Bank ......................................................................................................... Overseas Private Investment Corporation ..................................................................... Small Business Administration ....................................................................................... Department of State ........................................................................................................ U.S. Information Agency ................................................................................................. Department of Agriculture ............................................................................................... U.S. Trade Representative ............................................................................................. Department of Transportation ......................................................................................... Department of Treasury .................................................................................................. Environmental Protection Agency ................................................................................... Department of Energy ..................................................................................................... Department of Labor ....................................................................................................... 3,121,556 201,036 42,741 675,213 –132,000 13,618 74,129 25,689 2,051,706 20,492 .................. 2,000 .................. 13,301 1,631 3,600,090 233,369 54,014 981,595 –98,000 8,385 92,640 28,618 2,152,512 21,150 16,000 2,000 .................. 8,091 1,716 2,970,749 252,503 45,000 773,878 –115,000 14,708 91,408 28,432 1,707,072 20,949 21,000 2,000 .................. 11,994 1,805 3,240,216 265,250 50,000 913,201 –96,500 12,500 93,695 28,069 1,798,996 20,949 20,000 1,400 .................. 34,288 1,868 1 Figures 2 Totals include administrative expenses. exclude OPIC. 10. IMPLEMENTING THE NATIONAL EXPORT STRATEGY Negotiating Free Trade.—With the recent passage of the Uruguay Round of GATT and NAFTA, the United States achieved success in two of the most intensive and successful trade agreements in modern times. Implementing these agreements will continue to consume considerable time and resources over the next several years, especially as the United States seeks concluding agreements in the negotiations over trade barriers in two service sectors not completely addressed during recent negotiations—financial services and telecommunications. In addition, the United States has concluded several agreements under the Japan Framework Agreement and is continuing to pursue regional initiatives to encourage the development of freer trade in other areas. For example, the United States hosted the 1993 meeting of the Asia-Pacific Economic Cooperation (APEC) forum that ultimately resulted in a breakthrough commitment in 1994 to eliminate barriers to trade in goods, services, and investment in the region by the year 2020. In addition, at the Summit of the Americas meeting last December, there was a call by leaders to create a Free Trade Area of the Americas by 2005. As a result, the President’s Budget only proposes a small reduction in the level of funding for programs involved in this area of trade promotion. Combatting Foreign Export Subsidies.—One obstacle to U.S. export growth is foreign government subsidization of firms, selling domestically and for export. One of the most significant areas of this subsidization is export finance. Export finance subsidies may be conveyed through a variety of methods including subsidized interest rates, fees that do not cover risk, or highly concessional financing packages linked to the purchase of exports from the donor country, known as tied-aid. While such subsidies continue to be a persistent problem facing U.S. exporters, the U.S. Government has made progress toward reducing and eventually eliminating them. In 1993 an agreement was reached to eliminate (by mid-1995) the last of highly subsidized interest rates. In addition, progress is being made on increasing the fees charged to cover the risk of nonpayment to more commercially oriented levels. Perhaps most significantly, tied aid represents the area where the most progress has been made. Since 1989, ongoing negotiations have yielded tighter multilateral restrictions on the use of tied aid. In 1993, the Administration established a Tied-Aid Capital Projects Fund at the Export-Import Bank with a mandate to pre-empt and counter foreign tied-aid offers. Through a combination of aggressive matching of foreign tiedaid offers and active use of multilateral rules to challenge the validity of competitor tied-aid offers, the U.S. Government has been able to assert considerable downward pressure on other countries’ reliance on tied aid. While the reliance on tied aid and other export finance subsidies has not ended, the Export-Import Bank has sufficient funds through 1996 to continue its aggressive tied-aid matching program. Funding to combat export subsidies in the agricultural area is also proposed to increase in this year’s budget. 165 Financing and Insuring U.S. Trade and Investment.—Although there is some overlap between trade finance and insurance resources that compensate for a lack of private sector finance and those used to fight foreign subsidies, the largest portion of the Federal Government’s trade promotion budget is dedicated to providing trade finance, project finance, and insurance for U.S. firms selling or investing overseas. These programs, which are especially useful for firms unable to obtain export credit in the private market, attempt to reduce barriers to U.S. firms created by a lack of privately available finance and/or help reduce real or perceived political risk. Demand for all three forms of assistance is strong. Project finance, where repayment is based on the revenue of the project funded and not a sovereign or third-party guarantee, has become an especially important tool for supporting U.S. companies expanding into emerging markets where private sector investment in infrastructure is a priority. As a result, the President’s Budget incorporates a slight increase to support an expansion of these programs. Providing Information Services.—Providing up-todate information on opportunities in foreign markets is an important way to support U.S. exporters expanding into new markets and to encourage the development of export-ready firms. For the Federal Government, the predominance of trade-promotion information and counseling services is provided domestically through a network of the Department of Commerce’s U.S. and Foreign Commercial Service (US&FCS) offices. To increase the efficiency of Federal trade-promotion services, the Administration, through the TPCC, has established four U.S. Export-Assistance Centers that provide U.S. exporters a central source for information on market opportunities and available trade finance. The President’s Budget proposes increases in funding in this area in order to expand this system of ‘‘one-stop shops’’ over the next two years into a domestic ‘‘hub-and-spoke’’ system that will provide support for most of the large exporting regions of the United States. This additional funding also will enable the Federal Government to focus resources on meeting U.S. exporter demands for assistance in fast growing regions (Big Emerging Markets, Latin America and Asia, traditional export markets, and economies in transition) and in bringing U.S. support for service exports in line with the support available for manufactured products. Advocacy.—In the past, U.S. businesses were losing billions of dollars’ worth of sales annually because U.S. Government advocacy efforts were not as effective as those of foreign governments. Although U.S. products were top quality and competitively priced, foreign countries were winning procurements due to the involvement of their governments. To give U.S. exporters a fair opportunity in global competitions for major procurements, the Administration inaugurated a new Advocacy Center in 1993 located in the Department of Commerce. The Advocacy Center coordinates resources from across the U.S. government to ensure that Amer- 166 ican firms receive the full support of the U.S. Government, and provides commercial, technical, and financial support. In order to expand outreach efforts to the private sector and U.S. embassies and upgrade the Advocacy Center’s computer database, the President’s Budget proposes a slight increase in funding for advocacy activity. Feasibility Studies.—The Trade and Development Agency (TDA) assists U.S. companies pursuing overseas business opportunities in developing and middle-income countries in the area of infrastructure and industrial projects. TDA assists U.S. firms by providing a grant that is signed by the foreign government or entity sponsoring the project. This grant is conditioned on the grantee selecting an American firm to perform the feasibility study and is often cost-shared with the participating U.S. firm. TDA involves American firms in the planning stage of new projects being developed in foreign markets, thereby ensuring that U.S. design and engineering firms have an equal opportunity for the feasibility study contract award. TDA also ensures that U.S. firms will have a fair opportunity for the export sales when the project is implemented. U.S. Government assistance through TDA is especially important given the fact that other governments provide financing support at the feasibility study stage. Absent TDA support, U.S. firms would be significantly disadvantaged in a highly competitive environment characterized by strong demand for infrastructure projects in the BEMs and in Asia. Accordingly, the President’s Budget provides for an $8 million increase in funding for these feasibility studies. Developing Foreign Markets.—Trade promotion activity classified as ‘‘Developing Foreign Markets for U.S. Goods and Services’’ includes programs that are de- ANALYTICAL PERSPECTIVES signed to influence foreign consumers’ preferences for U.S. products. The majority of trade promotion activities in this area support the development of markets for agricultural products. While the recent agricultural agreements reached in the Uruguay Round of the GATT will over time reduce many of the barriers to agricultural exports, other countries may shift their resources into competing market development activities. We are proposing a fairly stable level of funding in this category compared with prior years until future competitor activities in this area become better known. Next Steps: Implementation and Performance Measurement Moving forward over the next year, the Administration will continue to work with the Congress in implementing the National Export Strategy developed by the TPCC. This implementation process will evolve along three important tracks. First, in order to provide an immediate response to the needs of U.S. exporters, the TPCC will provide increased trade promotion support for the fast-growing sectors identified above. Second, the TPCC will engage in a closer examination of the needs of U.S. exporters in each market, including the type of trade promotion support that is most appropriate for the Federal Government to provide given the market structure and the availability of services provided by the private market. Finally, using the framework developed in the 1994 TPCC Annual Report, the Administration will work with the trade promotion agencies over the next year to develop consistent performance measures of each program’s efficiency and effectiveness in boosting overall U.S. exports. The Administration will use these performance measures of program impacts and outcomes in order further to inform budgetary allocation decisions in the President’s 1997 budget. 11. AID TO STATE AND LOCAL GOVERNMENTS 1 State and local governments have a vital constitutional responsibility to provide government services. They have the major role in providing domestic public services, such as public education, law enforcement, roads, water supply, and sewage treatment. The Federal Government contributes to that role both by promoting a healthy economy and by providing grants, loans, and tax subsidies to State and local governments. Federal grants help State and local governments finance programs covering most areas of domestic public spending, including income support, infrastructure, education, and social services. Federal grant outlays were $210.6 billion in 1994 and are estimated to increase from $228.0 billion in 1995 to $238.5 billion in 1996. Grant outlays for payments for individuals are estimated to be 61 percent of total grants in 1996; for physical capital investment, 16 percent; and for all other purposes, largely education, training, and social services, 22 percent. States and localities receive Federal loans and guarantees mostly for the purpose of rural development. Direct loan and loan guarantee subsidies to State and local governments are estimated to be $0.1 billion in both 1995 and 1996. Information on Federal credit activities appears in Chapter 9, ‘‘Underwriting Federal Credit and Insurance.’’ Federal aid to State and local governments is also provided through tax expenditures. Tax expenditures are a preferential exception to the baseline provisions of the tax structure. The two major tax expenditures benefiting State and local governments are the deductibility of most nonbusiness State and local taxes, except sales and excise taxes, from gross income, and the exclusion of interest on State and local securities from Federal taxation. These provisions, on an outlay equivalent basis, are estimated to be $70.7 billion in 1995 and $73.4 billion in 1996. A detailed discussion of the measurement and definition of tax expenditures and a complete list of the amount of specific tax expenditures are in Chapter 5, ‘‘Tax Expenditures.’’ As discussed in that chapter, there are generally interactions among tax expenditure provisions, so that the estimates above only approximate the aggregate effect of these provisions. Tax expenditures that especially aid State and local governments are displayed separately at the end of Table 5–4 in that chapter. Federal Grants by Agency Table 11–1 shows the distribution of grants by agency. Grant outlays for the Department of Health and Human Services are estimated to be $135.2 billion in 1996, 57 percent of total grants, much more than any other agency. TABLE 11–1. FEDERAL GRANT OUTLAYS BY AGENCY (in billions of dollars) Estimate 1994 Actual 1995 1996 Department of Agriculture ................................................. Department of Commerce ................................................. Department of Education ................................................... Department of Energy ....................................................... Department of Health and Human Services .................... Department of Housing and Urban Development ............ Department of the Interior ................................................. Department of Justice ....................................................... Department of Labor ......................................................... Department of Transportation ........................................... Department of the Treasury .............................................. Environmental Protection Agency ..................................... Federal Emergency Management Agency ....................... Other agencies .................................................................. 15.3 0.3 15.6 0.2 118.0 19.5 1.8 0.9 7.1 23.6 0.4 2.7 3.4 1.8 16.8 0.5 17.5 0.3 126.5 22.2 1.8 1.2 7.3 24.8 0.5 2.8 4.0 2.0 17.4 0.6 16.8 0.3 135.2 21.3 1.9 1.8 9.4 24.2 0.5 2.9 4.1 2.2 Total .................................................................. 210.6 228.0 238.5 Agency HIGHLIGHTS OF THE FEDERAL AID PROGRAM Two of the basic organizing themes of the 1996 Budget will have a significant effect on the Federal aid program: consolidation of categorical grant programs and devolution of programs to the appropriate level of government. —The Federal Government has too many categorical programs, many of which are duplicative and inefficient. Whenever possible, the Administration will work to consolidate programs in order to improve performance. —In some cases, State or local governments can perform more effectively than the Federal Government. The Administration will consolidate many programs into fewer, more results-oriented programs, giving States and localities more flexibility about how to spend the money and accountability for achieving results. Many of these proposals reflect a new concept—‘‘performance partnerships’’ with State and local governments. The proposals will consolidate funding streams and eliminate overlapping authorities, create funding 1 Federal aid to State and local governments is defined as the provision of resources by the Federal Government to support a State or local program of governmental service to the public. The three primary forms of aid are grants, loans, and tax expenditures. 167 168 ANALYTICAL PERSPECTIVES incentives to reward desirable results, and reduce micromanagement and wasteful paperwork. They also will begin to focus programs on outcomes and outputs, treating them as the basic measure of success. The partnerships will seek to empower communities to make their own decisions about how to address their needs, and to be held accountable for results. With this in mind, the Administration is proposing a variety of consolidations to provide greater flexibility and increase accountability. Urban development.—Restructuring of the Department of Housing and Urban Development is part of the Administration’s effort to devolve responsibilities to States and localities within a framework of national goals. Over three years, it will consolidate HUD’s 60 programs into three flexible, performance-based funds and transform public housing into a system that works for people and communities. Transportation.—The Department of Transportation’s restructuring will consolidate programs that the Government now funds through separate modal grants into three programs. —A proposed unified transportation grant to States and localities will consolidate 30 categorical grants into a $10 billion program to finance transportation infrastructure. The grant will increase flexibility for State and local governments and fund a broad range of transportation investment, including highways, mass transit, rail, and airport facilities. —The proposed State Infrastructure Banks program will provide $2 billion to capitalize new State infrastructure banks. These banks will enable jurisdictions to leverage more easily public and private resources for transportation infrastructure and encourage more business-like strategies for financing the national transportation system. —A discretionary grant program will provide $1 billion to finance projects of special regional or national significance that are not addressed through other mechanisms. Rural development.—Fourteen existing rural development loan and grant programs would remain separate in the Department of Agriculture (USDA), but USDA State Directors would be authorized to shift funds among existing programs, providing more flexibility and consultation with State and local governments. Better jobs and skills.—More than 50 programs in the Departments of Education and Labor that improve jobs and skills would be consolidated into one system. Recipient governments would have more flexibility to develop comprehensive workforce development systems that best meet their needs. States could design service delivery systems as they see fit to accomplish results. Public health.—This budget proposes consolidating 108 public health activities into 16 grant categories and builds performance incentives into the authorizing legislation. Environment.—The Environmental Protection Agency proposes to allow States to consolidate up to 12 media specific grants (e.g., air, water, hazardous waste), enabling States to target resources toward their most pressing priorities while still abiding by Federal law. Additional information on these and other Federal aid proposals are in the main budget volume. The consolidations noted above are discussed in chapter 12, ‘‘Reinventing the Federal Government—Phase II.’’ Chapter 4, ‘‘Controlling Violent Crime and Drug Abuse,’’ discusses increases in assistance to help State and local law enforcement officials, local governments, and community groups fight crime. Chapter 6, ‘‘Ensuring a Clean Environment,’’ focuses on environmental issues. HISTORICAL PERSPECTIVES In recent decades, Federal aid to State and local governments has become a major factor in the financing of certain government functions. The rudiments of the present system date back to the Civil War. The Morrill Act, passed in 1862, established the land grant colleges and instituted certain federally-required standards for States that received the grants, as is characteristic of the present grant programs. Federal aid was later initiated for agriculture, highways, vocational education and rehabilitation, forestry, and public health. In the depression years, Federal aid was extended to meet income security and other social welfare needs. However, Federal grants did not become a significant factor in Federal Government expenditures until after World War II. Table 11–2 displays trends in Federal grants to State and local governments. Section A shows Federal grants by function. Functions with a substantial amount of grants are shown separately. Grants for the national defense, energy, veterans benefits and services, and the administration of justice functions are combined in the ‘‘other functions’’ line in the table. Federal grants for transportation increased to $3.0 billion, or 43 percent of all Federal grants in 1960 after initiation of aid to States to build the Interstate Highway System in the late 1950s. By 1970 there had been significant increases in the relative amounts for education, training, employment, social services, and health (largely Medicaid). In the early and mid-1970s, major new grants were created for natural resources and environment (construction of sewage treatment plants), community and regional development (community development block grants), and general government (general revenue sharing). In the 1980s changes in the relative amounts among functions reflected steady growth of grants for health (Medicaid) and income security and restraint in most other areas. The functions with the largest amount of grants are health and income security, with combined 11. 169 AID TO STATE AND LOCAL GOVERNMENTS TABLE 11–2. TRENDS IN FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS (Outlays; dollar amounts in billions) Actual 1960 1965 1970 1975 Estimate 1980 1985 1990 1994 1995 1996 1997 1998 1999 2000 A. Distribution of grants by function Natural resources and environment ..................................................... Agriculture .............................................................................................. Transportation ........................................................................................ Community and regional development ................................................. Education, training, employment, and social services ......................... Health ..................................................................................................... Income security ..................................................................................... General government .............................................................................. Other ...................................................................................................... 0.1 0.2 3.0 0.1 0.5 0.2 2.6 0.2 * 0.2 0.5 4.1 0.6 1.1 0.6 3.5 0.2 0.1 0.4 0.6 4.6 1.8 6.4 3.8 5.8 0.5 0.1 2.4 0.4 5.9 2.8 12.1 8.8 9.4 7.1 0.9 5.4 0.6 13.1 6.5 21.9 15.8 18.5 8.6 1.2 Total .............................................................................................. 7.0 10.9 24.1 49.8 91.5 105.9 135.4 210.6 228.0 238.5 253.2 264.4 278.9 292.9 B. Composition Current dollars: Payments for individuals 1 ................................................................ Physical capital 1 ............................................................................... Other grants ...................................................................................... 2.5 3.3 1.2 3.7 5.0 2.2 8.7 7.1 8.3 16.8 10.9 22.2 32.6 22.5 36.3 Total .............................................................................................. 7.0 10.9 24.1 49.8 91.5 105.9 135.4 210.6 228.0 238.5 253.2 264.4 278.9 292.9 Percentage of total grants: Payments for individuals 1 ................................................................ Physical capital 1 ............................................................................... Other grants ...................................................................................... 35% 47 17 34% 46 20 36% 29 34 34% 22 45 36% 25 40 Total .............................................................................................. 4.1 2.4 17.1 5.2 17.8 24.5 27.2 6.8 0.9 49.3 24.9 31.7 47% 23 30 3.7 1.3 19.2 5.0 23.4 43.9 35.2 2.3 1.4 3.8 0.9 23.6 7.8 32.7 86.3 51.5 2.1 1.8 4.1 4.1 4.2 4.4 4.3 4.3 0.9 0.8 0.8 0.8 0.8 0.8 24.8 24.2 22.3 21.6 21.7 20.9 9.3 10.1 10.1 7.8 7.1 7.0 36.1 38.5 41.8 41.7 41.7 41.7 93.2 100.7 109.3 119.0 129.0 140.9 55.1 55.0 57.0 60.7 65.2 67.7 2.3 2.3 2.2 2.2 2.2 2.3 2.2 2.8 5.5 6.2 6.8 7.4 75.7 131.1 140.4 146.3 156.4 169.8 184.5 199.3 27.2 35.3 38.4 39.3 37.3 36.8 36.6 35.3 32.5 44.2 49.2 52.9 59.4 57.8 57.8 58.3 56% 20 24 62% 17 21 62% 17 22 61% 16 22 62% 15 23 64% 14 22 66% 13 21 68% 12 20 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Constant (FY 1987) dollars: Payments for individuals 1 ................................................................ Physical capital 1 ............................................................................... Other grants ...................................................................................... 9.0 13.7 6.3 12.5 19.5 9.8 24.7 21.9 26.9 Total .............................................................................................. 29.1 41.8 73.6 105.4 127.6 113.0 119.5 165.9 174.7 177.3 182.4 184.6 188.7 192.1 C. Total grants as a percent of Federal outlays: Total ................................................................................................... Domestic programs 2 ......................................................................... State and local expenditures ................................................................ Gross domestic product ........................................................................ 8% 18% 15% 1% 9% 18% 16% 2% 12% 23% 20% 2% 15% 22% 24% 3% 15% 22% 28% 3% 11% 18% 23% 3% 11% 17% 20% 2% 14% 21% 24% 3% 15% 22% N/A 3% 15% 21% N/A 3% 15% 21% N/A 3% 15% 21% N/A 3% 15% 22% N/A 3% 15% 22% N/A 3% 25% 75 25% 75 25% 75 26% 74 37% 63 31% 69 23% 77 25% 75 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 35.1 20.6 49.6 46.2 27.7 53.7 52.9 25.8 34.2 66.1 101.5 105.6 106.7 110.5 116.3 122.4 128.3 24.9 30.3 32.1 32.0 29.6 28.4 27.4 25.7 28.5 34.1 37.0 38.7 42.3 39.9 38.8 38.1 D. As a share of total State and local capital spending Federal capital grants ........................................................................... State and local own-source financing .................................................. Total .............................................................................................. 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% N/A: Not available. * $50 million or less. 1 Grants that are both payments for individuals and capital investment are shown under capital investment. 2 Excludes national defense, international affairs, net interest, and undistributed offsetting receipts. grant outlays of $155.7 billion or 65 percent of total grant outlays in 1996. Section B of the Table shows the composition of grants divided into three major categories: payments for individuals, physical capital, and other grants.2 Grant outlays for payments for individuals, which are mainly entitlement programs in which the Federal government and the States share the costs, have grown significantly as a percent of total grants. In 1980, they were 36 percent of the total, and by 1994 they had grown to 62 percent of the total. 2 Certain grants are classified in the budget as both payments for individuals and physical capital spending. In the text and tables in this section, these grants are included in the category for physical capital spending. These grants are distributed through State or local governments to provide cash or in-kind benefits that constitute income transfers to individuals or families. The major grant in this category is Medicaid, which had outlays of $82.0 billion in 1994, increasing to an estimated $95.9 billion in 1996. Family support payments to States (AFDC), child nutrition programs, and housing assistance are also large grants in this category. Grants for physical capital assist States and localities with construction and other physical capital activities. The major capital grants are for highways, but there are also grants for airports, mass transit, sewage treatment plant construction, community development, and other facilities. Grants for physical capital were almost 170 ANALYTICAL PERSPECTIVES half of total grants in 1960, shortly after grants began for construction of the Interstate Highway System. The relative share of these outlays has declined, as payments for individuals have grown. In 1994, grants for physical capital were 17 percent of total grants. The other grants are primarily for education, training, employment, and social services. These grants increased to 45 percent of total grants by 1975, but declined to 21 percent of total grants in 1994. Section B of Table 11–2 also shows these three categories in constant dollars. In constant 1987 dollars, total grants increased from $127.6 billion in 1980 to $165.9 billion in 1994, an average annual increase of 1.9 percent. From 1980 to 1994, payments for individuals grew from $46.2 billion to $101.5 billion, an average annual increase of 5.8 percent; grants for physical capital increased from $27.7 billion to $30.3 billion, an average annual increase of 0.6 percent, and other grants decreased from $53.7 billion to $34.1 billion, an average annual decrease of 3.2 percent. Section C of this table shows grants as a percent of Federal outlays, State and local expenditures, and gross domestic product. Grants declined as a percent of total Federal outlays from 15 percent in 1980 to 11 percent in 1985 and 1990, and are estimated to increase to 15 percent in 1995, the same as in 1980. They are estimated to be 22 percent of Federal domestic programs in 1995, the same percent as in 1980. As a percent of total State and local expenditures, grants have declined from 28 percent in 1980 to 24 percent in 1994. Section D shows the relative contribution of physical capital grants in assisting States and localities with capital spending. Federal capital grants declined as a percent of State and local capital spending from 37 percent in 1980 to 25 percent in 1994, reflecting restraint in Federal spending and increased capital spending by States and localities financed from their own sources, such as taxes or borrowing. OTHER INFORMATION ON FEDERAL AID TO STATE AND LOCAL GOVERNMENTS Additional information regarding aid to State and local governments can be found elsewhere in this budget and in other documents. Major public physical capital investment programs providing Federal grants to State and local governments are identified in chapter 7, ‘‘Federal Investment Spending and Capital Budgeting.’’ Data for summary and detailed grants to State and local governments can be found in many sections of a separate document entitled, Historical Tables. Section 12 of that document is devoted exclusively to grants to State and local governments. Additional information on grants can be found in Section 6 (Composition of Federal Government Outlays); Section 9 (Federal Government Outlays for Investment: Major Physical Capital, Research and Development, and Education and Training); Section 11 (Federal Government Payments for Individuals); and Section 15 (Total (Federal and State and Local) Government Finances). In addition to these sources, a number of other sources of information are available that use slightly different concepts of grants, provide State-by-State information, or provide information on how to apply for Federal aid. Government Finances, published annually by the Bureau of the Census in the Department of Commerce, provides data on public finances, including Federal aid to State and local governments. The Survey of Current Business, published monthly by the Bureau of Economic Analysis in the Department of Commerce, provides data on the national income and product accounts (NIPA), a broad statistical concept encompassing the entire economy. These accounts include data on Federal grants to State and local governments. Data using the NIPA concepts appear in this volume in Chapter 19, ‘‘National Income and Product Accounts.’’ Budget Information for States (BIS) provides estimates of State-by-State funding allocations for the largest formula grant programs for the past, present, and budget year. These programs comprise approximately 85 percent of total Federal aid to State and local governments. The document is prepared by the Office of Management and Budget soon after the Budget is released. Federal Expenditures by State, a report prepared by the Bureau of the Census, shows Federal spending by State for grants and other spending for the most recently completed fiscal year. Consolidated Federal Funds Report is an annual document that shows the distribution of Federal spending by State and county areas and by local governmental jurisdictions. It is released by the Bureau of the Census in the Spring. The Federal Assistance Awards Data System (FAADS) provides computerized information about current grant funding. Data on all direct assistance awards are provided quarterly by the Bureau of the Census to the States and to the Congress. The Catalog for Federal Domestic Assistance is a primary reference source for communities wishing to apply for grants and other domestic assistance. The Catalog is prepared by the General Services Administration with data collected by the Office of Management and Budget and is available from the Government Printing Office. The basic edition of the Catalog is usually published in June and an update is generally published in December. It contains a detailed listing of grant and other assistance programs; discussions of eligibility criteria, application procedures, and estimated obligations; and related information. 11. 171 AID TO STATE AND LOCAL GOVERNMENTS DETAILED FEDERAL AID TABLE Table 11–3, ‘‘Federal Grants to State and Local Governments—Budget Authority and Outlays,’’ provides detailed budget authority and outlay data for grants. TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS (in millions of dollars) Budget Authority Function, Agency, and Program National defense: Department of Defense—Military: Operation and Maintenance: Operation and maintenance, Defense-wide ............................................................................. Military Construction: Military construction, Army National Guard ............................................................................. Federal Emergency Management Agency: Emergency management planning and assistance ................................................................. Total, national defense ........................................................................................................... Energy: Department of Energy: Energy Programs: Energy conservation ................................................................................................................. Tennessee Valley Authority: Tennessee Valley Authority fund ............................................................................................. Total, energy ............................................................................................................................ 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate 75 39 59 63 34 44 24 49 .................... 10 20 15 100 .................... .................... 96 55 10 199 88 59 169 109 69 340 397 423 218 264 282 248 257 260 248 257 260 588 654 683 466 521 542 Natural resources and environment: Department of Agriculture: Natural Resources Conservation Service: Resource conservation and development ................................................................................ 2 2 .................... 1 1 .................... Watershed and flood prevention operations ............................................................................ 493 39 69 187 291 139 Rural Utilities Service: Solid waste management grants .............................................................................................. 3 3 .................... 3 3 3 Forest Service: State and private forestry ......................................................................................................... 86 74 89 78 71 90 Department of Commerce: National Oceanic and Atmospheric Administration: Operations, research, and facilities .......................................................................................... 53 58 46 50 55 49 Construction .............................................................................................................................. 12 59 45 4 11 85 Coastal zone management fund .............................................................................................. 7 3 6 9 8 8 Department of the Interior: Bureau of Land Management: Miscellaneous permanent payment accounts .......................................................................... 84 81 78 37 83 80 Minerals Management Service: National forests fund, payment to states ................................................................................. 2 2 2 2 2 2 Leases of lands acquired for flood control, navigation, and allied purposes ......................... 1 1 1 1 1 1 Office of Surface Mining Reclamation and Enforcement: Regulation and technology ....................................................................................................... 51 52 52 49 47 52 Abandoned mine reclamation fund .......................................................................................... 147 136 138 154 112 148 Bureau of Reclamation: Bureau of reclamation loan subsidy ........................................................................................ 13 9 16 5 15 13 United States Fish and Wildlife Service: Resource management ............................................................................................................. 5 * * 5 * * Cooperative endangered species conservation fund .............................................................. 9 9 38 6 8 12 Wildlife conservation and appreciation fund ............................................................................ 1 1 1 * 1 1 Rhinoceros and tiger conservation fund .................................................................................. .................... .................... * .................... .................... * Sport fish restoration ................................................................................................................ 208 235 227 218 223 226 Miscellaneous permanent appropriations ................................................................................. 200 234 208 179 187 199 National Park Service: Urban park and recreation fund ............................................................................................... 5 7 2 7 7 4 Land acquisition and state assistance ..................................................................................... 25 25 25 30 45 31 Historic preservation fund ......................................................................................................... 53 46 43 39 45 45 Miscellaneous permanent appropriations ................................................................................. * * * * * * Environmental Protection Agency: Water infrastructure financing ................................................................................................... 2,375 2,887 2,365 1,962 2,153 2,122 Abatement, control, and compliance ........................................................................................ 507 456 683 475 459 573 Abatement, control, and compliance loan subsidy .................................................................. .................... .................... .................... 9 6 6 172 ANALYTICAL PERSPECTIVES TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate Hazardous substance superfund .............................................................................................. Leaking underground storage tank trust fund ......................................................................... 120 65 120 65 320 66 189 65 153 65 103 66 Total, natural resources and environment .......................................................................... 4,530 4,604 4,520 3,765 4,052 4,057 438 229 434 226 445 226 436 225 426 239 436 226 1 1 1 1 1 1 3 3 149 3 3 126 3 3 117 3 .................... 149 3 4 126 3 3 117 Agriculture: Department of Agriculture: Cooperative State Research, Education, and Extension Service: Extension activities ................................................................................................................... Cooperative state research activities ....................................................................................... Agricultural Marketing Service: Payments to States and possessions ...................................................................................... Farm Service Agency: State mediation grants .............................................................................................................. Outreach for socially disadvantaged farmers .......................................................................... Commodity credit corporation fund .......................................................................................... Natural Resources Conservation Service: Agricultural resource conservation demonstration guaranteed loan subsidy ......................... Food and Consumer Service: Emergency food assistance program ....................................................................................... Total, agriculture ..................................................................................................................... 4 .................... .................... 4 .................... .................... 120 65 40 119 72 40 946 858 835 937 871 826 Commerce and housing credit: Department of Commerce: Economic Development Administration: Miscellaneous appropriations ................................................................................................... .................... .................... .................... * .................... .................... United States Travel and Tourism Administration: Salaries and expenses ............................................................................................................. 4 .................... .................... 3 .................... .................... National Oceanic and Atmospheric Administration: Promote and develop fishery products and research pertaining to American fisheries ........ 3 4 4 4 4 5 National Institute of Standards and Technology: Industrial technology services .................................................................................................. 2 6 6 1 2 4 Department of Housing and Urban Development: Housing Programs: National homeownership demonstration program ................................................................... .................... 50 .................... .................... .................... 17 Total, commerce and housing credit ................................................................................... Transportation: Department of Transportation: Infrastructure Investment: Unified transportation infrastructure investment program ........................................................ Federal Highway Administration: High priority corridors loan subsidy ......................................................................................... Orange County (CA) toll road demonstration project loan subsidy ........................................ Highway-related safety grants .................................................................................................. Motor carrier safety grants ....................................................................................................... Federal-aid highways ................................................................................................................ Miscellaneous appropriations ................................................................................................... Miscellaneous highway trust funds .......................................................................................... National Highway Traffic Safety Administration: Miscellaneous safety programs ................................................................................................ Highway traffic safety grants .................................................................................................... Federal Railroad Administration: Rhode Island rail development ................................................................................................. Office of the Administrator ........................................................................................................ Local rail freight assistance ...................................................................................................... Conrail commuter transition assistance ................................................................................... Federal Transit Administration: Research, training, and human resources ............................................................................... Interstate transfer grants-transit ............................................................................................... Washington metropolitan area transit authority ....................................................................... Formula grants .......................................................................................................................... Transit planning and research .................................................................................................. Discretionary grants (trust fund) ............................................................................................... Miscellaneous expired accounts ............................................................................................... Federal Aviation Administration: Grants-in-aid for airports (Airport and airway trust fund) ........................................................ 9 60 10 .................... .................... 22,570 8 6 25 .................... .................... 2,858 .................... 6 .................... .................... 3 .................... .................... 8 .................... .................... .................... .................... 20 .................... 16 10 9 9 79 82 67 59 71 80 21,493 20,164 887 18,139 18,642 15,946 146 287 .................... 233 208 189 8 –7 .................... 85 104 87 .................... .................... .................... –30 190 156 * 141 .................... 5 .................... .................... 4 3 3 4 17 4 .................... 23 .................... .................... .................... 1 .................... .................... .................... 45 48 .................... 200 200 .................... 2,415 2,492 .................... 125 100 8 1,782 1,725 .................... .................... .................... .................... 2,970 2,161 .................... * .................... 141 164 1 3 20 2 2 3 14 14 8 156 143 1,289 9 1,652 11 10 43 215 1,984 71 1,431 23 7 37 161 1,557 87 1,576 16 1,620 1,785 1,324 11. 173 AID TO STATE AND LOCAL GOVERNMENTS TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program Coast Guard: Research, development, test, and evaluation ......................................................................... Boat safety ................................................................................................................................ Research and Special Programs Administration: Pipeline safety ........................................................................................................................... Emergency preparedness grants ............................................................................................. Total, transportation ............................................................................................................... Community and regional development: Department of Agriculture: Rural Utilities Service: Distance learning and medical link grants ............................................................................... Rural water and waste disposal loan subsidy ......................................................................... Emergency community water assistance grants ..................................................................... Rural water and waste disposal grants ................................................................................... Rural development insurance fund loan subsidy .................................................................... Rural Housing and Community Development Service: Rural community facility loan subsidy ...................................................................................... Rural community fire protection grants .................................................................................... Rural Business and Cooperative Development Service: Rural technology and cooperative development grants .......................................................... Local technical assistance and planning grants ...................................................................... Rural business and industry loan subsidy ............................................................................... Rural economic and community development programs ........................................................ Rural business enterprise grants ............................................................................................. Rural economic development grants ........................................................................................ Department of Commerce: Economic Development Administration: Economic development assistance programs .......................................................................... Department of Housing and Urban Development: Community Planning and Development: Community development grants ............................................................................................... Urban development action grants ............................................................................................ Supplemental assistance for facilities to assist the homeless ................................................ Community opprtunity performance funds loan subsidy ......................................................... Community oppportunity performance funds ........................................................................... Department of the Interior: Bureau of Indian Affairs: Operation of Indian programs .................................................................................................. Indian direct loan subsidy ......................................................................................................... Indian guaranteed loan subsidy ............................................................................................... Appalachian Regional Commission: Appalachian regional development programs .......................................................................... Federal Emergency Management Agency: Emergency management planning and assistance ................................................................. Disaster relief ............................................................................................................................ Neighborhood Reinvestment Corporation: Payment to the Neighborhood Reinvestment Corporation ...................................................... Total, community and regional development ..................................................................... 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate 1 40 1 32 1 30 1 39 1 35 1 32 8 7 19 6 20 10 5 5 12 9 17 10 29,330 27,525 23,767 23,633 24,823 24,191 10 8 .................... 140 10 10 405 415 180 .................... .................... 4 15 1 25 9 .................... .................... 95 92 .................... 11 15 9 .................... 268 315 342 .................... 103 .................... .................... 12 .................... .................... 3 .................... 3 10 3 5 2 .................... 2 .................... .................... * 1 .................... 2 .................... .................... * 1 .................... 1 .................... .................... 1 .................... .................... .................... 1,050 .................... .................... 122 32 34 .................... 18 24 25 .................... .................... .................... .................... 5 .................... 521 362 401 5,050 4,622 .................... 3,651 4,330 .................... –100 .................... 33 35 .................... .................... .................... 7 6 .................... 23 22 .................... 12 .................... .................... 4,850 .................... .................... 4,564 30 6 23 175 101 2 10 417 408 93 114 2 .................... 10 10 204 91 2 3 87 106 3 .................... 10 10 243 276 177 181 158 196 17 4,598 124 6,681 123 9 16 3,182 65 3,756 113 3,824 14 15 20 14 15 20 11,196 12,789 6,796 7,789 9,331 10,074 Education, training, employment, and social services: Department of Commerce: National Telecommunications and Information Administration: Public broadcasting facilities, planning and construction ........................................................ 13 6 5 11 14 Information infrastructure grants ............................................................................................... .................... 56 95 .................... .................... Department of Education: Office of Elementary and Secondary Education: Indian education ........................................................................................................................ 74 78 79 70 73 Impact aid ................................................................................................................................. 909 728 617 797 1,084 Chicago litigation settlement ..................................................................................................... .................... .................... .................... 10 12 Education Reform ..................................................................................................................... 140 513 917 2 172 Education for the disadvantaged .............................................................................................. 6,896 7,214 7,420 6,819 7,009 School improvement programs ................................................................................................. 1,260 1,308 1,386 1,358 1,451 Office of Bilingual Education and Minority Languages Affairs: Bilingual and immigrant education ........................................................................................... 199 217 267 176 209 21 42 76 679 4 484 7,033 1,336 228 174 ANALYTICAL PERSPECTIVES TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program Office of Special Education and Rehabilitative Services: Special education ...................................................................................................................... Rehabilitation services and disability research ........................................................................ American printing house for the blind ...................................................................................... Office of Vocational and Adult Education: Vocational and adult education ................................................................................................ Office of Postsecondary Education: Student financial assistance ..................................................................................................... Higher education ....................................................................................................................... Office of Educational Research and Improvement: Libraries ..................................................................................................................................... Education research, statistics, and improvement .................................................................... Department of Health and Human Services: Administration for Children and Families: State legalization impact assistance grants ............................................................................. Payments to States for the job opportunities and basic skills training program ................... Family preservation and support .............................................................................................. Social services block grant ....................................................................................................... Children and families services programs ................................................................................. Payments to states for foster care and adoption assistance ................................................. Administration on Aging: Aging services programs .......................................................................................................... Department of the Interior: Bureau of Indian Affairs: Operation of Indian programs .................................................................................................. Department of Labor: Employment and Training Administration: Training and employment services .......................................................................................... Community service employment for older Americans ............................................................. State unemployment insurance and employment service operations .................................... Federal unemployment benefits and allowances .................................................................... Unemployment trust fund ......................................................................................................... Corporation for National and Community Service: Domestic volunteer service programs, operating expenses ................................................... National and community service programs, operating expenses ........................................... Corporation for Public Broadcasting: Corporation for public broadcasting ......................................................................................... National Endowment for the Arts: National endowment for the arts: Grants and administration ................................................. Institute of Museum Services: Institute of Museum Services: Grants and administration ...................................................... Total, education, training, employment, and social services ........................................... 1994 Actual 1995 Estimate 1994 Actual 1995 Estimate 1996 Estimate 2,866 2,082 6 3,006 2,171 7 3,088 2,238 7 2,748 2,031 6 3,364 2,311 7 2,923 2,287 7 1,433 1,388 1,621 1,292 1,486 1,497 94 36 83 47 56 38 81 30 92 37 78 43 129 35 120 24 107 24 125 33 134 32 131 24 361 .................... 1,300 1,000 150 225 2,800 2,800 4,595 4,900 3,624 4,308 651 839 1 2,728 3,998 3,030 354 937 67 2,996 4,435 3,596 5 943 148 3,343 4,677 4,051 810 1,100 60 3,807 4,443 2,993 878 877 897 859 868 880 83 88 92 90 61 98 3,941 90 77 76 1,106 4,277 90 147 101 1,110 6,857 90 226 129 1,064 3,310 85 246 74 1,036 3,549 88 101 91 1,085 5,332 90 163 125 1,095 133 167 136 429 167 555 54 12 133 139 149 369 92 95 104 92 95 104 44 43 44 47 42 43 7 7 7 4 11 7 36,080 37,196 41,431 32,744 36,138 38,513 42 39 40 42 1,749 1,465 1,658 1,679 621 522 570 598 2,244 2,132 2,462 2,214 .................... .................... 82,034 88,438 150 95,930 Health: Department of Agriculture: Food Safety and Inspection Service: Salaries and expenses ............................................................................................................. 39 40 Department of Health and Human Services: Health Resources and Services Administration: Health Resources and Services ............................................................................................... 1,716 1,749 Centers for Disease Control and Prevention: Disease control, research, and training ................................................................................... 662 604 Substance Abuse and Mental Health Services Administration: Substance abuse and mental health services ......................................................................... 2,150 2,195 Health Care Financing Administration: Program management .............................................................................................................. .................... .................... Grants to States for Medicaid .................................................................................................. 89,077 89,241 Department of Labor: Occupational Safety and Health Administration: Salaries and expenses ............................................................................................................. 69 71 Mine Safety and Health Administration: Salaries and expenses ............................................................................................................. 6 6 Total, health ............................................................................................................................. Outlays 1996 Estimate 93,718 93,905 150 82,095 76 68 70 75 6 6 6 6 86,983 86,265 93,244 100,695 11. 175 AID TO STATE AND LOCAL GOVERNMENTS TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program Income security: Department of Agriculture: Agricultural Marketing Service: Funds for strengthening markets, income, and supply (section 32) ...................................... Rural Housing and Community Development Service: Rural housing for domestic farm labor grants ......................................................................... Supervisory and technical assistance grants .......................................................................... Rural housing preservation grants ........................................................................................... Food and Consumer Service: Food donations programs for selected groups ........................................................................ Food stamp program ................................................................................................................ Special supplemental nutrition program for women, infants, and children (WIC) .................. Commodities supplemental food program ............................................................................... State child nutrition programs .................................................................................................. Department of Health and Human Services: Administration for Children and Families: Family support payments to States ......................................................................................... Low income home energy assistance ..................................................................................... Refugee and entrant assistance .............................................................................................. Payments to States for the child care and development block grant .................................... Payments to States from receipts for child support ................................................................ Department of Housing and Urban Development: Public and Indian Housing Programs: Payments for operation of low income housing projects ........................................................ Community Partnerships against crime ................................................................................... Revitalization of severely distressed public housing projects ................................................. Housing certificates for families and Individuals performance funds ...................................... Public and indian housing capital performance funds ............................................................ Community Planning and Development: Emergency shelter grants program .......................................................................................... Supportive housing program .................................................................................................... Homeless assistance grants ..................................................................................................... Shelter plus care ....................................................................................................................... Home investment partnerships program .................................................................................. Youthbuild program ................................................................................................................... Innovative homeless initiatives demonstration program .......................................................... Affordable housing performance funds .................................................................................... Housing opportunities for persons with AIDS .......................................................................... Housing Programs: Annual contributions for assisted housing ............................................................................... Congregate services ................................................................................................................. Assistance for the renewal of expiring Section 8 subsidy contracts ...................................... Section 8 moderate rehabilitation, single room occupancy .................................................... Homeownership and opportunity for people everywhere grants (HOPE grants) ................... Department of Labor: Employment and Training Administration: Unemployment trust fund ......................................................................................................... Federal Emergency Management Agency: Federal Emergency Management Agency: Emergency food and shelter program ..................................................................................... 1994 Actual 1995 Estimate 478 Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate 465 400 451 465 400 11 11 1 .................... 8 7 11 1 7 11 * 7 24 1 8 18 1 8 270 2,909 3,817 86 7,821 245 2,688 3,155 89 6,938 270 2,879 3,496 101 7,530 267 2,904 3,825 87 7,961 259 2,768 3,205 94 7,383 223 2,850 3,467 84 7,325 16,820 17,359 18,013 1,737 1,319 1,319 352 357 365 893 935 1,049 .................... .................... .................... 16,508 17,260 17,918 2,125 1,569 1,331 333 354 360 786 900 918 * .................... .................... 2,621 2,900 .................... 2,584 2,707 265 290 .................... 160 179 778 500 .................... 1 20 .................... .................... 7,665 .................... .................... .................... .................... 4,884 .................... .................... 1,537 259 20 780 13 115 157 .................... 63 110 334 34 .................... 102 114 .................... 905 .................... .................... 45 124 .................... .................... 5 50 1,380 1,400 .................... 782 1,213 .................... 50 .................... * 16 100 25 .................... 4 41 .................... .................... 3,339 .................... .................... .................... .................... 186 .................... .................... 123 121 90 50 1,222 25 35 60 114 6,003 7,492 .................... 25 –12 .................... 4,763 2,883 .................... 150 .................... .................... –207 62 .................... 9,027 6 2,984 8 65 9,818 11,861 6 9 3,332 .................... 36 43 87 63 2,490 2,370 2,543 2,273 2,336 2,475 130 130 130 130 130 130 Total, income security ............................................................................................................ 53,079 53,589 54,814 51,532 55,098 55,029 Veterans benefits and services: Department of Veterans Affairs: Veterans Health Administration: Medical care .............................................................................................................................. Construction: Grants for construction of State extended care facilities ........................................................ Grants for the construction of State veterans cemeteries ...................................................... 153 178 197 153 178 197 41 5 47 5 44 1 45 2 59 5 41 2 Total, veterans benefits and services .................................................................................. 199 231 241 199 242 241 Administration of justice: Department of Health and Human Services: Centers for Disease Control and Prevention: Violent crime reduction programs ............................................................................................ .................... .................... 39 .................... .................... 14 176 ANALYTICAL PERSPECTIVES TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program Department of Housing and Urban Development: Public and Indian Housing Programs: Violent crime reduction programs ............................................................................................ Fair Housing and Equal Opportunity: Fair housing activities ............................................................................................................... Department of Justice: Legal Activities: Assets forfeiture fund ................................................................................................................ Federal Prison System: National Institute of Corrections ............................................................................................... Office of Justice Programs: Justice assistance ..................................................................................................................... State and local law enforcement assistance ........................................................................... Juvenile justice program ........................................................................................................... Crime victims fund .................................................................................................................... Violent crime reduction programs ............................................................................................ Department of Transportation: Federal Transit Administration: Violent crime reduction programs ............................................................................................ Department of the Treasury: Departmental Offices: Department of the Treasury forfeiture fund ............................................................................. Violent crime reduction programs: Violent crime reduction programs ............................................................................................ United States Customs Service: Customs forfeiture fund ............................................................................................................ Equal Employment Opportunity Commission: Salaries and expenses ............................................................................................................. Ounce of Prevention Council: Ounce of prevention council ..................................................................................................... State Justice Institute: State Justice Institute: Salaries and expenses ........................................................................ Violent crime reduction programs ............................................................................................ Total, administration of justice ............................................................................................. 1994 Actual 1995 Estimate Outlays 1996 Estimate .................... .................... 1994 Actual 3 1995 Estimate 1996 Estimate .................... .................... 3 25 33 45 11 29 21 235 225 225 214 225 225 4 4 4 3 3 3 598 .................... .................... 127 .................... 63 262 150 166 756 74 240 144 152 1,553 546 .................... .................... 124 .................... 508 58 33 148 178 352 152 89 150 791 .................... .................... 5 .................... .................... * 73 79 79 57 50 57 .................... 39 78 .................... 30 58 .................... .................... .................... 1 .................... .................... 26 26 28 26 26 28 .................... * 13 .................... * 3 11 12 .................... .................... 5 1 9 12 .................... .................... 10 1 1,099 1,816 2,687 General government: Department of Agriculture: Forest Service: Forest Service permanent appropriations ................................................................................ 321 249 245 DOD-Civil: Corps of Engineers—Civil: Permanent appropriations ......................................................................................................... 5 5 5 Department of Energy: Energy Programs: Payments to States under Federal Power Act ........................................................................ 3 3 3 Department of the Interior: Bureau of Land Management: Payments in lieu of taxes ......................................................................................................... 104 104 114 Minerals Management Service: Mineral leasing and associated payments ............................................................................... 520 548 560 United States Fish and Wildlife Service: National wildlife refuge fund ..................................................................................................... 19 19 19 Territorial and International Affairs: Assistance to territories ............................................................................................................ 82 80 70 Trust Territory of the Pacific Islands ........................................................................................ 24 20 .................... Payments to the United States territories, fiscal assistance ................................................... 102 93 95 Department of the Treasury: Bureau of Alcohol, Tobacco and Firearms: Internal revenue collections for Puerto Rico ........................................................................... 201 226 232 United States Customs Service: Miscellaneous permanent appropriations ................................................................................. 165 178 188 Commission on National and Community Service: Salaries and expenses ............................................................................................................. .................... .................... .................... 992 1,300 1,958 94 249 245 5 5 5 2 3 3 100 104 114 520 548 560 18 19 19 76 23 102 75 19 93 76 2 95 201 226 232 170 178 188 89 46 .................... 11. 177 AID TO STATE AND LOCAL GOVERNMENTS TABLE 11–3. FEDERAL GRANTS TO STATE AND LOCAL GOVERNMENTS—BUDGET AUTHORITY AND OUTLAYS—Continued (in millions of dollars) Budget Authority Function, Agency, and Program 1994 Actual 1995 Estimate Outlays 1996 Estimate 1994 Actual 1995 Estimate 1996 Estimate District of Columbia: Federal payment to the District of Columbia ........................................................................... 700 712 712 698 714 712 Total, general government ..................................................................................................... 2,245 2,237 2,243 2,098 2,279 2,251 Total, grants ............................................................................................................................ 233,218 235,550 225,070 210,596 228,015 238,472 * $500 thousand or less. 12. FEDERAL EMPLOYMENT This section provides data on civilian and military employment in the Executive Branch and personnel compensation and benefits. It also provides information on employment in the legislative and judicial branches. A comparison of Federal employment levels, State and local government employment, and the United States population may be found in the Historical Tables. Total Federal Employment in the Executive Branch Civilian employment in the Executive Branch is measured on the basis of full-time equivalents (FTEs). One FTE is equal to one work year or 2,080 non-overtime hours. The Federal Workforce Restructuring Act of 1994 (P.L. 103–226) was enacted March 30, 1994. The Act provides agencies with authority to offer voluntary separation incentive payments (‘‘VSIPs’’ or ‘‘buyouts’’) to aid in their downsizing and restructuring activities and establishes FTE limitations (‘‘ceilings’’) for the Executive Branch through 1999. The 1996 budget continues the implementation of the reductions pursuant to the Act. The limitations established by the Act are as follows: 1994–2,084.600 1995–2,043,300 1996–2,003,300 1997–1,963,300 1998–1,922,300 1999–1,882,300 Allocations of FTE resources by agency were made based upon Presidential priorities and other factors. As shown in Table 12–1, a total reduction of 173,300 FTEs or 8.0 percent is anticipated in 1996. The budgeted 1996 FTE level of 1,975,800 (subject to ceiling) is 27,500 FTEs lower than the limitation required by law. Total Federal Employment Levels The tables that follow show total Federal employment in all branches of Government, as well as the U.S. Postal Service, Postal Rate Commission, and active duty uniformed military personnel. Table 12–2 displays total Federal employment as measured by actual positions filled at the end of the fiscal year. Table 12–3 shows total Federal employment as measured on an FTE basis. Personnel Compensation and Benefits Table 12–4 displays personnel compensation and benefits for all branches of Government, as well as for military personnel. Direct compensation of the Federal work force includes base pay and premium pay, such as overtime. In addition, it includes other cash components, such as geographic pay differentials (i.e., locality pay, interim geographic adjustments, special pay adjustments for law enforcement officers), recruitment and relocation bonuses, retention allowances, performance awards, and cost-of-living and overseas allowances. In the case of military personnel, compensation includes basic pay, special and incentive pay (including enlistment and reenlistment bonuses), and allowances for clothing, housing, and subsistence. Related compensation in the form of personnel benefits for current and former personnel consists primarily of the Government’s share (as an employer) of health insurance, life insurance, old age survivors’ disability and health insurance, and payments to the Department of Defense’s Military Retirement Fund, the Civil Service Retirement and Disability Fund, and the Federal Employees Retirement System to finance future retirement benefits. 179 180 ANALYTICAL PERSPECTIVES TABLE 12–1. FEDERAL EMPLOYMENT IN THE EXECUTIVE BRANCH (Civilian employment as measured by Full-Time Equivalents, in thousands) Estimate Agency 1993 Base 1993 Actual 1994 Actual 1995 4 Change: 1993 base to 1996 1996 FTE’s Percent Cabinet agencies: Agriculture ...................................................................................................................... Commerce ..................................................................................................................... Defense—military functions ........................................................................................... Education ....................................................................................................................... Energy ............................................................................................................................ Health and Human Services 1 ....................................................................................... Health and Human Services, exempt FTEs ................................................................. Social Security Administration 2 .................................................................................... Housing and Urban Development ................................................................................. Interior ............................................................................................................................ Justice ............................................................................................................................ Labor .............................................................................................................................. State ............................................................................................................................... Transportation ................................................................................................................ Treasury ......................................................................................................................... Veterans Affairs 1 ........................................................................................................... Veterans Affairs, exempt FTEs ..................................................................................... Other agencies (excluding Postal Service): Agency for International Development 1 ....................................................................... Agency for International Development, exempt FTEs ................................................. Corps of Engineers ....................................................................................................... Environmental Protection Agency ................................................................................. Equal Employment Opportunity Commission ............................................................... Federal Emergency Management Agency ................................................................... Federal Deposit Insurance Corp./Resolution Trust Corp. ............................................ General Services Administration ................................................................................... National Aeronautics and Space Administration .......................................................... National Archives and Records Administration ............................................................ National Labor Relations Board .................................................................................... National Science Foundation ........................................................................................ Nuclear Regulatory Commission ................................................................................... Office of Personnel Management ................................................................................. Panama Canal Commission .......................................................................................... Peace Corps .................................................................................................................. Railroad Retirement Board ............................................................................................ Securities and Exchange Commission ......................................................................... Small Business Administration ...................................................................................... Smithsonian Institution .................................................................................................. Tennessee Valley Authority .......................................................................................... United States Information Agency ................................................................................ All other small agencies ................................................................................................ 115.6 36.7 931.3 5.0 20.6 64.5 0.5 65.4 13.6 79.3 99.4 18.3 26.0 70.3 166.1 227.0 5.4 114.4 36.1 931.8 4.9 20.3 65.6 0.5 64.8 13.3 78.1 95.4 18.0 25.6 69.1 161.1 229.1 5.1 109.8 36.0 868.3 4.8 19.8 62.9 0.5 64.5 13.1 76.3 95.3 17.5 25.2 66.4 157.3 227.7 5.4 108.9 36.0 834.1 5.1 20.5 62.3 0.5 64.9 12.9 76.3 102.0 17.6 25.0 65.2 161.4 224.4 5.5 108.1 35.7 800.6 5.1 20.8 61.4 0.4 64.0 12.6 76.2 109.2 17.9 24.8 64.4 162.2 224.4 5.7 –7.6 –1.0 –130.8 * 0.2 –3.1 * –1.4 –1.0 –3.2 9.8 –0.4 –1.3 –5.9 –3.9 –2.7 0.3 –6.6% –2.8% –14.0% 0.7% 1.0% –4.8% –4.1% –2.1% –7.2% –4.0% 9.9% –2.2% –4.8% –8.4% –2.4% –1.2% 6.3% 4.4 ............ 29.2 18.6 2.9 2.7 21.6 20.6 25.7 2.8 2.1 1.3 3.4 6.2 8.7 1.3 1.9 2.7 4.0 5.9 19.1 8.7 16.1 4.1 ............ 28.4 17.9 2.8 4.0 21.9 20.2 24.9 2.6 2.1 1.2 3.4 5.9 8.5 1.2 1.8 2.7 5.6 5.5 17.3 8.3 15.4 3.9 * 27.9 17.6 2.8 4.9 20.0 19.5 23.9 2.6 2.1 1.2 3.3 5.3 8.5 1.2 1.7 2.7 6.3 5.4 18.6 8.1 14.4 3.8 * 27.7 18.9 2.9 3.9 16.3 16.9 23.3 2.5 2.1 1.3 3.2 5.5 8.8 1.2 1.6 2.9 6.1 5.5 16.6 8.0 16.0 3.8 * 27.4 18.9 3.2 4.0 12.3 15.5 23.2 2.5 2.1 1.3 3.2 5.5 8.9 1.2 1.5 3.1 4.8 5.5 16.4 8.1 15.9 –0.6 ............ –1.9 0.3 0.4 1.3 –9.3 –5.1 –2.5 –0.3 * –0.1 –0.2 –0.7 0.2 –0.1 –0.3 0.4 0.7 –0.3 –2.7 –0.6 –0.2 –13.1% .............. –6.3% 1.7% 12.7% 46.4% –43.1% –24.9% –9.7% –10.4% –1.4% –5.7% –6.4% –11.9% 2.8% –2.0% –17.4% 14.4% 18.5% –5.7% –14.1% –7.1% –1.3% Total, Executive Branch civilian employment ............................................................. Total, Defense .................................................................................................................... Total, Non-Defense ............................................................................................................ FTEs exempt from Ceiling ................................................................................................. Total, Executive Branch subject to Ceiling ....................................................................... FTE Ceiling 3 ...................................................................................................................... 2,155.2 931.3 1,223.9 ............ ............ ............ 2,138.8 931.8 1,207.1 ............ ............ ............ 2,052.7 868.3 1,184.4 5.9 2,047.0 2,084.6 2,017.8 834.1 1,183.7 6.0 2,011.8 2,043.3 1,981.9 800.6 1,181.3 6.1 1,975.8 2,003.3 –173.3 –130.7 –42.6 ............ ............ ............ –8.0% –14.0% –3.5% .............. .............. .............. Total FTE reduction from the 1993 base ..................................................................... ............ –16.4 –102.5 –137.5 –173.3 ............ * Less than 50 FTEs. 1 The Departments of Health and Human Services, Veterans Affairs, and the Agency for International Development have components that are exempt from FTE controls. 2 The Social Security Administration will become a separate agency in 1995. 3 FTE limitations are set for the Executive Branch in the Federal Workforce Restructuring Act of 1994 (P.L. 103–226). 4 FTE data are reported to OPM by pay period, and allocated to fiscal year based on the period end date. 1995 FTE numbers have been adjusted to represent the same number of pay periods (26) as in 1993, 1994, and 1996. Without this adjustment for the September 18 to October 1, 1994 pay period, the 1995 total would have been higher by approximately 41,000 FTEs. 12. 181 FEDERAL EMPLOYMENT TABLE 12–2. TOTAL FEDERAL EMPLOYMENT (As measured by total positions filled) Actual as of September 30 Description Percent change: 1992 to 1994 1992 1993 1994 Executive branch civilian employment: All agencies except Postal Service and Postal Rate Commission: Full-time permanent .............................................................................................. Other than full-time permanent 2 .......................................................................... 1,946,522 280,256 1,892,290 264,500 1,831,671 253,767 –5.9% –9.5% Subtotal ............................................................................................................. 2,226,778 2,156,790 2,085,438 –6.3% Postal Service: 1 Full-time permanent ................................................................................................... Other than full-time permanent ................................................................................. 627,068 164,981 623,088 167,252 634,878 187,876 1.2% 13.9% Subtotal .................................................................................................................. 792,049 790,340 822,754 3.9% Subtotal, executive branch civilian employment ....................................................... 3,018,827 2,947,130 2,908,192 –3.7% Military personnel on active duty: 3 Department of Defense ............................................................................................. Department of Transportation (Coast Guard) ........................................................... 1,808,131 39,469 1,705,103 39,234 1,610,490 37,474 –10.9% –5.1% Subtotal, military personnel ................................................................................... 1,847,600 1,744,337 1,647,964 –10.8% Subtotal, Executive Branch .............................................................................. 4,866,427 4,691,467 4,556,156 –6.4% Legislative branch: Full-time permanent ................................................................................................... Other than full-time permanent ................................................................................. 16,740 21,769 16,460 21,798 15,066 20,291 –10.0% –6.8% Subtotal, Legislative Branch ................................................................................. 38,509 38,258 35,357 –8.2% Judicial Branch: Full-time permanent ................................................................................................... Other than full-time permanent ................................................................................. 25,488 2,499 25,900 2,220 25,907 2,128 1.6% –14.8% Subtotal, Judicial Branch ...................................................................................... 27,987 28,120 28,035 0.2% Grand total ..................................................................................................................... 4,932,923 4,757,845 4,619,548 –6.4% Executive branch civilian personnel (excluding Postal Service): DOD-Military functions 4 ............................................................................................. All other executive branch ......................................................................................... 951,576 1,275,202 890,628 1,266,162 850,137 1,235,301 –10.7% –3.1% Total 5 ..................................................................................................................... 2,226,778 2,156,790 2,085,438 –6.3% ADDENDUM 1 Includes Postal Rate Commission. 2 Includes Summer Aides, Stay-in-school, Junior Fellowship, Worker-Trainee Opportunity Program, formerly exempt from employment controls. 3 Excludes reserve components. 4 Excludes Defense Intelligence Agency. 5 Includes disadvantaged youth programs. 182 ANALYTICAL PERSPECTIVES Table 12–3. TOTAL FEDERAL EMPLOYMENT (As measured by Full-Time Equivalents) Estimate Description 1994 actual 1995 1996 Percent change: 1994 to 1996 Executive branch civilian personnel: All agencies except Postal Service and Defense ................................................ Defense-Military functions (civilians) ..................................................................... 1,184,449 868,292 1,183,655 834,105 1,181,311 800,580 –0.3% –7.8% Subtotal, excluding Postal Service .............................................................. Postal Service 1 .................................................................................................... 2,052,741 786,608 2,017,760 802,176 1,981,891 813,599 –3.4% 3.4% Subtotal, Executive Branch civilian personnel ............................................. 2,839,349 2,819,936 2,795,490 –1.5% Executive branch uniformed personnel: 2 Department of Defense ......................................................................................... Department of Transportation (Coast Guard) ...................................................... 1,659,127 38,467 1,561,624 38,270 1,496,054 37,452 –9.8% –2.6% Subtotal, uniformed military personnel ........................................................ 1,697,594 1,599,894 1,533,506 –9.7% Subtotal, Executive Branch .......................................................................... 4,536,943 4,419,830 4,328,996 4.6% Legislative Branch: 3 Total FTE .................................................................................... 35,746 35,340 34,924 –2.3% Judicial branch: Total FTE ............................................................................................ 27,368 29,007 30,665 12.0% Grand total .................................................................................................. 4,600,057 4,484,177 4,394,585 –4.5% 1 Includes 2Military 3 Actual Postal Rate Commission. personnel on active duty. Excludes reserve components. Data shown are average strength. 1994 FTE data not available for legislative branch. Data shown are estimates. 12. 183 FEDERAL EMPLOYMENT TABLE 12–4. PERSONNEL COMPENSATION AND BENEFITS (In millions of dollars) Estimate Description 1994 actual Percent change: 1994 to 1996 1995 1996 33,374 51,009 32,722 52,751 32,287 54,487 –3.3% 6.8% Subtotal, direct compensation ...................................................................... Personnel benefits: DOD—military functions .................................................................................... All other executive branch 1 ............................................................................. 84,383 85,473 86,774 2.8% 7,323 19,420 6,799 20,317 6,834 21,066 –6.7% 8.5% Subtotal, personnel benefits ......................................................................... 26,743 27,116 27,900 4.3% Subtotal, executive branch ...................................................................... 111,126 112,589 114,674 3.2% Postal Service: Direct compensation .............................................................................................. Personnel benefits ................................................................................................. 30,781 7,765 31,878 8,797 32,988 9,404 7.2% 21.1% Subtotal ............................................................................................................. 38,546 40,675 42,392 10.0% Legislative Branch: 2 Direct compensation .............................................................................................. Personnel benefits ................................................................................................. 786 154 798 162 850 172 8.1% 11.7% Civilian personnel costs: Executive Branch (excluding Postal Service): Direct compensation: DOD—military functions .................................................................................... All other executive branch ................................................................................ Subtotal ............................................................................................................. Judicial Branch: Direct compensation .............................................................................................. Personnel benefits ................................................................................................. 940 960 1,022 8.7% 1,264 312 1,427 365 1,473 383 16.5% 22.8% Subtotal ............................................................................................................. Total, civilian personnel costs .......................................................................... 1,576 152,188 1,792 156,016 1,856 159,944 17.8% 5.1% Military personnel costs: Direct compensation .................................................................................................. Personnel benefits ..................................................................................................... 52,051 20,206 51,075 17,479 50,324 16,122 –3.3% –20.2% Subtotal ............................................................................................................. All other executive branch, uniformed personnel: Direct compensation .................................................................................................. Personnel benefits ..................................................................................................... 72,257 68,554 66,446 –8.0% 1,138 112 1,156 111 1,159 112 1.8% % Subtotal ............................................................................................................. 1,250 1,267 1,271 1.7% Total, military personnel costs 3 ........................................................................... 73,507 69,821 67,717 –7.9% Grand total, personnel costs ......................................................................................... 225,695 225,837 227,661 0.9% 37,008 38,545 40,356 9.0% 3,990 16 3,880 25 4,089 31 2.5% 87.5% 41,014 42,450 44,476 8.4% 27,330 27,894 28,587 4.6% ADDENDUM Former Civilian Personnel: Retired pay for former personnel .............................................................................. Government payment for Annuitants: Employee health benefits ................................................................................. Employee life insurance ................................................................................... Total Former Civilian Personnel ........................................................................... Former Military personnel: Retired pay for former personnel .............................................................................. 1 In addition to the employing agency’s contribution to the costs of life and health insurance, retirement and Medicare Hospital insurance, this amount includes transfers from general revenues to amortize the effects of general pay increases on Federal retirement systems for employees in the Legislative and Judicial Branches as well as employees (non-Postal) in the Executive Branch and to amortize supplemental liabilities under FERS. The transfers amounted to $7,394 million in 1994 and are estimated to be $7,644 million in 1995 and $8,179 million in 1996. 2 Excludes members and officers of Congress. 3 Excludes reserve components. FEDERAL BORROWING AND DEBT 185 13. FEDERAL BORROWING AND DEBT Debt is the largest legally binding obligation of the Federal Government. At the end of 1994 the Government owed $3,432.2 billion of principal to the people who had loaned it the money to pay for past deficits. The gross Federal debt, including the amount held by trust funds and other Government accounts, was $4,643.7 billion. This year the Government is estimated to pay about $226 billion of interest to the public on its debt. The present deficit is continuing to increase the amount of debt. However, the Omnibus Budget Reconciliation Act of 1993 and the strong economic expansion are reducing the size of the deficit, and the Administration’s proposals in this budget are estimated to restrain it further and to reduce it as a share of the Nation’s gross domestic product (GDP). TABLE 13–1. Trends in Federal Debt Federal debt held by the public has increased by almost five times since 1980, as shown in Table 13–1. In 1980 it was $709.8 billion; by the end of 1994 it stood at $3,432.2 billion. The data in this table are supplemented for earlier years by Tables 7.1–7.3 in Historical Tables, which is published as a separate volume of the budget. At the end of World War II, Federal debt was more than 100 percent of GDP. From then until the 1970s, Federal debt grew gradually, but, due to inflation, it declined significantly in real terms. Because of an expanding economy as well as inflation, Federal debt as a percentage of GDP decreased almost every year. With households borrowing heavily to buy homes and consumer durables, and with businesses borrowing heavily to buy plant and equipment, Federal debt also decreased almost every year as a percentage of the TRENDS IN FEDERAL DEBT HELD BY THE PUBLIC (Dollar amounts in billions) Debt held by the public Current dollars Constant 1987 dollars 1 Debt held by the public as a percent of: GDP Credit market debt 2 Interest on debt held by the public as a percent of: 3 Total outlays GDP 1950 1955 1960 1965 1970 1975 ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... 219.0 226.6 236.8 260.8 283.2 394.7 1,094.2 1,001.4 907.7 922.1 818.2 829.6 82.4 58.9 46.9 38.9 28.7 26.1 55.3 43.4 33.8 26.9 20.8 18.4 11.4 7.6 8.5 8.1 7.9 7.5 1.8 1.3 1.5 1.4 1.6 1.7 1980 1981 1982 1983 1984 ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... 709.8 785.3 919.8 1,131.6 1,300.5 1,005.7 1,001.0 1,100.9 1,300.4 1,431.5 26.8 26.5 29.5 34.1 35.2 18.6 18.7 20.0 22.1 22.4 10.6 12.1 13.6 13.8 15.7 2.4 2.8 3.2 3.4 3.6 1985 1986 1987 1988 1989 ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... 1,499.9 1,736.7 1,888.7 2,050.8 2,189.9 1,590.2 1,788.2 1,888.7 1,979.0 2,022.1 37.8 41.2 42.4 42.7 42.3 22.7 23.0 22.7 22.6 22.2 16.2 16.1 16.0 16.2 16.5 3.9 3.8 3.6 3.6 3.7 1990 1991 1992 1993 1994 ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... ........................................................................................................................... 2,410.7 2,688.1 2,998.8 3,247.5 3,432.2 2,134.3 2,285.1 2,475.9 2,618.9 2,714.7 44.0 47.4 50.6 51.9 51.7 22.9 24.4 25.9 26.7 26.7 16.2 16.2 15.5 14.9 13.4 3.7 3.8 3.6 3.4 2.9 1995 1996 1997 1998 1999 2000 estimate estimate estimate estimate estimate estimate 3,640.1 3,857.3 4,101.2 4,334.9 4,571.2 4,805.4 2,674.4 2,726.3 2,779.3 2,840.3 2,899.4 2,947.3 51.8 52.1 52.5 52.6 52.5 52.3 14.7 15.4 15.5 15.6 15.7 15.5 3.2 3.3 3.3 3.3 3.3 3.2 ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ............................................................................................................ ...................... ...................... ...................... ...................... ...................... ...................... 1 Debt in current dollars deflated by the GDP deflator with FY 1987 = 100. 2 Total credit market debt owed by domestic nonfinancial sectors, modified to be consistent with budget concepts for the measurement of Federal debt. Financial sectors are omitted to avoid double counting, since financial intermediaries both borrow and lend in the credit market. Source: Federal Reserve Board flow of funds accounts. Projections are not available. 3 Interest on debt held by the public is estimated as the interest on the public debt less the ‘‘interest received by trust funds’’ (subfunction 901 less subfunctions 902 and 903). It does not include the comparatively small amount of interest on agency debt or the offsets for other interest received by Government accounts. 187 188 total credit market debt outstanding. The cumulative effect of this was impressive. From 1950 to 1975, debt held by the public declined from 82.4 percent of GDP to 26.1 percent, and from 55.3 percent of credit market debt to 18.4 percent. At the same time, despite rising interest rates, interest outlays became a smaller share of the budget and were roughly stable as a percentage of GDP. During the 1970s, large budget deficits emerged as the economy was disrupted by oil shocks and inflation. The nominal amount of Federal debt more than doubled, and, despite high inflation, the real value of Federal debt increased by almost a fourth. The ratios of Federal debt to GDP and credit market debt stopped declining after the middle of the decade. The growth of Federal debt held by the public accelerated during the early 1980s due to very large budget deficits. Since the deficits have continued to be large, debt has continued to grow substantially, although the rate of increase has been slowed. With inflation reduced, the rapid growth in nominal debt has meant a rapid growth in real debt as well. The ratio of Federal debt to GDP rose from 26.8 percent in 1980 to 51.9 percent in 1993, the highest ratio since 1956. The ratio of Federal debt to credit market debt also rose, though to a much lesser extent, from 18.6 percent to 26.7 percent. Interest outlays on debt held by the public, calculated as a percentage of both total Federal outlays and GDP, increased by about a half. Federal debt held by the public increased more slowly in 1994 than in any year since 1979, and it declined slightly in relationship to GDP and total credit market debt. Table 13–1 shows that debt as a percentage of GDP is estimated to remain at about the same level through the year 2000. This improvement reflects the $505 billion package of spending cuts and tax increases over the period 1994-98 that were enacted by the Omnibus Budget Reconciliation Act of 1993. It also reflects the deficit reducing proposals in this budget and the continuing economic expansion. Interest outlays on the debt are estimated to rise this year relative to total outlays and GDP but to stabilize relative to these indicators over most of the rest of the decade. Debt Held by the Public and Gross Federal Debt The Federal Government issues debt for two principal purposes. First, it borrows from the public in order to finance the Federal deficit. Second, it issues debt to Government accounts, primarily trust funds, that accumulate surpluses. By law, most trust fund surpluses must be invested in Federal securities. The gross Federal debt is defined to consist of both the debt held by the public and the debt held by Government accounts. Nearly all the Federal debt has been issued by the Treasury and is formally called ‘‘public debt,’’ but a small portion has been issued by other Government agencies and is called ‘‘agency debt.’’ 1 1 The term ‘‘agency debt’’ is defined more narrowly in the budget than in the securities market, where it includes not only the debt of the Federal agencies listed in Table 13–3 ANALYTICAL PERSPECTIVES Borrowing from the public, whether by the Treasury or some other Federal agency, has a significant impact on the economy. Borrowing from the public is normally a good approximation to the Federal demand on credit markets. Even if the proceeds are used productively for tangible or intangible investment, the Federal demand on credit markets has to be financed out of the saving of households and businesses, the State and local sector, or the rest of the world.2 Borrowing from the public moreover affects the size and composition of assets held by the private sector and the perceived wealth of the public. It also affects the amount of taxes required to pay interest to the public on Federal debt. Borrowing from the public is therefore an important concern of Federal fiscal policy. Issuing debt securities to Government accounts is an essential element in accounting for the operation of these funds. The balances of debt represent the cumulative surpluses of these funds due to the excess of their tax receipts and other collections compared to their spending. These balances can be used in later years to finance future payments to the public. The interest on this debt compensates these funds)—and the members of the public who pay earmarked taxes or user fees into these funds—for spending some of their income at a later time than when they receive it. Public policy may deliberately run surpluses and accumulate debt in trust funds and other Government accounts in order to finance future spending (as in the case of social security) or to measure the accruing cost of employee pension compensation (in the case of the military and new civilian employees). However, issuing debt to Government accounts does not have any of the economic effects of borrowing from the public. It is an internal transaction between two accounts, both within the Government itself. It does not represent either current transactions of the Government with the public or an estimated amount of future transactions with the public. For example, if the account records the transactions of a retirement program, the debt that it holds does not represent the actuarial present value of future benefits. The future transactions of Federal social insurance and retirement programs, which own over four-fifths of the debt held by Government accounts, are important in their own right and need to be considered separately; this can be done through information published in actuarial and financial reports.3 Debt held by the public is therefore a better concept than gross Federal debt for analyzing the effect of the budget on the economy.4 but also the debt of the Government-sponsored enterprises listed in Table 9–12 at the end of Chapter 9 and certain Government-guaranteed securities. 2 The Federal sector of the national income and product accounts is a better measure of the deficit for analyzing the effect of Federal fiscal policy on national saving than is the budget deficit or Federal borrowing from the public. The Federal sector and its differences from the budget are discussed in Chapter 19. 3 A summary of actuarial estimates for many of these programs is prepared annually by the Financial Management Service, Department of the Treasury, in ‘‘Statement of Liabilities and Other Financial Commitments of the United States Government.’’ The estimates in that report are not, however, all comparable in concept or actuarial assumptions. 4 Debt held by the public was measured until recent years as the par value (or face value) of the security, which is the principal amount due at maturity. The only exception was savings bonds. However, most Treasury securities are sold at a discount from par, and some are sold at a premium. Treasury debt held by the public is now measured as the sales prices plus the unamortized discount (or less the unamortized premium). At 13. 189 FEDERAL BORROWING AND DEBT TABLE 13–2. FEDERAL GOVERNMENT FINANCING AND DEBT 1 (In billions of dollars) 1994 Actual Estimate 1995 1996 1997 1998 1999 2000 –192.5 –251.8 59.3 –196.7 –262.0 65.3 –213.1 –284.5 71.4 –196.4 –274.8 78.4 –197.4 –283.3 85.9 –194.4 –288.6 94.2 FINANCING Surplus or deficit (–) ................................................................................................................................................... (On-budget) ............................................................................................................................................................. (Off-budget) ............................................................................................................................................................. Means of financing other than borrowing from the public: Change in: 2 Treasury operating cash balance ...................................................................................................................... Checks outstanding, etc. 3 ................................................................................................................................. Deposit fund balances ........................................................................................................................................ Seigniorage on coins .............................................................................................................................................. Less: Net financing disbursements: Direct loan financing accounts ........................................................................................................................... Guaranteed loan financing accounts ................................................................................................................. –203.2 –258.8 55.7 16.6 2.5 1.1 0.7 –4.1 ............ ............ ............ ............ ............ –2.1 0.3 ............ ............ ............ ............ 0.1 –1.4 ............ ............ ............ ............ 0.6 0.7 0.6 0.6 0.6 0.6 –5.8 3.4 –11.3 1.4 –21.8 1.7 –30.7 –0.7 –36.3 –1.7 –38.0 –1.4 –39.5 –1.0 Total, means of financing other than borrowing from the public ................................................................. 18.4 –15.4 –20.5 –30.8 –37.4 –38.8 –39.8 Total, requirement for borrowing from the public ......................................................................................... –184.7 –207.9 –217.2 –243.9 –233.8 –236.2 –234.3 Change in debt held by the public .................................................................................................................... 184.7 207.9 217.2 243.9 233.8 236.2 234.3 DEBT, END OF YEAR 1 Gross Federal debt: Debt issued by Treasury ........................................................................................................................................ Debt issued by other agencies .............................................................................................................................. 4,615.5 4,934.7 5,272.3 5,630.1 5,978.7 6,331.4 6,685.8 28.3 26.8 27.3 26.3 26.3 26.3 26.3 Total, gross Federal debt .............................................................................................................................. Held by: Government accounts ............................................................................................................................................. The public ............................................................................................................................................................... (Federal Reserve Banks) ................................................................................................................................... (Other) ................................................................................................................................................................. 4,643.7 4,961.5 5,299.6 5,656.3 6,004.9 6,357.8 6,712.1 1,211.5 3,432.2 355.2 3,077.1 DEBT SUBJECT TO STATUTORY LIMITATION, END OF YEAR Debt issued by Treasury ............................................................................................................................................. Less: Treasury debt not subject to limitation 4 .......................................................................................................... Agency debt subject to limitation ............................................................................................................................... Adjustment for discount and premium 5 .................................................................................................................... 4,615.5 4,934.7 5,272.3 5,630.1 5,978.7 6,331.4 6,685.8 –15.6 –15.6 –15.6 –15.6 –15.6 –15.6 –15.6 0.1 0.1 0.1 0.1 0.1 0.1 0.1 5.4 5.4 5.4 5.4 5.4 5.4 5.4 Total, debt subject to statutory limitation6 ....................................................................................................... 4,605.3 4,924.6 5,262.2 5,619.9 5,968.6 6,321.3 6,675.7 1,321.4 3,640.1 ............ ............ 1,442.3 3,857.3 ............ ............ 1,555.2 4,101.2 ............ ............ 1,670.0 4,334.9 ............ ............ 1,786.6 4,571.2 ............ ............ 1,906.7 4,805.4 ............ ............ 1 Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost entirely measured at sales price plus amortized discount or less amortized premium. Agency debt is almost entirely measured at face value. Treasury securities in the Government account series are measured at face value less unrealized discount (if any). 2 A decrease in the Treasury operating cash balance (which is an asset) is a means of financing the deficit. It therefore has a positive sign, which is opposite to the sign of the deficit. An increase in checks outstanding or deposit fund balances (which are liabilities) is also a means of financing the deficit and therefore also has a positive sign. 3 Besides checks outstanding, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocations of special drawing rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale of gold. 4 Consists primarily of Federal Financing Bank debt. 5 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized discounts on Government account series securities. 6 The statutory debt limit is $4,900 billion. Borrowing and Government Deficits Table 13–2 summarizes Federal borrowing and debt from 1994 through 2000. In 1994 the borrowing from the public was $184.7 billion, and Federal debt held by the public increased to $3,432.2 billion. The issuance of debt to Government accounts was $107.6 billion, and gross Federal debt increased to $4,643.7 billion. Borrowthe time of sale, the value equals the sales price. Subsequently, the value equals the sales price plus the amount of the discount that has been amortized up to that time. In equivalent terms, the value equals par less the unamortized discount. (For a security sold at a premium, the definition is symmetrical.) Agency debt, except for zero-coupon certificates, is recorded at par. For further analysis of the concepts, see Special Analysis E, ‘‘Borrowing and Debt,’’ in Special Analyses, Budget of the United States Government, Fiscal Year 1990, pp. E–5 to E–8, although some of the practices it describes have been changed. ing from the public is estimated to be $217.2 billion in 1996. Borrowing from the public depends both on the Federal Government’s expenditure programs and tax laws and on economic conditions. The sensitivity of the budget to economic conditions is analyzed in Chapter 1 of this volume. Debt held by the public.—Table 13–2 shows the relationship between borrowing from the public and the Federal deficit. The total deficit of the Federal Government includes not only the budget deficit but also the surplus or deficit of the off-budget Federal entities, which have been excluded from the budget by law. Under present law the off-budget Federal entities are 190 the social security trust funds (old-age and survivors insurance and disability insurance) and the Postal Service fund.5 Since they had a large combined surplus in 1994 and are estimated to have even larger surpluses over the next few years, they reduce the requirement for Treasury to borro
@FedFRASER